AUGUSTA — The Press Herald’s May 14 editorial, “Our View: The shifting behind Maine health care costs,” used an analogy of a restaurant to try to explain hospital prices. We at the Maine Hospital Association like analogies. We use them because hospital finance is confusing. However, unless you know what you’re talking about, the analogy falls apart. Like an undercooked burger.
We’re not sure if the Editorial Board understands hospital finance, but I wouldn’t eat what they’re cooking.
The editorial stated: “Hospitals charge one set of prices for patients who are covered by Medicare, and another set for people covered by private insurance.”
That’s not quite true.
For most businesses, the seller, like a restaurant, sets the prices it charges its customers. All the customers get charged the same amount. They can take or leave it.
For hospitals, that’s not true.
Hospitals don’t “charge one set of prices for patients covered by Medicare.” We wish.
The amount hospitals are paid for services provided to Medicare patients is established by the federal government. We try to influence that amount – sometimes successfully, other times not – but hospitals don’t set Medicare prices. On average in Maine, hospitals receive reimbursement equal to 86 percent of the cost of providing care to Medicare patients. Medicare patients are almost half the patients treated in hospitals.
Similarly, for Medicaid patients, the state sets reimbursement amounts. Four years ago, hospitals didn’t cut their prices by 10 percent for Medicaid patients; the state slashed those rates and never restored them. In Maine, hospitals are reimbursed only 70 cents for every dollar it costs to treat Medicaid patients. One in 10 patients is a Medicaid patient.
Then there are the uninsured. For many, the state requires hospitals to provide their care for nothing. Free hamburgers. This represents roughly $100 million in hospital losses annually for the uninsured alone.
So far, we’ve discussed almost two-thirds of hospital patients in Maine. For none of them did hospitals “set prices.” Either the federal or state government set them. And in all cases, on average, the government has set these prices below the cost of providing the services.
Then along come the commercially insured, who generally receive coverage through their employers. For these individuals, hospitals have some control over prices. These prices are negotiated with the commercial insurance carriers. Sometimes the hospitals have more leverage; sometimes the carriers do.
Many people have policies requiring them to pay for their care via high deductibles. So, they have insurance, but don’t get to use it. When patients with insurance can’t afford their deductibles, and don’t pay, hospitals lose again. This situation represents another $150 million in losses to hospitals each year.
But yes, hospitals do charge commercially insured patients more than what hospitals are paid by Medicare, Medicaid and the uninsured.
Is the Rand Corp. study that spurred the editorial accurate? We don’t know. We haven’t seen the data.
The study’s key limitation is its small sample size. It looked at less than 5 percent of all people with health insurance in about half the states. That’s just 2 percent of the 181 million Americans with employer-sponsored insurance.
When discussing hospital prices and finances, we often ask people to start at the bottom line and work backward.
Collectively, hospitals in Maine had a bottom line of 1 percent in 2017-18. But that’s an average; 16 hospitals had negative operating margins – they lost money.
So, the commercial prices being charged – however high they are compared to cost, or to Medicare or to any other standard you use to criticize hospitals – contribute to a bottom line that is a hair’s breadth above solvency. And for 16 Maine hospitals, not even that amount. In fact, one hospital just filed for bankruptcy.
Maine hospitals understand that high health care costs are a challenge for local businesses. That’s why business leaders are on hospital governing boards. Local businesses have actual power, not just influence, over decisions hospitals make. We all need to keep working together on lowering health care costs. Businesses are a key partner.
Currently, the government sets hospital prices for most of our patients. Expanding government power to set hospital prices for all our patients, as the editorial suggests, is concerning.
Actually, it’s scary. Like an undercooked hamburger.
Send questions/comments to the editors.
