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New Medicaid Rule Gives Hospitals Greater Market Power

Summary:
Increasing profits far above actual costs. Think Medicare Advantage as compared to Medicare. Over the past 20 years, the prices of hospital services have grown faster than any other sector of the US economy. Unfortunately, the federal government recently issued a regulation intending to address underpayment of hospitals by Medicaid. However, the new rule could push hospital prices higher for 66 percent of the US population who have commercial health insurance coverage. The growing evidence shows wide hospital price variation is driven by hospital market power rather than underlying costs of care or the level of payment by Medicare and Medicaid. In spite of this federal regulators are allowing states to compensate hospitals at “average commercial

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Increasing profits far above actual costs. Think Medicare Advantage as compared to Medicare.

Until recently, MMC rates were subject to a federal upper payment limit pegged to Medicare rates. Now the MMC upper-payment limit may be set to “average commercial rates.”

The commercial market for hospital services is not a competitive market. It therefore holds no validity as a benchmark for this kind of price setting. Consolidation, anticompetitive contracting terms with payers, and out-of-network “surprise billing” practices among hospital-based physicians are just a few of the causes and symptoms of hospital market failure. 

The new Medicaid rule exacerbates the problems of the hospital commercial market failures.

Medicaid managed care rules and state decisions put Medicaid beneficiaries into private managed care plans. Ny doing such, the placement created challenges for paying supplemental hospital payments outside of the managed care contract.

Many of the state forms are incomplete. However, even based on incomplete information, the authors were able to identify 12 states using an average commercial rate for setting the total limit on various hospital payments made through MMC plans. This includes large states such as Texas and New York. I suspect greater resources are available in these states.

Given the size and dominance of these healthcare systems in some states, increasing the commercial rates have an outsize impact on the state average commercial rate. With the new rule these healthcare systems have an added incentive to raise their commercial rates. When they do the impact of the increase will likely raise the average commercial rate used for setting their maximum Medicaid rates. This is found to be likely, at least in the 12 states identified in their reports

In short, CMS has given big hospital systems that already have the means to command unreasonable commercial prices greater power and motivation to squeeze the US’s working families harder.

“New Medicaid Rule Adds Fuel to the Fire of Commercial Hospital Price Inflation,” Health Affairs

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