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Obama Healthcare Reform Called a 'Shell Game'

John Commins, for HealthLeaders Media, July 9, 2009

The high-profile announcement this week that the nation's hospitals will sacrifice about $155 billion in Medicare and Medicaid payments over the next decade to help pay for healthcare reform is just smoke to hide the true cost of healthcare reform from taxpayers, one critic says.

"It's a shell game. It's political fanfare, but there is no substance to this," says Dennis Smith, a senior fellow at The Heritage Foundation, and a former acting administrator of CMS under President George W. Bush. "The hospitals and the administration are touting this great agreement. But in many respects all they are trying to do is fool people into believing there is something real behind this, and there is not."

Smith says the $155 billion represents only about 1.5% of the $10.5 trillion in payments that U.S. hospitals are expected to receive between 2009 and 2018 from Medicare/Medicaid and private insurers. "It sounds big, and they want everybody to believe it is big. The hospitals are saying 'we are giving up $155 billion.' We should ask: 'what are they going to get in return?'"

Smith says hospitals already get about 31% of total healthcare spending. If healthcare reform increases federal spending by $1 trillion over the next decade—a ballpark figure, Smith concedes, for simplicity's sake—that's an additional $310 billion for hospitals. "So they just lost $155 billion but they're getting another $155 billion back. Where's the pain in that?" Smith says.

The Obama administration, Senate Democrats, and hospital groups have said that the $155 billion of projected savings would come from an estimated $40 billion to $50 billion decrease in disproportionate share payments for providing care to uninsured and low income patients. Medicaid cuts would be apportioned state by state, using a 10% annual reductions starting in 2015. Roughly $100 billion more would come from reductions in Medicare payments to hospitals. Some of that money is coming from the money hospitals save by eliminating or preventing some hospital readmissions.

In return, hospitals want any public insurance plan to reimburse them above the rates Medicare and Medicaid would pay if the option is approved.

Smith says that if hospitals are serious about making sacrifices they can start with surrendering all of their DSH payments. "Under Medicaid, that is about $175 billion federal and state over the next 10 years and Medicare is about another $100 billion over 10 years," he says. "If everybody is insured, why do you need DSH at all? At a minimum, they should be willing to give up $275 billion."

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