Mounting hospital bills, crushing medical debt, ballooning insurance premiums… While we are wrestling with these widespread healthcare affordability problems, it’s helpful to keep in mind that they are often caused by public policies. The most recent example is the financing scheme of Medicaid expansion in North Carolina.
As in many other markets in the U.S., hospitals in North Carolina are highly consolidated and politically powerful. Medicaid expansion would not have become law in North Carolina without the support from hospitals. To win their support, the state and the Centers for Medicare and Medicaid Services (CMS) decided to reimburse hospitals for their Medicaid services at the commercial payment rates. Most of the funding comes from federal taxpayers. Healthcare policy expert Ann Kempski and I provided more details in a recent Health Affairs Forefront article. Similar schemes permeate in many other states.
This horse-trading scheme benefits hospitals, the state, and the Biden Administration, at the expense of North Carolina workers, employers, independent physicians, and federal taxpayers.
Hospitals enjoy commercial rates for serving Medicaid patients, more than twice what Medicare would pay. They not only possess extra cash to buy independent physician practices, but also gain government-protected pricing advantages to crush competing physicians, who are not paid at commercial rates by the Medicaid program. With a more consolidated market, hospitals can further raise commercial rates, which translate to more revenue from workers and employers, as well as from the Medicaid program by default.
The North Carolina state government reaped financial gain by obtaining federal matching funds and controlling their use. The Biden Administration reaped political gain by touting its success in bringing Medicaid expansion to North Carolina.
North Carolina workers and employers, who are already paying high commercial prices, will face even greater pricing challenges down the road. Every dollar squeezed by hospitals at the negotiating table with commercial purchasers will bring them more Medicaid payment. The incentive is too high for hospitals to ignore.
Independent physicians have been receiving lower reimbursement rates than hospitals when delivering the same services to patients covered by government programs. The North Carolina Medicaid-expansion financing scheme further widened this payment gap, worsening the survival environment of independent physicians and pushing them to become employees of hospital systems.
Federal taxpayer dollars are channeled by the federal and state governments to hospitals in North Carolina, while inadvertently encouraging high commercial prices that hurt workers and employers in the state.
Policymakers set the rules of the game for private players. When policymakers tilt the playing field, private players respond accordingly. Hospitals buying up independent physicians, expensive medical bills, and unaffordable insurance premiums are merely inevitable outcomes of the underlying uneven playing field. Instead of blaming greed or seeking help from the Federal Trade Commission and state commissions, we should examine policies that tilted the playing field in the first place.
Helping low-income patients access healthcare is a noble pursuit. However, the Medicaid-expansion financing scheme in North Carolina and other states represents an expensive, inefficient, and nontransparent approach, eroding public trust and incurring substantial negative consequences and opportunity costs for taxpayers. CMS has an obligation to explain to the public the rationale for its regulatory decisions.
