During his weekly address to the nation on Saturday, President Obama announced that he will seek more than $300 billion in additional cuts from Medicare and Medicaid payments to help finance health care reform.

Two-thirds of the new proposed spending cuts come from hospital payments.  The President proposed $106 billion in ‘savings’ by cutting the Medicare and Medicaid DSH programs by 75 percent.  In addition, the President proposed $110 billion in ‘savings’ by reducing inflationary updates with an annual ‘productivity adjustment,’ the greatest impact on hospitals.

These ‘savings’ are in addition to the President’s FY2010 budget proposal to cut Medicare and Medicaid spending by $309 billion. They are also in addition to the $38 billion in previously announced reform-related cuts, and $41 billion in cuts in the proposed FY 2010 inpatient PPS rule.

IHA will be analyzing the proposal’s specifics and determining as best possible the Iowa impact. IHA will also be coordinating our messages and advocacy strategy with AHA.  Please stay tuned for next action steps on this important issue.

Barack Obama was in Green Bay, Wisconsin today because of the high value hospitals there have exhibited in terms of controlling medical spending while also providing good outcomes.  The trip is a direct response to the president’s recently acquired affection for the Dartmouth Atlas of Health Care, which does an outstanding job of measuring health care value and clearly shows that there is immense waste in U.S. health care spending.

We wrote about that earlier and noted, as the New York Times did, that Iowa is also a high-value state.  How does Iowa compare to Green Bay?  Well, a few minutes spent working with Dartmouth’s data tables revealed that the president chose well, but he could have done better by coming to Dubuque…or Mason City…or Iowa City…or Cedar Rapids.

When looking at Medicare spending during the last two years of a Medicare recipient’s life, a key measure in the Dartmouth report and in the Post story, the hospitals in those Iowa cities spend less than Green Bay, which came in at $33,334.  And the hospitals in Sioux City and even Des Moines – and the average for all of Iowa – were only about $500 higher. Overall, Iowa ($33,864) is a significantly better value than Wisconsin ($37,217).  (The national average is $46,412, while the average in the president’s hometown of Chicago is $62,565).

Patients in Dubuque and Mason City also spent less time in the hospital than in Green Bay, and patients in Mason City and Iowa City spent less time in intensive care units.  Patients in Mason City, Sioux City and Iowa City also had fewer visits with medical specialists, which helps keep costs lower.

Obviously, there are other factors at work to bring the president to Green Bay (including access to media).  But know this:  When the president talks about doing medicine the right way – the high-value way – he’s also talking about Iowa.

The particulars of health care policy can build a steep learning curve, but there is one tidbit of information that IHA and our hospitals have done a good job of communicating – the fact that, on a per-beneficiary basis, Medicare spends less in Iowa than just about any other state in the union.  This is well known in Iowa and among our Congressional Delegation, but it hasn’t garnered much attention in the media – until now.

The New York Times has published a story focused on the geographic spending disparities within the Medicare program, the central point being that Medicare spends much more money in some parts of the country than in others with no real benefit to patients.  In Iowa, for example, the cost in 2006 was $6,572 per beneficiary, while in New York it was $9,564.  Even more startling is the fact that per-beneficiary costs within states can be even more extreme and inexplicable; in Miami, the cost is more than $16,000 per beneficiary, while the Florida average is a not-quite-as-outrageous $9,379.

All of this has captured the attention of Washington in general and the White House in particular, as the Times points out:

President Obama recently summoned aides to the Oval Office to discuss a magazine article investigating why the border town of McAllen, Texas, was the country’s most expensive place for health care.  The article became required reading in the White House, with Mr. Obama even citing it at a meeting last week with two dozen Democratic senators.

“He came into the meeting with that article having affected his thinking dramatically,” said Senator Ron Wyden, Democrat of Oregon. “He, in effect, took that article and put it in front of a big group of senators and said, ‘This is what we’ve got to fix.’ ”

More spending does not provide better results

This would all be academic if Medicare enrollees were somehow benefiting from living in these high-spending areas, but research has shown otherwise.

For years, scientists at the Dartmouth Atlas of Healthcare have collected and analyzed the data and concluded that more spending does not provide better results.  Certainly, it doesn’t mean higher quality of life, because more spending means patients are subjected to more visits to the hospital, more consultations with different specialists and more testing.

Still, there are those who would cloud this conclusion by arguing that the extra spending has some kind of benefit, as the Times found in the person of Massachusetts Senator John Kerry, who said:

“States like Massachusetts are concentrated centers of medical innovation where cutting-edge treatments are tested and some of the nation’s finest doctors are trained…This work might cost a little more, but it benefits the entire country.”

When compared to Iowa, that “little more” is $2,800 per year for each of Massachusetts’ 1 million Medicare beneficiaries – enough to cover 85 percent of the entire cost of Medicare in Iowa.  And even if Kerry’s explanation holds true for “cutting-edge” states like Massachusetts, what is his explanation for Louisiana, which spends even more, or Minnesota, home to the renowned Mayo Clinic, which spends almost as little as Iowa?

Why does this matter?  Well, for one thing, it means taxpayers in low-cost states are subsidizing the wasteful spending habits of high-cost states.

But in the context of health care reform, the larger issue is saving money by reforming the way Medicare pays physicians and hospitals.  As we’ve noted before, Medicare pays for volume, not value.  The more care that is provided, the more Medicare pays, with no regard to the quality of that care.

Hospitals support an approach that rewards value

Iowa’s hospitals want Medicare to take an approach that, while certainly more sophisticated and subjective, is simply prioritizing what every consumer prioritizes in the marketplace – real value.  Such an approach would save Medicare billions of dollars.

You can read the particulars in IHA’s position paper that supports the currently proposed concept of value-based purchasing in the Medicare program.

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.