Quote Originally Posted by dcarrigg View Post
I tried to explain the process in broad strokes with my numbered list before. Medpac (The Medicare Payment Advisory Commission) is the legislative independent advisory commission made of private practitioners which recommends rates. CMS staff consults with Medpac staff and takes rates and rate policy under advisement. CMS then takes the NHED account survey data of provider rates paid to private insurers. The rulemaking process takes both these factors and public comment into account. Eventually a proposed rule comes out. Medpac comments again, something like this. They tinker again. Eventually, final rules are published in the fed register and set. Then providers decide whether or not they will accept Medicare, and negotiate all sorts of details, and get to recommend a number of their own adjustments and accounting methodologies, as broadly outlined in the provider reimbursement manual. Eventually a contract is signed. Even after this, providers have some flex to affect rates.

So maybe you take issue with how I used the term 'negotiate.' It's not a free for all where a hospital CEO sits on one side of the table and a CMS bureaucrat sits on the other and they haggle rates. But neither is it an adversarial process in which a commission rules on rates and the government defends ratepayers against providers. The reality is different than either of those. The federal government doesn't just set rates. Industry has a huge role in the process, including the opening salvo out of medpac that sets the baseline for the process which I suppose I'm calling negotiation and you don't feel justifies the term. That's fine. Just a semantic quibble. Two points are that 1) providers don't have to accept Medicare at all, and, 2) there are a lot of ways they can push for and work to get reimbursed at higher rates. Hospitals also negotiate cost rates on the NIH and HHS and research side, sometimes as negotiated indirect cost rates (icrs), other times as lump sums.

It's very convoluted. I can get deeper in the weeds, but I don't think it will be very helpful. The physician fees are separate from the facility fees, equipment fees, pharma fees, etc. But if you want to see an example of the rule governing the process, here it is. If you want to understand the mechanics of pricing better, you can play with the fee scheduler. You'll have to know something about HCPCS codes. Suffice it to say pick a letter followed by 4 numbers. So P3001 is a pap smear, for instance. So there's the base. But notice the mods by locality and MAC (Medicare Administrative Contractors, which are private intermediary entities), RVU (relative value units), various status and payment policy indicators, professional and technical components, etc. So roughly this is a broad sense of one side of the Part A and B payments. Part C payments are effectively de facto tied to percentages of the A & B amounts for various convoluted reasons, but are still independently negotiated between providers and private insurers that offer the plans. Part D we all know can't really negotiate with drug companies.

But the whole mess amounts to one simple take-away: It's not like thinking of the federal government as a monolithic price-setting entity is helpful here. Even if one were to do so, it's not clear that the federal government in that case would be either interested in setting rates itself, nor interested in controlling costs, nor firmly on the side of consumers against providers. If anything, the process is heavily run by outside industry, in terms of the role of outside advisory rate recommendations, and in terms of the process requiring private sector negotiated insurance payment rates as input, and in terms of the relative flexibility providers have in negotiating with CMS for various determinations and adjustments that affect ultimate reimbursement rates via contracts. I realize I'm being vague here. I'm also honestly getting a bit out over my skis, as I've never participated in the process directly myself. Regardless, here's a flowchart of the provider reimbursement process even after rate rules are promulgated and contracts are signed by providers to accept Medicare that shows you the effects of some of the post-contract determinations and adjustments I'm talking about.

Thank you! Now relate that very convoluted system to the simple process of a face to face auction; where one bids against the actions of other bidders; or, again, when dealing with a purchase of a product from potential multiple suppliers, where one simply states what one wishes to purchase and gets the equally simple answer of related cost.

As I see it, the entire system above is the responsibility of the point of sale; that such complexity should be invisible behind the determination of the cost of purchase. Pap Smear costs and a single price offered from each provider. Any other way brings in such complexity that the whole idea of a free market is completely lost.

Very thought provoking.