Cost Shifting – the underground payment system

COST SHIFTING DIAGRAM

Hosptials are licensed by the state and certified to provide Medicare and Medicaid services.   They agree to provide care sufficient to stabilize a patient.  If the hospital is a non-profit institution they must provide community service (indigent care) in an amount equivalent to what they might otherwise have to pay in taxes.  For- profit hospitals will try to transfer indigent patients to community or state hospitals but room is limited so they often provide uncompensated care.  County, State and Federal (VA and Indian service) hospitals are financed from taxes.   Much indigent care is paid for by the government.

Uncompensated care in hospitals is funded in a circuitous (underground) manner.   Uncompensated care just means the patient can not pay — the patient may end up going bankrupt.  However, the hospitals have another way.  There is a constant stream of money that comes from insured persons flowing to insurance companies and then to hospitals.  To balance the books for uncompensated care hospitals raise the price of care to insurance companies that in turn raise the price to insured people.  Hospitals often have to negotiate the pay increases with many insurance companies.  The “system” comes into a balance as long as the numbers of uninsured patients are not too great.

The net effect of the underground system is uninsured  patients do get care and hospitals stay solvent.   However, look at the system from a distance and try to follow the money.   Complex negotiations, patient transfers, government payments, and patients shifting into Medicaid (Title 19).  The cost of doing the paperwork is astounding and combined with the cost of a social-work army it almost matches the cost of delivered care.  In the end, insured people pay twice, once in the cost of insurance premiums and second in taxes.

This is our system.  We designed it this way.  Is this graft and corruption?  No.  However, it is wasteful,  inefficient, unmanageable and unsustainable.   The most simple solution is to provide insurance for those who can not afford it.  The cost is the same and possibly less than the sum total of private and governmental costs now.  Such a system would be understandable and subject to being managed.

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