Another Voice / Health care
Dennis R. Horrigan: Reform needs to improve Medicare reimbursements
In February the Dartmouth Atlas, a well-known health care research organization, released a report showing that health care costs in Buffalo for 2006 were 19 percent below the national average. At first glance, that seems a positive finding, but let’s look more closely.
Overall Medicare spending in the United States for 2006 amounted to $374 billion. Medicare Part A funding is financed through a dedicated tax of 2.9 percent of earnings paid equally by employers and their employees (1.45 percent each). Total Medicare spending consists of four parts: hospital payments, 39 percent; physician payments, 32 percent; Medicare Advantage, 15 percent; and Part D (pharmacy) 9 percent. The remaining 5 percent is administrative expense.
What is more interesting is that, in Buffalo, the average cost for a Medicare enrollee is $6,730, 19 percent below the national average of $8,303. Medicare payment is based on historical medical costs that have been trended forward for many years.
By comparison, Rochester has an average cost of $7,915, while Erie, Pa., is at $8,007 and Cleveland is at $8,558. Topping the list of cities with the most expensive Medicare cost is Miami, at $17,364. The impact of this disparity in Medicare spending for the 50,602 Medicare beneficiaries in Western New York adds up to reimbursements that are $79 million less than the national average.
Paradoxically, while this region’s work force and employers contribute equally to the Medicare premium, they do not receive an average share of revenues. This has unintended consequences that need to be addressed by national health care reform.
First, maintaining a high-performing health system requires investments in people, technology and process improvement. If Western New York is not getting a fair share of Medicare revenues, then it will be difficult to make the investments needed to stay competitive.
Second, if reimbursement is not keeping pace with the overall cost of doing business for doctors and hospitals, then employer-based health insurance plans and private-pay patients wind up paying more. This is often referred to as cost shifting, and disadvantages Western New York employers.
Third, two-thirds of Medicare goes to 10 percent of patients, with chronic health conditions. The management of chronic illness requires a systematic approach and customized care in order to reduce the burden of illness and reduce unnecessary hospital care.
In Western New York, we understand what needs to be done to improve health care delivery and we have learned to manage with “lean” resources. We never work to be average in Western New York, but a health care reform program that brought average payment to our community would be “just right.”
Dennis R. Horrigan is president and CEO of Catholic IPA Western New York, a partnership between Catholic Health and a network of associated physicians.
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