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Mayo Clinic Prefers Privately Insured Patients. So What?

Analysis  |  By Philip Betbeze  
   April 06, 2017

Outraged? Don't be. The CEO's acknowledgment that private pay patients take precedence over other patients is a rational response to an irrational healthcare payment system.

You may have heard that John Noseworthy, MD, the president and CEO of the Mayo Clinic, recently told employees that the Rochester, MN-based health system will give preference to patients with private insurance over those who rely on Medicaid or Medicare.

At this point it's safe to say he wishes he hadn't said that.

Predictably, that statement opened up a nasty public relations crisis for which the health system has still not fully recovered, even two weeks later. I asked to speak with Noseworthy, but through a spokesperson, he declined to further address the issue beyond the written statement proffered after the Internet exploded in reaction to his comments.

Worst-kept Secrets
I don't necessarily blame him. Noseworthy disclosed publicly one of the worst-kept secrets in healthcare, and he's paying for it dearly in the news cycle.

He articulated what many, many hospitals and health systems struggle with—how to manage their payer mix. Many actively try to manage that mix, albeit in more subtle ways.

In fact, when meeting healthcare executives for the first time, a description of the health system's payer mix usually happens right after they introduce themselves. 

Noseworthy and Mayo are suffering because Noseworthy had the temerity to admit that healthcare, at least as we practice it in this country, is a business. And businesses exist to maximize revenue under the law.

The mess all started when the Minneapolis Star-Tribune got a transcript of the videotaped speech, made late last year to employees, in which Noseworthy said the health system essentially would prioritize commercially insured over public-pay patients to bolster the bottom line.

His actual words were more nuanced, according to the Star-Tribune:

"We're asking... if the patient has commercial insurance, or they're Medicaid or Medicare patients and they're equal, that we prioritize the commercial insured patients enough so... we can be financially strong at the end of the year to continue to advance, advance our mission."

Noseworthy even said in the same speech that the Clinic would always take patients regardless of ability to pay, in circumstances where such patients could not find that medical expertise elsewhere.

Piling on Misses the Point
The predictable piling on of bloggers and bloviators in search of page views described Noseworthy's faux pas in biting, breathless headlines.

Such is the morass into which my request to speak with the CEO landed. While waiting for a response, I googled "priority to commercial patients" and got more than 85,000 news results. So please, let's not pretend Mayo is necessarily a bad actor here—and if it is, it's far from alone. Mayo is managing what every health system seeks to manage to the degree possible—its payer mix.

Why do physicians refuse to take new Medicare or Medicaid patients into their panels while remaining open for the commercially insured? Because Medicare pays less than commercial insurance, and Medicaid generally pays much less than that. Same for hospitals building new facilities in the well-to-do areas of town rather than the poor ones.

A widely accepted rule of thumb is that Medicare pays around 90 cents of every dollar commercial payers pay for the same services, while Medicaid is often much worse, paying between 55 and 80 cents on the dollar compared to private insurers.

With its reputation for quality and innovation, built over decades, Mayo has a much bigger pool of patients from which to choose than most organizations. Its capacity to deliver services is far outweighed by the number of patients who would like to receive care there.

Don't get me started on fee-for-service healthcare, but that's what we still mostly have in this country. 

A Symptom of the System
The fact that healthcare providers discriminate based on how much they're paid should not be surprising, because it's a rational economic decision. Why do so many people buy supplemental health insurance in countries with single-payer healthcare?

Because it helps them jump the queue. In effect, higher reimbursement from commercial payers in the U.S. helps their patients do the same.

This sort of policy from Mayo, whether articulated publicly or not, isn't new.

Noseworthy's comments from the employee speech were not the first time a Mayo executive has opened his mouth about preferring commercial patients. This story dates back eight years, for Pete's sake.

The CEO's responsibility is to grow the business. The only way to do that is through margin, and preferring higher-paying patients over lower-paying ones is an efficient way to reach that goal.

That doesn't absolve any organization with a valuable tax exemption or two from criticism about how growing revenue to the detriment of everything else furthers a nonprofit's "mission."

I'll let others take on that question, but let's not feign naiveté here.

Many, if not most, hospitals and health systems can't do without Medicare and, to a lesser extent, Medicaid, revenue. With its worldwide reputation, Mayo may be an exception. But you can bet that in the case of managing its payer mix to its maximum benefit, it's certainly more the rule.

Philip Betbeze is the senior leadership editor at HealthLeaders.


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