Case Mixing and Hospitals

We had a discussion recently in our course Strategy and Financial Management of Health Care about how various insurers (state, private, self-pay) pay for medical care and how hospitals charge different rates for each of them. This has less to do with desire on the hospital's part to treat customers differently, and more to do with the fact that the government can set what they will pay for a given service at pretty much any level they want. As a result, Medicare and Medicaid payments usually do not even meet the break even point for the care that is given. Therefore, hospitals are forced to pass of this deficit to private insurers and self-paying patients.

We then discussed two ways in which this effects health care. The first is that branches of medicine that cater primarily to lower-income or older individuals (Psychiatry for instance) are far less profitable than other areas of medicine. This results in many hospitals avoiding providing this service or having to pursue more lucrative fields in order to subsidize the losses they suffer by offering those services. The second area has to do with public policy. When states make cuts to Medicaid (like what may happen in NH) they often due so by reducing their reimbursement rates for procedures. Since the volume of care being given does not change, hospitals have larger deficits from Medicaid procedures. This results in them increasing their charges to private insurers (who are happy to pass the charge onto their customers) and self-payers. As a result, attempts to balance budgets by cutting Medicaid can be essentially the same as raising taxes, as the costs are passed back to the consumers and taxpayers.