On public plan, it’s provider beware

America’s doctors and hospitals are in a precarious position. Between the continued explosion in chronic disease, dwindling reimbursement rates, and nearly 50 million Americans without health insurance, providers are being squeezed from every direction.  Unfortunately, one of the leading proposals being pushed by Democrats to reform our health system would make matters even worse: a new government-run or “public” insurance plan.

A perpetual challenge for all providers, be they hospitals or ambulatory physicians, is a fair reimbursement for the services they deliver. They know first-hand that current reimbursement models are broken. And a new government-run insurance plan would only exacerbate the problem.

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Government programs like Medicare and especially Medicaid have historically cheated providers. Because they are driven by annual budgets, government payment rates have never led and will never lead to a fair compensation. Just look at the Sustainable Growth Rate (SGR) for physician reimbursement in Medicare. This year providers face a 22 percent cut across-the-board for all physicians. This model is not based on actual physician costs or anything related to the delivery of care. It is solely based on saving money in Medicare. Why would a new government insurance program be any different?

It wouldn’t be, according to a recent study by the Lewin Group. Lewin concluded that if a new public plan option set its provider reimbursement to Medicare rates, hospital net income would be reduced by $36 billion, or 4.6 percent, and physician net income would decline by $33 billion, or 6.8 percent, in 2010.1  The best-case scenario for hospital revenue would be a loss of .9 percent.

Additionally, there is near unanimity that current payment models badly incent the wrong outcomes. Reimbursement should prioritize wellness, prevention and early health, not random episodes of care. Reimbursement should incentivize better outcomes, not unnecessary overutilization. Reimbursement should reward quality providers, not high-cost urban settings. Why build a new government plan based on a flawed reimbursement model?

Some have argued that a new federal plan’s reimbursement could be different. One idea is for this government plan to negotiate with providers. When you are the world’s largest purchaser and regulator of healthcare, you do not negotiate lower prices — you coerce lower prices. Not only that, federal negotiation puts the government in the position of picking winners and losers — something it cannot do under current law.

Others have proposed matching the reimbursement rates of private plans, to avoid the complications and controversies of rate setting or negotiation. Medicare originally matched private rates as well, but politicians quickly abandoned that model in favor of the current command-and-control approach. Now Medicare rates are 20 to 30 percent lower than private plans. Medicaid rates are even worse. Cost constraints and budget pressures would undoubtedly lead to a similar change with any new government plan.

No matter how rates are set, hospitals and doctors will inevitably be squeezed. Why?  Because this new government plan has to be “affordable” for people to purchase. Those were the campaign promises. The left-leaning Commonwealth Fund concluded that premiums for a similarly designed plan would be 30 percent lower than the typical employer-sponsored plan. 2  

Where is this affordability to come from? It cannot be through reduced benefits or restricting services, lest government be accused of rationing care (though down the road, that will certainly be the case). Based on history and political promises, the pockets of hospitals and physicians are likely sources to cover those costs.

The rhetoric behind a government-run plan is compelling: Insurance is out of reach for millions of Americans, and it is too expensive for those who have it. But command and control models from Washington are not the answer, for providers or consumers.

To truly bring down costs and expand coverage we need to focus on three things: 1) improving individual health by incentivizing prevention, wellness and early health; 2) incentivizing providers through fair and proper payments to adopt proven best practices of what works to deliver higher-quality care; and 3) reforming public programs to root out fraud, cut waste and reward quality. The savings from these changes — better health, lower costs, higher-quality care — can be used to insure every American. We at the Center for Health Transformation have outlined a comprehensive plan to accomplish this, available at www.healthtransformation.net.

Ensuring a strong partnership between individuals and their doctors is vital to transforming health. A public plan would jeopardize that bond by undercutting reimbursement, driving providers away from this program like they have fled Medicaid. Americans might have lots of coverage but no one to deliver the care. That’s a tradeoff we shouldn’t make.



1 The Lewin Group, “The Cost and Coverage Impacts of a Public Plan” Testimony before the Ways and Means Committee, April 29, 2009. http://waysandmeans.house.gov/hearings.asp?formmode=view&id=7706



2 Karen Davis, Cathy Schoen, and Sara Collins, “The Building Blocks of Health Reform: Achieving Universal Coverage and Health System Savings,” Commonwealth Fund, May 2008.



Former House Speaker Gingrich (R-Ga.) is founder of the Center for Health Transformation.