Medicare Geography

When asked to suggest ways to make health care more affordable, just about all candidates this year say they want the federal government to improve reimbursement rates for Medicare. Given the amount of cost-shifting that goes on with medical payments, that’s a good idea, but not one specific enough to draft legislation – until now, with a new study that provides details of why the current system works especially poorly in Maine.

The General Accounting Office last week described how the current Medicare reimbursement system failed to provide hospitals in large towns with a fair measure of their labor costs. The federal government sets these costs based on comparisons with those at nearby hospitals. In large cities, one hospital’s costs are held against those of another in the same city. But in large towns, with populations between 10,000 and 50,000 – that is places such as Bangor, Lewiston and Waterville – the hospitals costs are set based on a statewide average that includes many small, non-metropolitan hospitals. As a result, according to the GAO study, “Medicare’s labor cost adjustment for large town hospitals often reflects a lower average wage than if the adjustment were based on the average wages they pay.”

This is not simply a problem for hospital bookkeepers, because when the federal government does not pay an adequate price for Medicare services, the hospitals must turn to other revenue sources – most often, by raising costs for patients with private insurance. This cost-shifting, in turn, raises insurance premiums, which directly affects workers’ wages, hurts businesses and can make insurance unaffordable. It amounts to a Medicare tax on almost everyone, without regard for the ability to pay.

The problem gets worse in two ways: The reimbursement shortfall is not limited to hospitals but affects physicians in the same ways for the same reasons; and Medicare officials in Washington told the GAO that there is no consensus on how to improve the geographic definitions to determine fair labor costs.

Sens. Susan Collins and Russ Feingold last winter, however, offered a direct solution after noting how the Medicare system punishes their homes states of Maine and Wisconsin. As part of a package of reforms, they included the Physician Wage Fairness Act, which eliminates the pay difference between urban and rural health care providers. Their argument is sound: Not only do rural areas compete nationwide to attract physicians, but rural workers pay the same Medicare payroll taxes and rural seniors pay the same premiums, deductibles and co-payments as elsewhere in the country. Why should rural physicians be penalized for choosing to move to rural areas, which are typically underserved?

Rather than worry about which geographic area best represents a labor market for a physician or hospital, the Medicare system should be focused on outcomes: It should pay a full, standard reimbursement for high-quality service, and for overall care of lesser quality require that part of the reimbursement be devoted to making improvements. Maine, by the way, ranks among the lowest dozen receivers for physician reimbursements and among the very lowest for hospitals, yet receives very high marks for quality. Maine doctors and hospitals can be proud of the latter but residents outside the medical community should recognize they contribute, too.

The disparity in Medicare payments has helped give Maine some of the highest health insurance premiums in the nation. The GAO study shows why the current system fails this state and other rural areas, and despite the consensus from Medicare officials, points to answers such as that proposed by Sens. Collins and Feingold.