Building an Economy that Works for Everyone

Washington Hospitals Say 30 Percent Profit Isn’t Enough

Cascade Care would reduce profits from gargantuan to large

As the 2019 session draws to a close, state legislators are considering how to implement Cascade Care, which would create a state-sponsored plan for the individual market to reduce health care premiums and deductibles. Both chambers have passed Cascade Care bills, but different versions, which need to be united to pass.

Senate Bill 5526 in its current form would set reimbursement rates at 150 percent of Medicare. That means that if a hospital would receive $4,200 from Medicare for removing someone’s gallbladder, it would receive $6,300 for patients under Cascade Care.

Lobbyists from hospitals are balking. The American Hospital Association says that Medicare only reimburses for about 87 percent of their costs, causing them to lose money on these patients.

If you take that at face value, 150 percent of Medicare costs would mean that hospitals would receive 130 percent of the cost from Cascade Care – a 30 percent profit.

But remember hospitals decide the costs of their own services, hence the $30 pill of aspirin. These fees are often so high not because of what they truly cost, but because private insurance companies are willing to pay so much.

Imagine, for a second, that you have a wealthy neighbor. She pays the boy down the road $200 to mow her suburban lawn. Knowing you are a little more frugal, the boys asks you for $100 to mow your lawn. If you tell him you’ll give him $87 instead and he still performs the job, is he getting screwed, operating at a loss?

That’s not far from the truth. Take, for instance Virginia Mason Hospital in Seattle. In 2017, the hospital receive $27,852 per patient day for Medicare services, according to papers they submitted to the Washington Department of Health. If that’s only 87 percent of the true cost, that means they should have received $32,014.

Private insurers, however, gave them $66,562 per patient day. That would amount to 208 percent of their costs!

At hospitals, one in four health care dollars spent go to administration rather than providing care, and the number of administrators has increased more than 3,000 percent since 1970.

The top executives also eat up a lot of money. At Virginia Mason, the CEO received $1,196,592 in compensation in 2017. In fact, $428.95 from every patient admitted to the hospital went into the pockets of the six highest-paid employees. Virginia Mason is not unique.

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Hospitals may act like doom merchants when faced with lower reimbursement rates. But like insurance companies and pharmaceutical companies, hospitals are part of an intricate network of record profits from record health costs. They benefit from the status quo; you don’t.

  • Leave a Reply
    • Robert shelton

      Like too many big business the top management is way or paid!

      Apr 26 2019 at 8:44 AM

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