Tuesday, July 7, 2009

Department of pure bunk: U.S. hospital groups set to contribute $150 billion in "savings" to health care to health care reform

It's being reported widely that three major hospital associations, the Obama Administration and the Senate Finance Committee will announce Wednesday an agreement under which America's hospitals will make "cost savings" of $150 billion over 10 years as their "good faith" contribution to an as-yet-unknown health care reform effort that is estimated to cost at least $1 trillion over a decade.

A lot of money, that $150 billion, eh? It means there is "only" $850 billion to go, right?

Wrong. IMHO, the whole thing is pure bunk, a bit a sleight of hand with numbers on paper. Here's why:

-- First, $150 billion is the proverbial drop in the bucket for the nation's hospitals, which collectively account for more than 30% of all health care spending -- or a whopping $11 trillion expected over the next 10 years. That means that the promised "savings" are less than one and one-half percent of an on-paper projection of long-term hospital revenues. It's easy to see that a few currently "unanticipated" costs here and there would handily overwhelm such a tiny proposed cut.

-- Second, most of the "savings" (some $100 billion) will supposedly happen as a result of reduced Medicare and Medicaid payments to hospitals. But these are projected reductions linked to "productivity adjustments" and a change in the formula used by the government to determine future Medicare and Medicaid payments. The former may or may not materialize, and the latter can be renegotiated -- or just ignored -- by future officials of this or a subsequent Administration.

-- Third, another $40-$50 billion (depending on which story you read) will come from the elimination of payments the feds make to hospitals to compensate them for treating uninsured patients. These "savings" come with a very big catch: They "would begin in 2015 and be phased in as more Americans gain medical coverage through broad health-overhaul efforts." So it's actually cost shifting, not cutting at all. Only as care is provided via insurance will the hospitals see the compensatory payments reduced. Since we have to hope that currently uninsured patients will receive more, better and more expensive care when they are insured, these costs are likely to go up, not down.

-- Finally, the three hospital associations -- while undoubtedly negotiating with the Administration and Congress in good faith and with a firm sense of what their member hospitals are prepared to do as of now -- really cannot commit the future operators of thousands of the nation's hospitals to anything. Down the road, if hospitals feel they are being pinched, they and their associations will lobby in another direction.

Right now, they are under enormous pressure to contribute to the kind of health care reform package that Obama has made a major goal for this year. With tomorrow's announcement, the hospitals will be able to say, "We're doing our part." Meanwhile, the Administration will be able to say, "See that, we're getting the industry to pitch in to make reform happen cooperatively, so we can cut current costs enough to afford the increased costs of covering everyone."

But these "savings" are far from real. They are nothing more than numbers on a piece of paper -- a slight alteration of projections of costs in a field where such projections regularly turn out to be wrong. In short, it's bunk. Extending coverage to millions of people is going to cost a great deal of money -- and that cost is the sticking point. Instead of levelling with the American people about it, everyone engaged in this project is throwing up smoke and setting out mirrors.

What are your thoughts about this? Post a comment.


  1. Thank you for this great post. The fact that Obama is unwilling to be honest about the price tag of his proposed health care "solution" is taking dishonesty to a whole new level. Can the American people really be buying it? It is so very, very depressing.

  2. Obama promised us transparency in government, and that is what he is delivering.

    Naked transparent lying so that government may assume control of the nation's health care system.With Obama it's all about control, never mind the costs.

    But why should he worry about petty details standing in the way of his self aggrandizement, it's not like he or his will ever pay the costs or bear the burden of suffering under rationed healthcare.