How Impressed Should We Be with the Hospital Deal?

In what has been the world’s worst secret for the past two days, Vice President Biden will be announcing a deal with the American Hospital Association, Catholic Health Association and the Federation of American Hospitals.  The tradeoff:  $155 billion in cuts to hospitals in Medicare and Medicaid for a more favorable timeline for when those cuts take place than what was originally pitched by the president.  This comes on the heels of the deal with Big Pharma to close the doughnut hole, and the NY Times teases this morning that a deal with various doctors groups may be next on the horizon.  The symbolic effect of these deals is perfectly obvious.  As Rahm Emmanuel said, “The very groups we have been talking to have been the most vocal opponents of health care reform; they are now becoming the vocal proponents for health care reform.”

But symbolism aside, how impressed should we be?

The proof will be in the pudding when Biden announces the terms today, but on first glance, pretty impressed.  Big Pharma’s deal was to spend $80 billion per year to partially close the doughnut hole in Medicare Part D, but it’s unclear how this helps fund the non-Medicare push for universal health care since it’s mainly defraying costs that were paid by individuals, not the government.  In contrast, this deal with hospitals, if it’s as good as advertised, directly supports the financing of health care.

President Obama had specifically targeted some cuts to Medicare reimbursements to hospitals as part of his 2/3 savings, 1/3 new revenue mix for funding the health care reform legislation being proposed in Congress.  Like his proposal to limit charitable deductions for those making more than $250,000 a year, it’s a good idea.  But also like that proposal, Congress wasn’t falling over themselves to adopt it.  The why, was obvious – hospitals were going to hate it.  Only now they don’t.

Instead of $200 billion over 10 years, these hospitals are agreeing to $155 billion or so.  It’s also on a timeframe favorable to them.  One of the particular cuts was what’s called the “Disproportionate Share” payments – money hospitals get when they provide a disproportionate amount of uncompensated care to the uninsured.  In theory, if we get to 95%, 97% or 100% insured in this country, we should pay less for that than in our current state of 84% (or less) insured.  Of course, there were problems – although Obama’s original proposal would have phased in these cuts over a number of years, that timeline always felt artificial.  It also presumes that those now with insurance will be less expensive to treat because they’ll start receiving regular primary care, paid for at good compensation rates, rather than receiving expensive emergency care that’s uncompensated.  But it will take years for those savings to kick in.  Probably the biggest concession the hospitals got from playing ball is the recognition that these cuts will be added slowly, and only “after a significant number of people have enrolled in the new insurance programs.”  They also got a pledge that the public health insurance option won’t pay straight-up Medicare reimbursement rates – a pledge that effectively cost the Administration nothing, as none of the plans on the table for the public plan would have done that.

Think of this more as a non-aggression pact.  At the end of the day, the Obama Administration gets most of the cuts they wanted and pledge not to more aggressively pursue them.  The hospitals (who don’t represent all hospitals, but are a sizeable chunk of the industry, taken together) pledge not to fight them.  Those savings go right into paying for the expansion of health care programs without a gun-shy Congress reluctant to take on an entrenched special interest.
It’s only a fraction of the money we need, but it’s still pretty impressive.