How Hospitals and Physicians might Avoid Reimbursement Cut Jitters

The Wall Street Journal Health Blog recently reported that many physicians are asking Congress to change a system that forces them to block reimbursement cuts every year.

By many measures, whether clinical effectiveness, accessibility or affordability, health care in the U.S. is not performing well, and is broken in many of its processes and outcomes. The typical approach to something that is broken is often to apply more resources, thinking that more will solve any and all problems.

However, the Obama administration has stated repeatedly that the expenditures in health care are excessive, and in fact believe that the U.S. economy can only be fully healed if health care costs--which are a significant part of our gross national product--are significantly reduced.

This is based on data--that has been reaffirmed on numerous occasions and through numerous processes--which indicate that although millions of Americans do not have access to good care, there is an even larger portion of Americans who are receiving excessive care. Because excessive funding for this care has been available in some communities, many of these locations now have an oversupply of hospitals and the technologies that are inherent in each.

This is best demonstrated by the number of CAT scans and MRIs that are available for use by the population who live near the health care facility. It is well-known that if MRIs, CAT scans and basic cardiology, radiology and laboratory services are duplicative, they will be over-used, resulting in much-higher utilizations when compared to the acceptable norms.

Because of this knowledge, Obama and his team believe, appropriately so, that the “fat” in health care causes excessive expenses which could be reduced significantly if protocols based on evidence-based medicine were utilized consistently throughout the country.

Likewise, these phenomena require excessive expenditures to pay for them through governmental payment systems including Medicare or Medicaid, or through private payers, which would include private insurance companies and self-pay (for those who have no insurance).

Because it can be proven that these payment costs are excessively high based on overutilization or misutilization, both physicians and hospitals face the possibility that the government and insurance companies will arbitrarily reduce their reimbursements for what they believe to be unnecessary services on an annual basis. In addition, because a larger portion of self-pay individuals are unable to pay for these highly expensive services, the portion that they pay is continually declining, and results in the rising bad debt that plagues almost every health care provider in the country. We expect this trend to continue to worsen, especially as the global economic crisis reaches its peak, resulting in higher numbers of unemployed individuals who have lost employer-provided health care coverage.

Because of this unknown each year (How much will my reimbursement decrease?), both hospitals and physicians are looking for a plan that will provide more stability and prevent the government from having to swoop in and block scheduled payment decreases on an annual basis. How can this be done? What method would make this possible? There is only one answer to these important questions.

The government, private payers and people responsible for paying their own health care bills should be willing to pay the appropriate fee based on the lowest possible cost for a service that is properly utilized only when it is indicated due to clinically evidence-based medical principles. Obviously, the cost must have a small margin built into it so that new and innovative technologies can be explored and acquired when they have proven themselves to provide an even more cost-effective, high quality improvement to the protocol. Recognizing that this margin is reasonable if it is applied to the true costs of a properly constructed utilization protocol for any procedure or service, then it should be consistently reimbursed, and could be built into health care reform successfully. Such a priced procedure would only be impacted by the inflationary cost of supplies and labor, which could be analytically determined and justified into incremental reimbursement rates each year. These could be considered in the budget preparations of both the government and private payers, and would need to be budgeted for by the self-insured individual in his/her personal expense accounts.

If overutilization could be removed from the equation described above, the tension created every year by the government/other payers wanting to reduce their reimbursement to physicians and hospitals could be reduced. These payment rates would eventually be driven by appropriate utilization and pricing structure, and would form a system that could tolerate supply and labor cost adjustments, both positive and negative, depending on the economic situation at the time. For today, this would mean in fact that the prices could possibly be reduced since during this global economic crisis we are seeing a reduction in both supply and labor costs.

It would seem that the stability resulting from the structure outlined above could be a significant answer to the questions that were raised and provide a roadmap for the cost reductions that are being demanded by both the Obama administration and the insurance sector without significantly reducing the quality of care and the reimbursement for those who are providing it.