Medicare covers about one seventh of the US population.  Because Medicare pays just half of seniors total health care costs and healthcare costs are rising faster than inflation, seniors see their future costs snowballing. Indeed, seniors’ out of pocket health care costs will soon equal their social security benefits.  Medicare wage taxes and Medicare beneficiary premiums cover just a part of the funds Medicare spends. The rest comes from general federal revenues and in looking ahead, the federal budget is a dicey bet to rely upon. 

Making a bad situation even more desperate, Congress diverted $716 billion from Medicare to prop up Obamacare which calls for cost-cutting in medical reimbursement levels and patient care and higher premiums.  One cut is a massive reduction in physician payments (already causing more doctors to refuse Medicare patients).  A smaller cut is a reimbursement penalty on hospitals showing a higher than average rate of “readmission within 30 days of discharge”.  Consumers know that Medicare will squirm to avoid paying their health care bills, so it’s legitimate to scrutinize Medicare’s policies on treatment and payment.

Medicare Part A pays for beneficiary hospitalizations when it determines an inpatient stay is needed.  The payment Medicare allows is based on the diagnosis of the patient’s illness (a diagnostic related group, or DRG) and standardized cost for treatment of the DRG.  The DRG payment may be adjusted for:  local conditions (e.g. higher costs); the nature of the patient population at the treating facility; and whether the patient is transferred to another facility.   If the hospital spends less than the DRG allowance, it earns a surplus. If the hospital spends more than the DRG, it incurs a loss.  If the averages are genuine, it’s balanced.

Medicare’s new penalty for excessive 30-day readmissions seems robotically applied.  The New England Journal of Medicine estimates that of 30-day readmissions, only 20% were under the hospital’s control.  The majority of the readmissions were patients who suffered a new illness (e.g. fell down stairs) or patients who were the sickest before the initial admission or patients whose treatment requires periodic readmission (e.g. cancer treatment).    

Consumers support Medicare in its quest to reduce abusive reimbursements. If a hospital discharges a patient because treatment exceeded the DRG payment, and expects a subsequent readmission to trigger another DRG payment cycle, that would an abuse that should be penalized.  On the other hand, Medicare’s DRG payment system defines an expected length of stay, using cash as an enforcer.  Unless Medicare triages readmissions by cause (hospital’s fault versus not-hospital’s fault) then its readmission rule has the effect of treatment rationing.

Alan Daley is a retired businessman who lives in Florida and who follows public policy issues.