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| The necessity to offset insanely low negotiated | and subsidized Medicare/Medicaid rates My understanding is that insurance companies often get rates lower

by pyre 13y ago

| The necessity to offset insanely low negotiated | and subsidized Medicare/Medicaid rates My understanding is that insurance companies often get rates lower than Medicare. It goes something like this: 1) Government mandates the rates for procedure X to make sure that the government is getting the 'best' deal. 2) Hospitals charge insurance companies using these rates (they aren't allowed to be lower, or it wouldn't be the 'best' deal). 3) Insurance companies trim the difference between the Medicare rate and the real rate from the bill with newspeak like, "charge beyond negotiated rates," or, "over-charge of contractual limits." It basically amounts to the hospital charging the 'correct' rate, the insurance company refusing to pay that rate, and the hospital not pushing it any further since this is all laid out in their formal agreements. So, I'm not sure if Medicare can be said to have 'insanely low' rates, if the insurance companies end up with even lower rates. (I'd love for someone to correct me if my understanding is wrong, though)

deleted 13y ago
[deleted]
zaroth 13y ago
As it was explained to me by the CFO of a major hospital, you are incorrect. Hospitals would be out of of business if their average revenue per procedure was equal to the Medicare rates per procedure. But that's not to say that hospitals are "losing money" on every Medicare patient, it's much more complicated. Running a hospital is like running an airline, there are extraordinary fixed costs just to open the doors, regardless if any patients (aka customers) show up. When you have high fixed and low variable cost, if you are operating below capacity then the marginal cost to serve 'just one more patient' is low, and so providing the service at Medicare rates results in net income, all else equal. Of course the money for the fixed costs eventually has to come from somewhere. Right now, that comes largely from private donations, and rate shifting (higher rates for the privately insured and uninsured). Simply put it comes down to buying power. No one buys more than Medicare, so it's not surprising that they get the best rates.
- zanny 13y ago
  > No one buys more than Medicare, so it's not surprising that they get the best rates. It is almost as if a public option might be economically efficient.
  - bmmayer1 13y ago
    Not at all, because when you have monopsony pricing you end up below market price, which drives marginal producers out of business and ends up reducing supply. It's the same reason the argument for the government buying up all the food and distributing it doesn't work: because no one would go into a business where they are guaranteed to make a loss.
    - robbiep 13y ago
      Except this isn't the international experience. In Aus we have a mixed public private system- everyone is treated free but if you want an elective procedure or to see a doctor of your own choice you can pay to do so. I have private health insurance and it costs me $1,500 a year (get dental and optical rebates etc, if I was to require serious treatment it would cover anything under the sun to be done my way) We have public hospital elective surgery waiting lists but the upside is people with no money can actually get the medical treatment they deserve in order to live functional lives. I have been involved (as a medical student) in the us system- I know a little about it- and the creation of 'the medical poor' - there are probably better terms for it but basically those unable to get the treatment they need and thus unable to live their lives as functionally as possible - strikes me as sad and unjust. BTW any comment along the lines of 'but doctors don't get paid for their services so less people will be willing to do it' - next year I will be practicing, in 4 years I can expect to be earning $150,000 and in 10-15 I will expect to be earning $350,000 inflation adjusted. More than enough for a comfortable life in my chosen specialty

by pyre 13y ago

deleted 13y ago

[deleted]

zaroth 13y ago

As it was explained to me by the CFO of a major hospital, you are incorrect. Hospitals would be out of of business if their average revenue per procedure was equal to the Medicare rates per procedure. But that's not to say that hospitals are "losing money" on every Medicare patient, it's much more complicated. Running a hospital is like running an airline, there are extraordinary fixed costs just to open the doors, regardless if any patients (aka customers) show up. When you have high fixed and low variable cost, if you are operating below capacity then the marginal cost to serve 'just one more patient' is low, and so providing the service at Medicare rates results in net income, all else equal. Of course the money for the fixed costs eventually has to come from somewhere. Right now, that comes largely from private donations, and rate shifting (higher rates for the privately insured and uninsured). Simply put it comes down to buying power. No one buys more than Medicare, so it's not surprising that they get the best rates.

zanny 13y ago
> No one buys more than Medicare, so it's not surprising that they get the best rates. It is almost as if a public option might be economically efficient.
- bmmayer1 13y ago
  Not at all, because when you have monopsony pricing you end up below market price, which drives marginal producers out of business and ends up reducing supply. It's the same reason the argument for the government buying up all the food and distributing it doesn't work: because no one would go into a business where they are guaranteed to make a loss.
  - robbiep 13y ago
    Except this isn't the international experience. In Aus we have a mixed public private system- everyone is treated free but if you want an elective procedure or to see a doctor of your own choice you can pay to do so. I have private health insurance and it costs me $1,500 a year (get dental and optical rebates etc, if I was to require serious treatment it would cover anything under the sun to be done my way) We have public hospital elective surgery waiting lists but the upside is people with no money can actually get the medical treatment they deserve in order to live functional lives. I have been involved (as a medical student) in the us system- I know a little about it- and the creation of 'the medical poor' - there are probably better terms for it but basically those unable to get the treatment they need and thus unable to live their lives as functionally as possible - strikes me as sad and unjust. BTW any comment along the lines of 'but doctors don't get paid for their services so less people will be willing to do it' - next year I will be practicing, in 4 years I can expect to be earning $150,000 and in 10-15 I will expect to be earning $350,000 inflation adjusted. More than enough for a comfortable life in my chosen specialty