Have you ever wondered how hospitals get paid by Medicare? The New York Times has an excellent and simple explanation of this highly complicated process. It’s simple really.
First the hospital labor component is adjusted for geographic location and then added to the capital depreciation expenditures adjusted for geographic location and then a medical severity adjusted diagnosis related group multiplier is added (MS-DRG).
Once this adjusted payment rate is calculated, the hospital is given a bonus to cover the costs incurred if they are a teaching hospital, through the indirect medical education payment. Added to that is the disproportionate share payment for hospitals that see a lot of uninsured or Medicaid patients (strange that Medicare subsidizes Medicaid, isn’t it?) If you have a patient that is extremely sick or spends mulitple extra days in the hospital, they may get an extra outlier payment.
I might also add that somewhere in all of that mess the New York Times left out that hospitals get several percentage points of bonus or reduction in payments based on performance in quality indicators that the government has determined are important.
And that’s how hospitals get paid by Medicare. It doesn’t get any easier that that. Are you wondering how physicians get paid by Medicare? It’s all calculated through a completely separate process of calculating relative value units (RVUs). Here is my post about how doctors get paid by Medicare.
All this sounds fair and great in theory, but there is one problem with the whole government price-fixing mantra: They don’t want to pay for what they’ve entitled the masses to believe they deserve. This is exactly why Europe is crashing and burning. When you start by promising everything, you end by paying for nothing.
*This blog post was originally published at The Happy Hospitalist*