Medicare Reimbursement Variance Defies Common Sense


Medicare rules have never made much sense to me in my 32 years of medical practice experience. Medicare reimbursement is even harder to understand.

Now comes a study that absolutely defies your expectations. The Rothman Institute of Thomas Jefferson Medical College in Philadelphia examined hospital reimbursements for total joint arthroplasty. Their findings will leave you befuddled and wondering if government can do anything well.

The researchers examined 427,207 total joint arthroplasties and found a wide variation in the amount of reimbursement for the same procedure in different hospitals and different locations. The mean reimbursement was $14,324.84 with a range from $9,103 to $38,686.

The map below shows the distribution of these various reimbursements:

Medicare Reimbursement Map

You might be thinking the variation is explained by differences in the procedure performed, the medical condition of the patient, the size of the hospital, the incidence of complications, the length of stay, or other variables that might add to the costs of the hospital. Perhaps you think that those hospitals that do a better job are rewarded with higher reimbursements and those with poorer outcomes are paid less. Maybe you even think that patient satisfaction might be a contributing factor in the rate of reimbursement. All of these ideas bear some logic.

Results Defy Common Sense

The actual results defy all of these common sense expectations. When all of these factors were analyzed, greater reimbursement rates were associated with:

  • Lower patient volume
  • Lower patient satisfaction
  • Healthier patient population
  • Government ownership of the hospital


Lower Patient Volume

Numerous studies have found that hospitals with lower patient volume usually have poorer outcomes and are less efficient and cost effective. Naturally, when you do the same thing more often you get better at it. This leads to better outcomes, more efficiency, lower costs, and better patient satisfaction. But the results of this study shows Medicare is actually rewarding these hospitals with higher reimbursements.

Lower Patient Satisfaction

This finding really makes you wonder. If patients are less satisfied, the hospital experience was probably poorer and the outcomes are likely to reflect lower quality treatment. Again, this is more likely in hospitals that do lower volumes. Once again Medicare is rewarding poor hospital performance with higher reimbursements.

Healthier Patient Population

Healthier patients have fewer complications and therefore have shorter hospital stays and lower hospital bills. Yet this study shows that these hospitals are getting paid more for treating patients that should cost them less.

Government Ownership of Hospitals

Is the government paying itself more than it is paying the public? This study suggests this is true. In my experience, government owned hospitals are less efficient and therefore spend more money to accomplish the same thing that is done in other hospitals at lower cost. This study seems to show that Medicare is rewarding those hospitals that are less efficient and cost more.

This study shows that Medicare reimbursement rates for the same surgical procedure vary widely and seem to reward those hospitals that are less prepared to do the procedure, less efficient, produce less satisfied patients, and poorer outcomes, especially if they are government-owned hospitals. Clearly we need a better way of reimbursing hospitals that rewards efficiency, better outcomes, and more satisfied patients. Otherwise the American taxpayer is paying more for less.

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