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Many Hospitals Charge More Than Twice What Medicare Pays for the Same Care

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Hospitals across the country are charging private insurance companies 2.5 times what they get from Medicare for the same care, according to a new RAND Corporation study of hospital prices released on Friday.

In a half-dozen of 49 states in the survey, including West Virginia and Florida, private insurers paid three or more times what Medicare did for overnight inpatient stays and outpatient care.

“The prices are so high, the prices are so unaffordable — it’s just a runaway train,” said Gloria Sachdev, the chief executive of the Employers’ Forum of Indiana, a coalition that worked with RAND on the study. This year’s report expanded on the research the nonprofit organization conducted in 2019 on hospital prices in 25 states.

The study, which exposes the aggressive pricing by mega-hospital systems that have gained enormous market power through widespread consolidation, is sure to kick-start the debate over the U.S. health care system and the need to overhaul it.

While the pandemic caused losses for many hospitals, many of these big systems are sitting on large profit reserves, while also receiving some of the $175 billion in aid Congress allocated to make up for their costs and lost revenue.

Employers provide health insurance coverage for more than 153 million Americans. The companies and insurers in the study paid nearly $20 billion more than Medicare would have for the same care from 2016 through 2018, according to the RAND researchers.

The findings cast doubt on the ability of private employers and insurers to competitively purchase health care for workers and their families compared to the federal government, said Katherine Hempstead, a senior policy adviser at the Robert Wood Johnson Foundation, which helped fund the study. “You have this widening gap,” she said.

Proponents of a so-called public option seize on such price-gouging news to argue that creating a government health plan that could use its clout to demand lower prices would help bring down the cost of care.

“There’s a lot of energy behind the public option, and this is clearly one of the reasons,” said Dan Mendelson, the founder of Avalere Health, a Washington, D.C., consulting firm.

Employers say the proof of how much more they pay underscores the need for change. “The report lays out in stark terms what the employers have been dealing with for years,” said Elizabeth Mitchell, the chief executive of the Pacific Business Group on Health, a San Francisco group that represents employers and companies in the region. “If we want to keep a private market in U.S. health care, it has to function,” she said. “It’s really not functioning.”

A public option, distinct from the more controversial “Medicare for all” proposals that would do away with private insurance, has been embraced by Joseph R. Biden Jr., the Democratic presidential nominee. Democrats and even some Republicans seem open to the idea, according to a recent poll from the Kaiser Family Foundation.

Hospitals warn that they might not be able to function if they were paid Medicare rates. “There is certainly a cost shift, because the government knowingly underpays,” said Tom Nickels, an executive vice president for the American Hospital Association, a trade group. He warned that hospitals would lose billions of dollars in revenue. Some could be shuttered if forced to operate at lower Medicare payments.

“We cannot survive in that kind of the world,” he said, adding that many hospitals are struggling financially because of the pandemic. “To suggest cutting hospitals during a pandemic is outrageous.”

The report, which has data from the District of Columbia and every state but Maryland (because that state sets hospital rates), provides a sweeping view into the wide variation of prices paid by private insurers, which pay multiples of what Medicare does for a hospital stay or an M.R.I. “The magnitudes are quite eye-catching,” said Michael R. Richards, a health economist at Baylor University who reviewed the study.

The most costly hospital system in the nation from 2016 through 2018, according to the researchers, was John Muir Health in Walnut Creek, Calif., near San Francisco. Private insurers pay its hospitals four times what Medicare reimburses for care.

In Indiana, Parkview Health, based in Fort Wayne, also remained one of the most expensive, charging private insurers in 2018 three times what Medicare paid for an overnight hospital stay and more than four times the Medicare rate for outpatient care. Employers pressured Anthem, the state’s largest insurer, to force Parkview to lower prices by threatening to drop it from the plan’s network.

The RAND data “predates Parkview’s new agreements with several major insurance companies and direct-to-employer partnerships,” as well as significant prices reductions for outpatient care, said Parkview’s chief executive, Mike Packnett, in a statement.

The RAND report also documents a wide variation in prices within the same hospital system. Mass General Brigham, formerly Partners Healthcare, was the most expensive system in Massachusetts, but Massachusetts General, one of its premier hospitals, charged private insurers nearly three times what Medicare paid in 2016 through 2018, compared to roughly two times for the system’s Newton-Wellesley Hospital, according to the study.

Well-known and well-respected hospitals like Mass General “are the hospitals within the system that are likely to get the highest prices,” said Christopher M. Whaley, one of the RAND authors.

In some markets, the lack of an alternative means employers have no room to negotiate, said Suzanne Delbanco, the executive director of Catalyst for Payment Reform, a nonprofit that works with businesses to develop new ways of paying for medical care. “In a market that is highly consolidated with no choices, it can be logistically infeasible,” she said.

The pandemic could make things worse as big hospitals scoop up struggling physician practices or their smaller competitors. In West Virginia, Mountain Health Network is made up of the 2018 merger of two hospitals, after Cabell Huntington acquired its competitor over the objections of federal officials. Cabell was one of the nation’s most expensive systems from 2016 through 2018, according to the study. Mountain Health now has its eyes on a local physician group.

Some hospitals argue they charge more because they deliver better care, and there does seem to be some association. “What we see is quality and the ability to charge high prices are intrinsically related,” said Craig Garthwaite, a health economist at the Kellogg School of Management at Northwestern University, who says some hospitals may be taking the extra money to invest in ways of improving quality.

Employers have had mixed success in pushing back against high-priced hospitals. Indiana employers succeeded in pressuring Anthem to take action, according to Ms. Sachdev. The insurer threatened to drop Parkview from its network, before reaching an agreement in July in which the hospital offered significant savings. Two state employees’ plans, in Montana and Oregon, have also been able to negotiate contracts that use Medicare prices as a benchmark for what they will pay, according to the RAND researchers.

But in other areas, the hospitals have been less willing to budge. In Colorado, employers have had productive discussions with some of the specialty hospitals and independent hospitals, said Robert J. Smith, the executive director of the Colorado Business Group on Health. “We’ve made very little progress with health systems,” he said.

Many employers, including some represented by the U.S. Chamber of Commerce, oppose government action, but others are growing more open to the idea of some sort of government intervention, ranging from rate regulation to a public option. “They are increasingly seeing in some cases the need for regulatory intervention because the market is broken,” Ms. Mitchell said.

But the pandemic and the potential threat it poses for many hospitals could put off any discussion, even if the Democrats were to win the White House and the Senate. “The hospitals are the most effective, most sympathetic lobby there is,” said Dr. Robert Berenson, a policy analyst at the Urban Institute.

Democrats will also have to figure out how to design a plan that people find both affordable and comprehensive, in contrast to some of the mid-tier plans sold under the Affordable Care Act, said Rodney Whitlock, a former Republican Senate staffer who now works for McDermott+Consulting. “How can the Democrats create a public option that is not clearly better than private insurance?” he asked. “If they don’t, they will be tagged as failing.”

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The Trump campaign celebrated a growth record that Democrats downplayed.

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The White House celebrated economic growth numbers for the third quarter released on Thursday, even as Joseph R. Biden Jr.’s presidential campaign sought to throw cold water on the report — the last major data release leading up to the Nov. 3 election — and warned that the economic recovery was losing steam.

The economy grew at a record pace last quarter, but the upswing was a partial bounce-back after an enormous decline and left the economy smaller than it was before the pandemic. The White House took no notice of those glum caveats.

“This record economic growth is absolute validation of President Trump’s policies, which create jobs and opportunities for Americans in every corner of the country,” Mr. Trump’s re-election campaign said in a statement, highlighting a rebound of 33.1 percent at an annualized rate. Mr. Trump heralded the data on Twitter, posting that he was “so glad” that the number had come out before Election Day.

The annualized rate that the White House emphasized extrapolates growth numbers as if the current pace held up for a year, and risks overstating big swings. Because the economy’s growth has been so volatile amid the pandemic, economists have urged focusing on quarterly numbers.

Those showed a 7.4 percent gain in the third quarter. That rebound, by far the biggest since reliable statistics began after World War II, still leaves the economy short of its pre-pandemic levels. The pace of recovery has also slowed, and now coronavirus cases are rising again across much of the United States, raising the prospect of further pullback.

“The recovery is stalling out, thanks to Trump’s refusal to have a serious plan to deal with Covid or to pass a new economic relief plan for workers, small businesses and communities,” Mr. Biden’s campaign said in a release ahead of Thursday’s report. The rebound was widely expected, and the campaign characterized it as “a partial return from a catastrophic hit.”

Economists have warned that the recovery could face serious roadblocks ahead. Temporary measures meant to shore up households and businesses — including unemployment insurance supplements and forgivable loans — have run dry. Swaths of the service sector remain shut down as the virus continues to spread, and job losses that were temporary are increasingly turning permanent.

“With coronavirus infections hitting a record high in recent days and any additional fiscal stimulus unlikely to arrive until, at the earliest, the start of next year, further progress will be much slower,” Paul Ashworth, chief United States economist at Capital Economics, wrote in a note following the report.

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Black and Hispanic workers, especially women, lag in the U.S. economic recovery.

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The surge in economic output in the third quarter set a record, but the recovery isn’t reaching everyone.

Economists have long warned that aggregate statistics like gross domestic product can obscure important differences beneath the surface. In the aftermath of the last recession, for example, G.D.P. returned to its previous level in early 2011, even as poverty rates remained high and the unemployment rate for Black Americans was above 15 percent.

Aggregate statistics could be even more misleading during the current crisis. The job losses in the initial months of the pandemic disproportionately struck low-wage service workers, many of them Black and Hispanic women. Service-sector jobs have been slow to return, while school closings are keeping many parents, especially mothers, from returning to work. Nearly half a million Hispanic women have left the labor force over the last three months.

“If we’re thinking that the economy is recovering completely and uniformly, that is simply not the case,” said Michelle Holder, an economist at John Jay College in New York. “This rebound is unevenly distributed along racial and gender lines.”

The G.D.P. report released Thursday doesn’t break down the data by race, sex or income. But other sources make the disparities clear. A pair of studies by researchers at the Urban Institute released this week found that Black and Hispanic adults were more likely to have lost jobs or income since March, and were twice as likely as white adults to experience food insecurity in September.

The financial impact of the pandemic hit many of the families that were least able to afford it, even as white-collar workers were largely spared, said Michael Karpman, an Urban Institute researcher and one of the studies’ authors.

“A lot of people who were already in a precarious position before the pandemic are now in worse shape, whereas people who were better off have generally been faring better financially,” he said.

Federal relief programs, such as expanded unemployment benefits, helped offset the damage for many families in the first months of the pandemic. But those programs have mostly ended, and talks to revive them have stalled in Washington. With virus cases surging in much of the country, Mr. Karpman warned, the economic toll could increase.

“There could be a lot more hardship coming up this winter if there’s not more relief from Congress, with the impact falling disproportionately on Black and Hispanic workers and their families,” he said.

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Ant Challenged Beijing and Prospered. Now It Toes the Line.

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As Jack Ma of Alibaba helped turn China into the world’s biggest e-commerce market over the past two decades, he was also vowing to pull off a more audacious transformation.

“If the banks don’t change, we’ll change the banks,” he said in 2008, decrying how hard it was for small businesses in China to borrow from government-run lenders.

“The financial industry needs disrupters,” he told People’s Daily, the official Communist Party newspaper, a few years later. His goal, he said, was to make banks and other state-owned enterprises “feel unwell.”

The scope of Mr. Ma’s success is becoming clearer. The vehicle for his financial-technology ambitions, an Alibaba spinoff called Ant Group, is preparing for the largest initial public offering on record. Ant is set to raise $34 billion by selling its shares to the public in Hong Kong and Shanghai, according to stock exchange documents released on Monday. After the listing, Ant would be worth around $310 billion, much more than many global banks.

The company is going public not as a scrappy upstart, but as a leviathan deeply dependent on the good will of the government Mr. Ma once relished prodding.

More than 730 million people use Ant’s Alipay app every month to pay for lunch, invest their savings and shop on credit. Yet Alipay’s size and importance have made it an inevitable target for China’s regulators, which have already brought its business to heel in certain areas.

These days, Ant talks mostly about creating partnerships with big banks, not disrupting or supplanting them. Several government-owned funds and institutions are Ant shareholders and stand to profit handsomely from the public offering.

The question now is how much higher Ant can fly without provoking the Chinese authorities into clipping its wings further.

Excitable investors see Ant as a buzzy internet innovator. The risk is that it becomes more like a heavily regulated “financial digital utility,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”

“Utility stocks, as far as I remember, were not the ones to be seen as the most exciting,” Mr. Howie said.

Ant declined to comment, citing the quiet period demanded by regulators before its share sale.

The company has played give-and-take with Beijing for years. As smartphone payments became ubiquitous in China, Ant found itself managing huge piles of money in Alipay users’ virtual wallets. The central bank made it park those funds in special accounts where they would earn minimal interest.

After people piled into an easy-to-use investment fund inside Alipay, the government forced the fund to shed risk and lower returns. Regulators curbed a plan to use Alipay data as the basis for a credit-scoring system akin to Americans’ FICO scores.

China’s Supreme Court this summer capped interest rates for consumer loans, though it was unclear how the ceiling would apply to Ant. The central bank is preparing a new virtual currency that could compete against Alipay and another digital wallet, the messaging app WeChat, as an everyday payment tool.

Ant has learned ways of keeping the authorities on its side. Mr. Ma once boasted at the World Economic Forum in Davos, Switzerland, about never taking money from the Chinese government. Today, funds associated with China’s social security system, its sovereign wealth fund, a state-owned life insurance company and the national postal carrier hold stakes in Ant. The I.P.O. is likely to increase the value of their holdings considerably.

“That’s how the state gets its payoff,” Mr. Howie said. With Ant, he said, “the line between state-owned enterprise and private enterprise is highly, highly blurred.”

China, in less than two generations, went from having a state-planned financial system to being at the global vanguard of internet finance, with trillions of dollars in transactions being made on mobile devices each year. Alipay had a lot to do with it.

Alibaba created the service in the early 2000s to hold payments for online purchases in escrow. Its broader usefulness quickly became clear in a country that mostly missed out on the credit card era. Features were added and users piled in. It became impossible for regulators and banks not to see the app as a threat.

ImageAnt Group’s headquarters in Hangzhou, China.
Credit…Alex Plavevski/EPA, via Shutterstock

A big test came when Ant began making an offer to Alipay users: Park your money in a section of the app called Yu’ebao, which means “leftover treasure,” and we will pay you more than the low rates fixed by the government at banks.

People could invest as much or as little as they wanted, making them feel like they were putting their pocket change to use. Yu’ebao was a hit, becoming one of the world’s largest money market funds.

The banks were terrified. One commentator for a state broadcaster called the fund a “vampire” and a “parasite.”

Still, “all the main regulators remained unanimous in saying that this was a positive thing for the Chinese financial system,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington.

“If you can’t actually reform the banks,” Mr. Chorzempa said, “you can inject more competition.”

But then came worries about shadowy, unregulated corners of finance and the dangers they posed to the wider economy. Today, Chinese regulators are tightening supervision of financial holding companies, Ant included. Beijing has kept close watch on the financial instruments that small lenders create out of their consumer loans and sell to investors. Such securities help Ant fund some of its lending. But they also amplify the blowup if too many of those loans aren’t repaid.

“Those kinds of derivative products are something the government is really concerned about,” said Tian X. Hou, founder of the research firm TH Data Capital. Given Ant’s size, she said, “the government should be concerned.”

The broader worry for China is about growing levels of household debt. Beijing wants to cultivate a consumer economy, but excessive borrowing could eventually weigh on people’s spending power. The names of two of Alipay’s popular credit functions, Huabei and Jiebei, are jaunty invitations to spend and borrow.

Huang Ling, 22, started using Huabei when she was in high school. At the time, she didn’t qualify for a credit card. With Huabei’s help, she bought a drone, a scooter, a laptop and more.

The credit line made her feel rich. It also made her realize that if she actually wanted to be rich, she had to get busy.

“Living beyond my means forced me to work harder,” Ms. Huang said.

First, she opened a clothing shop in her hometown, Nanchang, in southeastern China. Then she started an advertising company in the inland metropolis of Chongqing. When the business needed cash, she borrowed from Jiebei.

Online shopping became a way to soothe daily anxieties, and Ms. Huang sometimes racked up thousands of dollars in Huabei bills, which only made her even more anxious. When the pandemic slammed her business, she started falling behind on her payments. That cast her into a deep depression.

Finally, early this month, with her parents’ help, she paid off her debts and closed her Huabei and Jiebei accounts. She felt “elated,” she said.

China’s recent troubles with freewheeling online loan platforms have put the government under pressure to protect ordinary borrowers.

Ant is helped by the fact that its business lines up with many of the Chinese leadership’s priorities: encouraging entrepreneurship and financial inclusion, and expanding the middle class. This year, the company helped the eastern city of Hangzhou, where it is based, set up an early version of the government’s app-based system for dictating coronavirus quarantines.

Such coziness is bound to raise hackles overseas. In Washington, Chinese tech companies that are seen as close to the government are radioactive.

In January 2017, Eric Jing, then Ant’s chief executive, said the company aimed to be serving two billion users worldwide within a decade. Shortly after, Ant announced that it was acquiring the money transfer company MoneyGram to increase its U.S. footprint. By the following January, the deal was dead, thwarted by data security concerns.

More recently, top officials in the Trump administration have discussed whether to place Ant Group on the so-called entity list, which prohibits foreign companies from purchasing American products. Officials from the State Department have suggested that an interagency committee, which also includes officials from the departments of defense, commerce and energy, review Ant for the potential entity listing, according to three people familiar with the matter.

Ant does not talk much anymore about expanding in the United States.

Ana Swanson contributed reporting.

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