Healthcare Reform

‘Medicare for All’ to cost hospitals $200 billion annually, analysis finds

July 24, 2019 7:09 pm
  • Use of Medicare rates for any single-payer system would cut hospital net revenue by $200 billion annually.
  • Shifting to Medicare rates would cause much steeper losses in outpatient — rather than inpatient — care.
  • Savings from administrative simplification would not offset the net revenue loss.

Although a slice of hospitals might financially benefit from a single-payer model based on Medicare rates, 90% would face cuts totaling $200 billion each year, according to a new industry analysis.

Crowe, a consulting, accounting and technology firm, analyzed its transaction database for more than 1,000 hospitals to project revenue impacts under “Medicare for All” legislation, which would create a single-payer system that pays most hospitals at Medicare rates.

The database encompasses hospitals in 45 states and includes 605 hospitals in Medicaid expansion states and 409 in non-expansion states.

If all hospital payments switched to Medicare rates, the report found, financial impacts would include:

  • An average per-case outpatient payment cut for hospital-based services of $143 (21.9%)
  • An average per-patient inpatient payment cut of less than 1%
  • A cut in net revenue for 90.2% of the hospitals studied
  • A decrease in payment across all hospitals of $200 billion

The divergent impacts on inpatient and outpatient care would likely magnify the significance of the overall financial impact, according to Crowe, because many hospitals have “robust” outpatient managed care contracts, while many others use a “case rate” payment system that is similar to Medicare’s DRG system.

The impact at specific hospitals likely will depend on their mix of payer types. The largest revenue cut (53.5%) at any hospital studied would occur at a 246-bed facility with a nongovernment managed-care payer mix of nearly 50%. The largest revenue increase (24%) would occur at a 97-bed facility with a government payer mix of nearly 90%.

The findings echo previous projections, including an April JAMA report that concluded a “Medicare for All” system that extends the current fee schedule to all patients would cut net revenue by more than $150 billion.

Other findings of the Crowe analysis included:

  • Cost to collect would decrease from an average of 3.5% of net revenue to about 2% or less
  • Patient experience would improve
  • Savings from administrative simplification appear insufficient to offset net revenue cuts

Trump administration steps up fight

The findings followed the launch this year of a campaign by the largest hospital advocacy organizations and health systems to oppose both “Medicare for All” and the creation of a government health plan for the individual-insurance market, known as the public option.

Trump administration officials have underscored their continued opposition to both proposals.

“The secret of the public option is that it’s only cheaper because it uses the force of government to strong-arm doctors and hospitals into accepting below-market payment rates,” Seema Verma, administrator of the Centers for Medicare & Medicaid Services, said July 22 in an address to Medicare Advantage executives gathered in Washington, D.C. “But the government cannot wave a wand and impose lower rates on some providers while holding everyone else harmless.”

Verma said those comments, her first public statements against a public option, stem from concerns about such a system, including that it:

  • Compromises access to care for patients
  • Cuts payments to providers
  • Shifts pressure to employer-sponsored plans to make up the difference
  • Drives up costs for 180 million Americans with private insurance

Democratic responses to concerns about expanding Medicare payments

Sen. Bernie Sanders (I-Vt.) has responded to hospital payment concerns by proposing a “$20 billion emergency trust fund to help states and local communities purchase hospitals that are in financial distress,” according to media reports.

One public-option bill, sponsored by Sen. Michael Bennet (D-Colo.) and titled the Medicare-X Choice Act of 2019, would allow for provider payment rates up to 25% higher than Medicare rates “for items and services provided in rural areas.”

The State Public Option Act, sponsored by Sen. Brian Schatz (D-Hawaii), would use Medicaid rates for all non-primary care providers.

The CHOICE Act, which also creates a public option for the individual market, was sponsored by Sen. Sheldon Whitehouse (D-R.I.). The bill would allow the U.S. Department of Health and Human Services to negotiate provider payment rates but would default to Medicare rates if negotiations failed.


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