The headline in The News-Press and Naples Daily News sounded dire: “Readmission will cost Lee Health $3.4 million.”
Lee Health is among 155 Florida hospitals that will lose millions in Medicare payments. It should cause you to wonder: What’s going on here?
What’s going on is an Affordable Care Act rule concerned with changing hospital incentives to readmit patients. The logic is straightforward: If hospitals don’t make a patient well the first time, then they suffer the additional cost of a fine.
It is sort of like what would happen if I went to a private arbitrator to address my claim that a mechanic working on my car charged me for repairs that weren’t done or not done correctly. If the arbitrator decided in my favor, he would rightly make the mechanic do the work again and possibly fine him for engaging in fraud.
But in the Obamacare era, the government is the arbitrator and fines are significant. Kaiser Health estimates that about half of all U.S. hospitals (2,753) will be fined an average of $219,200 in 2016.
It’s all in the name of efficiency and contract enforcement, and I’m sure it all seems logical on paper. Prior to Obamacare, hospitals had perverse incentives to maximize readmissions and their Medicare disbursements.
One obvious solution was to eliminate the bankrupting Medicare system and move toward more market-based health care. By strengthening the payment-consumption link, market forces would penalize hospitals that engage in such practices. Over time, the fine would take the form of lost market share while competition for patients would create incentives to both increase health care quality and lower its price.
Instead, we are stuck with another situation in which one form of government intervention creates unintended consequences that require further interventions. First discussed by Ludwig von Mises in his book “Liberalism,” the interplay of interventions and subsequent government growth especially applies to Medicare and Medicaid, both of which contribute mightily to the off-budget obligations of the federal government that now exceed $220 trillion.
This particular intervention of readmission penalties, which is based on the assumption that fixing a broken-down body is similar to fixing a broken-down car — and that doctors are nothing more than glorified mechanics — will create its own new round of unintended consequences. Three come to mind:
+ An upward pressure on prices for all other hospital services to compensate hospitals for readmission fines.
+ The outright rejection of patients that hospitals consider likely readmission threats.
+ Increased tendencies to simply let patients die when healing them is likely to result in readmission fines.
It’s ironic that hospitals may favor death in a way that is worse than any economic calculation Ralph Nader once accused General Motors of making in his 1965 book, “Unsafe at Any Speed.” At least then consumers could opt out of buying Corvairs once its tire-pressure problems were connected to highway deaths. Hospitals may become known as places to die — unsafe at any blood pressure — and those who try to exit their relationships with them by opting out of government-run health care will face additional federal fines by doing so.
In a sense, one is glad to see Lee Health accruing such penalties if they resulted from doctors’ efforts to follow the Hippocratic Oath. In those cases, doctors should face no penalties at all. Sadly, one hallmark of single-payer health systems is for fiscal or ideological imperatives to direct scarce medical resources. The ideal of first doing no harm falls down the priority list.
Penalties seemed like an efficient method for dealing with perverse incentives inherent in Medicare, but on the producer (hospital) side, they simply trade one set of poor incentives for others. From the consumer (patient) side — especially for those with serious and delicate medical conditions — the incentive is to search out hospitals with high rates of readmission.
The lesson is that when the government controls so much of health care, we all pay one way or another. Rejecting this principle today is the first step toward solving cycles of intervention that ruin lives, even in the name of health.
Westley teaches economics at Florida Gulf Coast University.
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