How the economics of health care are changing

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Medicine and money can never be disentangled, but there was a time when American hospitals and doctors could make money from all sorts of services and all sorts of people.

Even as the charitable care that was the foundation of most American hospitals established in the 19th and early 20th centuries began to fade, the advent of Medicare and Medicaid meant many low-income people could get care. And the doctrine that hospital ERs couldn’t turn away patients meant those without insurance would be treated.

Then the fee-for-service castle crumbled and it got expensive to treat poor people.

If you make money for every day your patient is in the hospital and for every test done, you’re likely to be generous in ordering tests and keeping patients in the hospital longer. That meant a lot of money was poured into health care.

Eventually the federal government put the brakes on, changing to a system that reimbursed a set amount for standard procedures. Federal and state governments, which handle Medicaid, gradually lowered reimbursements.

The response by health systems was to try to avoid uninsured and Medicaid patients and follow privately insured patients to wealthier areas while limiting services in poor neighborhoods.

But the system is shifting again, with new external and internal pressure to cut costs.

Many provisions of the Affordable Care Act, which was signed into law in 2010 and will be fully implemented in 2015, tie funding to outcomes, rather than to procedures.

In the past, if a patient were readmitted after receiving care, it just meant the hospital would be reimbursed for the new round of care. A section of the ACA requires Centers for Medicare & Medicaid Services to reduce payments to hospitals with excess readmissions.

There is also a growing emphasis on “population health,” meaning a health system is responsible for the health of the community it serves, rather than the health of individual patients who are treated by the system. Emphasis is placed on prevention, improving factors such as diet and exercise, and making sure patients get regular primary care.

Since the poor as a group are less healthy than their better-off neighbors, health-care systems are finding they have to find ways to reach the poor and improve their health.

In Maryland, where hospitals will now be paid on a global budget statewide, the changes coming are evident, said Steve Galen, CEO of the Primary Care Coalition of Montgomery County.

“A particular hospital is going to be told -- a year from now your budget goes up 3.8 percent, and then your budget is going to go up at the rate of inflation. That behavior is very impactful. As you see that cascade through, hospitals become invested in reducing poverty.”

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