It’s certainly not news at IHA reading the headline from Kaiser Health News on June 2 stating “Low Medicare Reimbursement Rates Hurt Hospitals in Iowa…,” citing a television story that was run on KHQA 7 in southern Iowa profiling IHA member Keokuk Area Hospital and the millions lost in Medicare underpayments each year.

Keokuk’s situation with Medicare is not unique to their hospital

The article was well reported and outlined a variety of payment issues that are not unique to Keokuk and is not a recent nor fluke occurrence in Iowa.

In fact, the Medicare program has been underpaying hospitals for many years and even as the program’s publicly funded budget continues to increase (now nearing $1 trillion annually), the payment gap continues to widen because Medicare has not kept pace with inflation, let alone the increasing cost of providing health care.

The result of this payment gap is an inevitable cost shift that occurs when health care providers are forced to make up the difference by shifting the loss onto privately insured patients.

Consumers are paying for under-payments to hospitals by Medicare

In fact, a study conducted in 2008 by Milliman found that American consumers and employers were paying nearly $90 billion nationwide in additional health insurance premium payments due to the under-payments to hospitals and physicians by Medicare and Medicaid.  The study concluded that when government-subsidized health care underfunds health care providers the cost shift has a ripple effect through the rest of the health care system and:

• Adds an estimated $1,512, or 10.6 percent, to the average premium for a family of four.
• Of this amount, employers pay approximately $1,115 and the employee share is $397.
• Families pay an additional $276 more in coinsurance and deductibles due to the cost-shift.

This disparity in payment versus cost has been compounding annually for years and has left Iowa hospitals near the bottom in Medicare reimbursements.

Iowa hospitals lost $270 million in Medicare reimbursements in 2007

IHA’s data shows Iowa hospitals lost a combined $270 million in Medicare and Medicaid reimbursements (a figure that grows annually) in 2007.  And yet Iowa sits second in the nation in quality and cost.

Meanwhile, many states sit on the opposite end of the spectrum – spending much more money while providing inferior care.  This happens because Medicare and Medicaid don’t pay for quality; they just pay for volume.

Collaborative action is needed

The solution obviously falls upon shared responsibility and collaborative action.  A fix will come only with support of the government, the public and health care providers.

As health care reform legislation moves its way through Congress, hospitals have already demonstrated a commitment to redesign and rethink health care. Iowa hospitals are recognizing the waste and inefficiencies in the delivery of health care and becoming involved in a multi-industry collaborative that has agreed to reduce health care costs by 1.5 percentage points over the next 10 years to try and hold health care spending nationwide below 20 percent of the U.S. Gross Domestic Product.

Iowa hospitals are willing and able to change

Hospitals are committed to rethink, redesign and do their part to reduce costs, increase efficiency and continue to provide high value care to patients.  They simply ask that the government, as the nation’s largest health insurer, do the same.