Economist suggests hospitals may need to assume more risk to obtain benefits from lower healthcare spending.

Aug. 19—Medicare Advantage (MA) plans pay hospitals less compared with traditional fee-for-service (FFS) Medicare and commercial plans—which could be a good deal for taxpayers, but bad news for hospitals.

In a new study published in Health Affairs, Stanford University researchers found that MA plans paid hospitals 8 percent less than traditional Medicare did between 2009 and 2012. After adjusting for differences in hospital networks, geography, and case mix, the researchers calculated that MA plans paid 5.6 percent less for hospital services compared with FFS Medicare.

“Knowing how Medicare Advantage prices compare to those of FFS Medicare is important for public policy,” wrote the researchers (who could not be reached to comment for this report).

“The surprise is that Medicare Advantage is paying hospitals less,” lead author Laurence Baker, PhD, a health research and policy professor at Stanford, said in a news release. “That suggests that, in an era when there are real questions about escalating healthcare costs, we may want to think more about the potential benefits of Medicare Advantage plans.”

MA plans paid hospitals about 91.5 percent of what FFS Medicare paid in 2012, according to the study, while commercial plans paid an average of about 165 percent of FFS Medicare payments. The lower MA payments were linked to narrower provider networks and better bargaining power—particularly for DRGs associated with short inpatient stays.

“In the long run, we could pay less taxes to support the Medicare program and maybe people in Medicare Advantage would get to share in those savings,” Baker said in the release.

One-Two Punch

Healthcare economist Paul Keckley, however, said the results may not seem like a source of optimism for hospitals that are apparently being paid less for taking care of sicker patients and thereby having to stretch scarce researchers even further.

“That’s a one-two punch to the gut,” Keckley said in an interview. “This one’s bad news if you’re a hospital. Can you interpret it any other way?”

In effect, MA plans are merely “renting space” from hospitals in between the preadmission and post-discharge care that the plans are managing, Keckley said. While this approach may ultimately result in lower costs, the savings benefit the plans and don’t “trickle back” to providers.

Keckley suggested hospitals consider an approach that links high volumes with shared risk, which would ultimately result in sharing in the savings generated by managed care. Healthcare organizations may also need to seriously consider creating their own MA plan.

“That’s the story under the story,” Keckley said.

MA Growth

The number of beneficiaries enrolled in private MA plans more than tripled in 12 years, going from 5.3 million in 2004 to 17.6 million in 2016, according to a recent Kaiser Family Foundation report. About 31 percent of Medicare beneficiaries belong to an MA plan. At least 40 percent of beneficiaries in five states are enrolled in MA: Minnesota (55 percent), Hawaii (46 percent), Oregon (44 percent), Florida (41 percent), and Pennsylvania (40 percent). Conversely, the MA enrollment rate is only 2 percent of Medicare beneficiaries in Wyoming and 1 percent in Alaska.

MA plans typically offer beneficiaries more benefits at lower premiums, Uwe Reinhardt, PhD, a health economics professor at Princeton University, noted in a JAMA Forum column posted June 1.

Reinhardt wrote that, despite the positive attributes of MA, the majority of U.S. seniors remain with traditional Medicare. While Americans may have general doubts of the competency of government-run programs, Reinhardt suggested that private enterprises are often viewed as “ephemeral companions” that can easily change contracts or be acquired by a company with different ideas on management or social obligations.

“Enrolling in traditional Medicare can be likened to being married to a spouse who, if not generally thrilling, is an always faithful and reliable companion,” Reinhardt wrote. “The social contract under traditional Medicare is not easily changed and can be changed only after much open debate.”

But Keckley, who enrolled in Medicare for the first time in April, said the overall complexity of some MA plans may keep people away from them.

“I’ve been in this business for 40 years, and I’ve never been so confused in my life,” Keckley said of the enrollment process.

Andis Robeznieks is a freelance writer based in Chicago. Follow Andis on Twitter at @AndisRobeznieks.

Publication Date: Friday, August 19, 2016