Don Berwick: Medicare Payments Favor Hospitals

The former administrator of the Centers for Medicare and Medicaid Services speaks at a conference in Portland next week

December 6, 2012 – Dr. Don Berwick believes the Triple Aim is critical to the success of healthcare reform over the next few years. That means better care for individuals, better health for populations and lower healthcare costs.

“The fundamental flaw in American healthcare is fragmentation,” said the former administrator of the Centers for Medicare and Medicaid Services, who appears in Portland next Thursday to keynote the 2012 State of Reform Conference.

The healthcare delivery systems are facing an identity crisis, he told The Lund Report. “Are they going to continue raising prices and costs or redesign healthcare so costs start to fall. This isn’t about rationing or withholding care. It’s about getting costs down while improving care. If it doesn’t happen, we’ll go over the fiscal cliff. An extra dollar taken by healthcare that’s not needed is a dollar denied for a school or a road. This is not free money that healthcare is taking. It’s coming from somewhere else.”

At the same time, hospitals are gaining market power by buying the practices of physicians. The latest estimates indicate that only 39 percent of doctors nationwide remain independent compared to 57 percent in 2000.

“That gives hospitals the opportunity to go to insurers and name their price and raise costs,” Berwick said.

Hospitals have another advantage under Medicare, he pointed out. A facility fee allows hospitals to charge nearly twice as much for the same procedure done at an independent physician’s office. As a rebuff, hospitals contend their overall costs are higher. However, a recent estimate indicated that nationwide Medicare was paying $1 billion in excess to hospitals every year.

An example, pointed out by the Medicare Payment Advisory Committee recently, showed that hospitals were paid $124 for an out-patient visit at a hospital compared to $70 at a physician’s office.

“The hospital gets to tack on a facility fee that’s supposed to reflect the additional cost,” Berwick said. “On its face, it doesn’t look like a logical practice. It’s derivative from the system we’ve built and is kind of a gaming by hospitals.”

A strong advocate of transparency, Berwick believes the public should know the cost and the price of healthcare services – including the bonuses that insurance companies and coordinated care organizations may pay to their shareholders.

“All financial arrangements should be transparent; it will lead us to a healthier climate,” he said. “Transparency is our best friend.”

Berwick also praised the leadership shown by Governor Kitzhaber in transforming Oregon’s healthcare system with the introduction of coordinated care organizations that integrate physical, mental and dental services and emphasize prevention and wellness.

“This concept could be one of the real breakthroughs in this country,” he said.

Since leaving CMS last December, Berwick has been visiting with medical and executive groups around the country, focusing on the healthcare improvement model as implementation of the Affordable Care Act gets under way.

“I’ve been impressed with what I’ve seen,” said Berwick, who’s a senior fellow at American Progress. “Hospital systems and physician groups are actually facing reality; they know times are different – healthcare costs are unsustainable and care coordination and safety are core to their survival.”


To learn more about Medicare payments and the facility fees paid to hospitals, click here.

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