Vaccine reimbursement is equal across providers and insurers. What if we did the same for all care?

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What adjustments are needed?

A seemingly straightforward story caught my eye last week: all Massachusetts providers are being paid the same, generous fee for COVID-19 vaccine administration (Boston Globe). The fee is essentially identical whether the patient has Medicaid, Medicare, commercial insurance –or no insurance. And it doesn’t matter whether the shot is given in a pharmacy, clinic, community hospital, or academic medical center.

It seems logical and makes intuitive sense to the average consumer. But for those in the healthcare field, it’s pretty radical! After all, reimbursement rates for commercially insured patients are usually a multiple of what Medicaid pays and substantially higher than Medicare. And providers and insurers exert extreme efforts negotiating rates (and then trying to keep them secret). Some providers use their market power to drive harder bargains, and insurers do the same.

Bottom line: Reimbursement rates are all over the map, varying wildly depending on who’s the provider and who’s paying. A 2020 Health Care Cost Institute study provides some detail.

This reality has shaped and distorted the US healthcare system:

  • Providers avoid Medicaid patients to cherry pick those with commercial coverage
  • The true cost of Medicaid (and to a lesser extent, Medicare) is obscured by cross-patient subsidies
  • Providers use their market power to extract higher rates, and generate reimbursement ‘synergies’ by acquiring providers with weaker negotiating positions or reclassifying  physician offices as hospital ‘facilities’ that generate their own upcharges
  • Patients get treated in settings that maximize providers’ margins rather than where it’s best for the patients
  • Health plans merge to bulk up against provider systems
  • Health disparities are exacerbated as poorer patients are worth less to providers and get lower priority
  • Tremendous administrative costs are expended to manage the complexity, exploit the rules and search for those who are bending or breaking them

It’s tempting to think we could reform healthcare payment by using this COVID-19 vaccine approach for all reimbursement. But the vaccine is a special case, because there is a specific, national objective to get as many people vaccinated as quickly as possible to end the pandemic and because vaccine administration is pretty simple. Lots of providers are capable of it, and there are unlikely to be differences in outcomes based on provider experience or setting. Across the political spectrum, there is genuine agreement that we want everyone –including poor people and immigrants regardless of status– to get a shot or even two. And we’re happy for providers to prioritize vaccination by allowing them to make good money doing it.

Those conditions don’t hold generally in healthcare. Still, I am in favor of policies that encourage or mandate reducing the gaps in what providers are paid for the same service. There should be a convergence between Medicaid, Medicare and commercial rates, and reimbursement should not vary so dramatically by provider or setting of care.

New approaches, like alternative payment models, often bake in the fee-for-service biases. They shouldn’t.

By healthcare business consultant David E. Williams, president of Health Business Group.

April 5, 2021

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