Geisinger Health System loses money on Medicare patients who receive care on a fee-for-service basis. Conversely, the 12-hospital system posts a positive margin on the 86,000 seniors enrolled in its Medicare Advantage managed-care plan.
It's not that the care a patient receives from a Geisinger physician, nurse or technician changes based on the reimbursement scheme. Rather, in Medicare Advantage, not-for-profit Geisinger can use the capitated monthly payments that it receives for a large panel of patients to improve overall care.
It can aggressively manage chronic illnesses, follow up with seniors who haven't filled prescriptions, and require primary-care authorization for tests and specialty care that ensures care is delivered in the right setting, said Kevin Brennan, chief financial officer of the Danville, Pa.-based system. Those steps enable Geisinger to lower the total amount of care delivered to its Medicare Advantage patient panel.
As a result, the group generates a profit for the integrated delivery system's insurance arm. “We can deploy more tactics and tools,” Brennan said of the Medicare Advantage population. But for seniors who get less coordinated care of their own accord, Medicare fee-for-service payments typically fall far short of costs, Brennan said.
Hospitals across the country that are moving from fee-for-service to fee-for-value reimbursement schemes are facing similar situations.
Hospitals in aggregate are expected to post a negative 9% margin on their Medicare business this year, according to a little-publicized report in March from the Medicare Payment Advisory Commission, a group that advises Congress on Medicare rates. In 2014, hospitals posted a negative 5.8% margin on their Medicare business.
But for most, they have succeeded in making that up by posting higher margins on their nongovernment reimbursed patients.
“Hospitals are making a killing on commercial insurance,” said Paul Hughes-Cromwick, co-director of the Center for Sustainable Health Spending at the Altarum Institute in Ann Arbor, Mich.
Indeed, as Medicare reimbursement tightened and penalties for readmissions and poor quality kicked into high gear, this cost-shifting grew worse. Margins from commercial payments for the nation's nearly 4,500 hospitals rose to 7.3% in 2014, the highest level in 30 years.