CBO report reports Medicare pays far less for the same care to beneficiaries - no surprises there!

Doctors Charge Substantially More to Commercial Insurers

A recent CBO report, “An Analysis of Private-Sector Prices for Physician Services,” was presented at the Academy Health’s annual research meeting in New Orleans. It contained no surprises but many media outlets used the topic to boost click-baity articles demonstrating their understanding of how healthcare in America really works.  The focus of the report was that "physicians charge substantially higher prices to commercial health plans than they do to Medicare for the same services."  Well, that's the way the laws of the USA intend the system to work. Medicare is supposed to pay the lowest rates of all payers. That's provided for in the law regardless of what the physician charges. The relationship between billed charges and negotiated discounts with contracted insurance providers is a matter of value of the book of business steered to the providers, competition, and contractual responsibilities outlined in the administrative duties and responsibilities and the costs of payment delays, ambiguous terms and wrongful denials that must be appealed to be overturned to recover the cash.

CBO researchers looked at physician claims paid by three major commercial health insurers—Aetna, Humana and UnitedHealthcare—in 2014 for 21 “frequently and costly” physician services. The CBO defined “frequently and costly” as services that occurred more than 50,000 times annually at an average cost of $450 or more per claim. The researchers then compared those claims with the claims paid by Medicare Part B (Medicare fee-for-service) and by Medicare Part D (Medicare Advantage plans) for the same 21 physician services. In total, the researchers reviewed about 50 million commercial claims and about 19 million Medicare claims.  The report does not explain fully the difference between "claims paid" and "amounts paid".  Claims paid can be paid at other than billed charges depending on the discount negotiated which would not have been available to reviewers because the discounts are private and confidential. Therefore, the story gets skewed.

The comparison revealed that the average commercial prices for routine services like a new patient visit were "6 percent to 30 percent higher than the prices charged to Medicare Part B" for the same services.  Again, this apples and oranges comparison is unfair. For one thing, providers bill at rates that are often uniform across the board. Medicare fee schedules entitle Medicare Part B to pay less for most services.  Average commercial prices are also uniform, but negotiated discounts are what changes the amount paid (higher or lower) than Medicare Part B. 

The average commercial prices for specialty services like a cardiac catheterization procedure were 30 percent to 140 percent higher than the prices charged to Medicare Part B for the same services. There was little difference in prices charged to Medicare Part B and Medicare Part D for routine or specialty physician services. The analysis also found that physicians charged much higher prices for services to commercial health plans when the doctors were out-of-network rather than in-network.  None of these amounts actually result in 30-140 percent higher payments. To add insult to the integrity of the report and its media interpretation, the contracts are fraught with ambiguity and opacity that does not exist in Medicare Part B reimbursement and transactional rules. The opacity and ambiguity often result in zero dollars paid or claims denials.

As for the policy implications for what it found, the CBO said, “Prices for physicians’ services affect premiums in commercial insurance plans, which are subsidized both by the preferential tax treatment of employer-based insurance and through direct subsidies in health insurance marketplaces.”  Here again, prices (charges) can be blamed for the temperature at the core of the moon if they so desire.  The payments are what is at issue not the prices charged to insurers and employer-sponsored health benefit programs operated under ERISA.

A twist to this confusion is also evident when you read this latest report on how data was also flawed in reports about data used to report payments for Medicare Advantage plans to insurance companies.  CMS said there were questions about the data’s accuracy so the agency decided it shouldn't release the data to researchers. The agency said it would examine the 2015 data to decide whether to release that information. Medicare already provides data on the 38 million traditional Medicare beneficiaries.

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Dr. Maria K. Todd is a seasoned professional in managed care contracting and risk sharing arrangements for hospitals ASCs, IPAs, PHOs, MSOs ACOs and Co-ops. She works with executives, managers, analysts, and finance officers who have the daunting task of negotiating contracts for medical services. She leads C-Suite executives and reimbursement managers through in-depth examinations of their go-forward risk sharing and reimbursement strategies and coaches them in key areas such as pay-for-performance initiatives, reimbursement methods, contract law basics, and negotiating strategies.   Contact her at 800.727.4160 or via email and follow her on LinkedIn.

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