Friday, January 1, 2010

Mayo Clinic Rejecting Medicare Payments

Jim Crum just sent me an excerpt from a Bloomberg article indicating that the Mayo Clinic, one of the nation's leading research hospitals, has decided to refuse Medicare payments. This portends ill for national health policy, which has depended on cost shifting. The advocates of national health plans are confronted with basic economics, and so might consider that the health insurance bill might increase demand, hence costs. This would accord with ordinary economics, under which additional supply requires higher prices and demand would need to be reduced to restrain costs. But health reform advocates assert that the problem has an additional wrinkle and that health care costs can be reduced with increased demand.

They claim that uncovered-until-emergency and unpaid-for care has a greater long term cost than covering an additional ten or fifteen percent of the population. But this may not be so because hospitals frequently provide unpaid-for-care, the premise that the reduced-cost argument makes. Because the dynamics of supply and demand are unknown, the best we can say is that there will be a cost shifting composed of four elements: taxpayers, the covered, the uncovered and the health care industry. Given that increasing numbers of people will be covered by mandated care, Medicare will need to provide at least as adequate coverage as mandated care, or the hospitals will refuse it, forcing a redistribution of cost from the hospitals and those in private plans to Medicare recipients now forced to acquire private insurance.

It is clear that the bill shifts costs from those in plans and the health care industry to taxpayers and those who are uncovered because now the uncovered will need to purchase subsidized coverage that had previously been provided at the expense of the covered and the health care industry. The same may be true of Medicare recipients because Medicare shifted costs to the covered and the industry. The Mayo clinic may be anticipating a new reality whereby costs will increasingly be borne by individuals and/or by private plans. Thus, unless Medicare taxes are increased, the health care industry will not find it worthwhile to accept Medicare since refusing Medicare will force Medicare recipients to purchase mandated insurance.

As the government increases health care demand, one of four things must happen: (1) elimination of the cost of delayed care for the uncovered results in cost decreases that exceed the cost of additional coverage; (2) demand for mandated care comes at the expense of some current demand so that treatment of people in private plans is reduced; (3) prices for health care escalate as demand increases across the board; and/or (4) taxpayers additionally subsidize Medicare and mandated plans. With respect to (2), there is likely a considerable amount of care that is currently unnecessary, but it is impossible for government to determine which care is needed and which care is not. Hence, a portion of the population, and how large is unknowable but it won't be insignificant, will be be deprived of care.

It is likely that some who need care now but don't get it will receive care. But that additional care will cost the amount that the health care bill mandates be spent. It will not be free. It is likely that a percentage of those who do not choose to get health insurance now so choose because they are healthy enough to expect few claims. The least healthy who are uncovered received treatment anyway, currently at the cost of those who are covered and the industry. Thus, it is unknowable whether the cost of additional coverage will exceed its value.

One indication of the effects on the health care industry is the performance of health care stocks. These would suggest a net gain to the industry, presumably because more people will pay. In January 2008 the Ishares New York Stock Exchange Index fund closed at $86.35 and on December 28, 2009 it closed at $65.83, a decline of 23.8%. In contrast, the Ishares Health Index fell about 8% during the same period. Part of this much smaller decline may be due to population dynamics, but part may be due to the evolving characteristics of health reform, which seem to increasingly aim at shifting costs onto the uncovered poor.

Thus, we see a health reform movement that claims to help the uncovered and instead transfers wealth from the uncovered to the more affluent people in private plans and the health care industry.

>Dec. 31 (Bloomberg) -- The Mayo Clinic, praised by President Barack Obama as a national model for efficient health care, will stop accepting Medicare patients as of tomorrow at one of its primary-care clinics in Arizona, saying the U.S. government pays too little.

More than 3,000 patients eligible for Medicare, the government’s largest health-insurance program, will be forced to pay cash if they want to continue seeing their doctors at a Mayo family clinic in Glendale, northwest of Phoenix, said Michael Yardley, a Mayo spokesman. The decision, which Yardley called a two-year pilot project, won’t affect other Mayo facilities in Arizona, Florida and Minnesota.

Obama in June cited the nonprofit Rochester, Minnesota-based Mayo Clinic and the Cleveland Clinic in Ohio for offering “the highest quality care at costs well below the national norm.” Mayo’s move to drop Medicare patients may be copied by family doctors, some of whom have stopped accepting new patients from the program, said Lori Heim, president of the American Academy of Family Physicians, in a telephone interview yesterday.

“Many physicians have said, ‘I simply cannot afford to keep taking care of Medicare patients,’” said Heim, a family doctor who practices in Laurinburg, North Carolina. “If you truly know your business costs and you are losing money, it doesn’t make sense to do more of it.”
Medicare Loss

The Mayo organization had 3,700 staff physicians and scientists and treated 526,000 patients in 2008. It lost $840 million last year on Medicare, the government’s health program for the disabled and those 65 and older, Mayo spokeswoman Lynn Closway said.

Mayo’s hospital and four clinics in Arizona, including the Glendale facility, lost $120 million on Medicare patients last year, Yardley said. The program’s payments cover about 50 percent of the cost of treating elderly primary-care patients at the Glendale clinic, he said.

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