Crossroads to Cost: Medicare and Managed Care

Introduction

Managed care and Medicare have both affected how hospitals make financial decisions in healthcare including underpayment for services and denial for requests. Cost shifting and cross-subsidization are among these decisions. There are policies in place that utilize these methods. Although both offer benefits and disadvantages, they also have similarities and differences. These issues place hospitals at a crossroads in which they must decide the most efficient way to provide services in a competitive market in the middle of a healthcare crisis.

Cover the Costs

When discussing decisions in healthcare one must think about healthcare issues today. This involves the uninsured and the underinsured population. How do these populations affect healthcare today? Is there an inequity among the insured, uninsured, Medicare and managed care? Hospitals and the government are faced daily with decisions such as how to provide the best care and the best price? These decisions have a trickle effect on insurance companies, hospitals, employers, patients, employees, and the government. Who is affected by these decisions? Who pays for these losses? These issues are an ongoing debate including the political arena. Is there one strategy that works better than the other? It is important to understand hospitals are much like any other business. Businesses provide a service to consumers and hospitals provide medical care and services to the community and individuals that incur charges. These charges do not come free, much like anything else in this world. These fees must be absorbed from somewhere. Hospitals must take action to keep their doors open.

Resemblances and Dissimilarities

Cost shifting and cross-subsidization are two strategies at the heart of this debate. Cost shifting and cross subsidization, how does one distinguish their synonymities and anomalies? Both cost shifting and cross subsidization are products of the effects of the uninsured and the underinsured population. They both can be utilized to compensate for losses and nonprofitable services provided. Both methods are affected by policies in healthcare. Cross subsidization is often thought of yielding no profit for the hospital, but it can still work if there is a substantial amount of profit made in other areas to cushion for the nonprofitable cases. Cost shifting continues to be a part of today’s issues in healthcare as it is responsible for increasing prices to one group and less for others to maximize profits (Frakt, 2011). Cost shifting is exhibited through costs such as physician visits, medication costs, private pay, and self-pay consumers. These costs must be absorbed somewhere. This shift in cost affects many individuals daily. Cross subsidization is a strategy that a facility endures with losses such as mandated treatment for emergencies because these people cannot be turned away and without insurance are treated, but they are unable to pay for services incurred and these loses are made up through profitable procedures.

Pros and Cons

Among these two strategies, how does one decide which is the best choice? Are these strategies considered to be ethical? What are the pros and cons of these two strategies? An opinion of this topic leans more towards the cons. One benefit of cost shifting is its ability to be competitive in the healthcare industry. Cost shifting results in higher premiums and prices to the insured to combat losses from the uninsured. This is a negative result for employers and employees faced with these higher costs. Many families simply cannot bear the brunt of these costs. The rising cost of living increases, and rising insurance premiums, cost shifting is putting some businesses out of business and forcing families to no longer carry insurance because they cannot afford the rising costs.

Cross subsidization was beneficial to congress because of Medicare reimbursements. There is much research that suggests cross-subsidization continues to prove unsuccessful and will require more destitute patients and cross-subsidizing (Banks, Foreman, &Keeler, 1999). Some believe the answer to healthcare issues in the U.S. today is to adopt universal healthcare. Cross subsidization is considered a strategy supportive of universal healthcare.

Policies and Payments

These two strategies have been put into place through policies in U.S. healthcare throughout the years. Studies suggest that the state has a major role in determining policies and changes necessary to healthcare (Stabile & Thomson, 2014). A policy that pertains to inpatient and outpatient visits is the Medicare DRG ('Review of the Medicare DRG Window Policy', 2020). There have been different policies in healthcare to improve cost and care. The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985, provided a continuation of insurance through certain circumstances such as loss of employment, and life-changing circumstances. The Balanced Budget Act of 1997 (BBA) provides evidence that Medicare was able to use the cost shifting method to relieve their costs and transfer this excess to private payers. This cost shifting created higher premiums and costs for the private payer population.

How has Medicare and managed care affected our healthcare today as we know it? It is important to distinguish the roles that Medicare and managed care have played in cost shifting and cross subsidization. They have played an important part in how healthcare is viewed today. In the past, Medicare has been viewed as the money tree and award winner of Congress benefited from the decreases in deficit. Research indicates that Medicare played a significant role in issues faced in U.S. healthcare today. When hospitals suffer loss through Medicare the remaining balance is shifted to private payer insurance to make up for these losses. This resulted in higher prices, premiums for the private payer population. The costs were shifted from one area that had shortcomings in meeting the budget. This effect has played a significant role in the fleecing of healthcare today as we know it.

To that end, this has created burdens to many and played a huge role in rising healthcare costs we face today. Managed care has played an important role in decreasing the rise in healthcare increases due to the competitiveness of the healthcare industry. One must consider important questions, do we as a nation benefit from these policies and regulations in healthcare? What do these policies and penalties in healthcare accomplish? Are there new policies coming that will be the answer to our healthcare crisis? These questions are pertinent in the examination of current policies and uniting to find a way to solve this crisis in the U.S. As health care providers we need to remember the importance of improving quality in our healthcare system. Also, we must choose a solution that will reimburse hospitals for treatment without placing burdens on the private payer and the indigent population.

Solutions

The problem of healthcare in America is a real issue that affects many businesses, individuals, and families across the nation. The negative impacts of these issues have grown throughout the years and continue to haunt the system. So, how do we look back on the past and move forward to find the perfection solution? Cost shifting and cross subsidization are methodologies of the past. These have exhausted their benefits and proved to be disadvantageous by many. Everything has a price, and nothing is without a cost. Future solutions to healthcare should include accessibility to insurance to everyone. To that end, the next generation of healthcare should also include lower prices and equality among payers. This would also exclude penalties for the inability to carry insurance. Future insurance choices should be just that a “choice”. Also, health promotion should play a major factor in nationwide sponsoring health promotion and healthier food choices at lower prices.

Conclusion

Hospitals are businesses that are faced with important decision making daily. These choices not only affect themselves, but they affect consumers, insurance companies, employers, communities, and government official lawmakers. Cost shifting continues to be a part of today’s issues in healthcare as it is responsible for increasing prices to one group and less for others to maximize profits. Cost shifting is exhibited through costs such as physician visits, medication costs, private pay, and self-pay consumers. The rising cost of living increases, and rising insurance premiums, cost shifting is putting some businesses out of business and forcing families to no longer carry insurance because they cannot afford the rising costs.

It is important to distinguish the roles that Medicare and managed care have played in cost shifting and cross subsidization. Managed care has played an important role in decreasing the rise in healthcare increases due to the competitiveness of the healthcare industry. Future solutions in healthcare are just a policy away. United we can bring about change, learning from our mistakes. Looking back on where we have been, we can choose to move forward into a new generation of healthcare that can keep our hospitals in business, provide access to healthcare for everyone, at a fair price to all, without sending us down a downward spiral of debt. We must meet at the crossroads of cost together finding a solution that serves as the best fit for all.

References

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