How Hospitals Get Paid By Medicare Simply Explained.

Have you ever wondered how hospitals get paid by Medicare?  The New York Times has  a simplified explanation of this highly complicated process.  It's simple really.  First the hospital labor component is adjusted for geographic location and then added to the capital depreciation expenditures adjusted for geographic location and then a medical severity adjusted diagnosis related group multiplier is added (MS-DRG).

Once this adjusted payment rate is calculated, the hospital is given a bonus to cover the costs incurred if they are a teaching hospital, through the indirect medical education payment.  Added to that is the disproportionate share payment for hospitals that see a lot of uninsured or Medicaid patients.  Strange that Medicare subsidizes Medicaid, isn't it?  If you have a patient that is extremely sick or spends mulitple extra days in the hospital, they may get an extra outlier payment.  I might also add that somewhere in all that mess that hospitals get  several percentage points of bonus or reduction in payments based on performance in quality indicators and patient satisfaction scores that the government has determined are important.

That's how hospitals get paid by Medicare.  It doesn't get any easier that that.  Are you wondering how physicians get paid by Medicare?  It's all calculated through a completely separate process of calculating relative value units (RVUs).    And you thought doctors and hospitals just submitted a bill and got paid.  Nope.    All this sounds fair and great in theory, but there is one problem with the whole government price fixing mantra.  They don't want to pay for what populace believes they deserve.     This is exactly why Europe is crashing and burning. When you start by promising everything, you end by paying for nothing.

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