Person siting in a restaurant, they have chest pain. Is it a heart attack, is it gas pain? Is it a muscle pull? To determine this we usually take the patient to the hospital. They're admitted through the emergency room and a number of tests are run, some blood tests, maybe a scan, maybe a cardiac catheterization. All of this is the hospital-based care. It's the most and biggest part of the health care system. We have nearly 5,000 hospitals in the United States. Just 5% of them, 273, are large, 500 or more bed hospitals. Most of the hospitals in the country are actually small, fewer than 100 beds in the country. We spend nearly $1 trillion on hospitals in this United States. That's about a third of all health care spending. How we pay hospitals is incredibly complicated. First thing you have to understand is that this is called the DRG system. We take a theoretical hospital admission of a patient, and that is then adjusted, based upon geography, for rent, for labor cost and other variables. That is the adjusted base rate. That is then multiplied times what's called the MS-DRG. There are 746 of these and they're specific to particular diagnoses and diseases such as an MS-DRG, for example, for an exacerbation of emphysema, or an MS-DRG for that heart attack patient. If it's simple, uncomplicated heart attack, that's one MS-DRG. But if it turns out the patient also has diabetes and maybe hypertension and needs a stent because it's a severe problem, that's a different MS-DRG. That adjusted payment rate then has add-ons when it's paid by Medicare. Add-ons, for example, for hospital treating uninsured people, called the DSH or disproportionate share hospital payment. Hospitals that teach residents and interns get another payment called a graduate medical education payment, or GME payment. And that gives you the final payment to hospitals. It turns out that's only one part of the complexity of paying hospitals. In fact, there are six different payment rates to hospitals. One, or the often most famous one, is the called the charge master rate. That's actually the payment rate that hospitals list. It's what they would charge someone who doesn't have insurance or someone who comes from a foreign country to the United States. It's typically the list price. A second rate is the Medicare rate. Medicare takes all those DRGs and says, this is how much we're paying for each DRG. A third rate is the commercial insurer and Blue Cross rate. It's what private insurers pay. It's typically higher than the medical rate. And the commercial insurers negotiate with hospitals separate rates. So in fact, there's not one commercial rate, but many different commercial rates. That typically is denominated as a percentage of the Medicare rate. So it could be 140% of the Medicare rate or 210% of the Medicare rate. A fourth rate is called the usual, customary, & reasonable rate. This is the rate that the insurance company decides is the right price for a particular condition. It's the rate that an insurance company typically pays for a hospital bed it has no relationship to. For example, if you're having chest pain in Florida, but you normally live in New York, your insurance company hasn't negotiated with the Florida hospital where you'd be admitted to, and they would pay that Florida hospital the usual customary reasonable rate. A fifth rate is the Medicaid rate. This tends to be the lowest rate in the system. It's what Medicaid plans in states pay hospitals and always is lower than the Medicare rate. Finally, there's what you might call the actual cost. What does it actually cost to provide care, to admit the patient in the emergency room, to send them up to the floor and have an operation or a procedure? Those rates are typically ones we don't know. There actually is no real reason we need six different ways to pay hospitals. As a matter of fact, there's one state in the country that has one rate, Maryland. In the 1970s, they decided that everyone would pay the same rate, Medicaid, the commercial insurers, Medicare. It's an all payer rate system. In the 1970s when they started it in Maryland, they had among the highest hospital cost, and now they're about the lowest hospital cost in the country. And it means that there's no reason a particular patient has to go to one hospital over another. When you have these six different payment rates, hospitals adjust how many patients they have who get commercial payment versus Medicare payment versus Medicaid payment, and that is playing on their payer-mix. Hospitals want to have more commercial and private insurance patients because they actually get more money for those patients. And so they try to adjust their payer-mix to make sure they make as much money as they can. Similarly, hospitals get paid more for certain kind of conditions. They get more for neurosurgery, cardiac surgery, orthopedic surgery, transplant, cancer care. And they get paid less for other things like psychiatric care or just the care of patients with minor infections. This is called a case mix adjustment. Hospitals would prefer to have more surgical procedures and fewer medical procedures. The last point to note is hospitals are very busy places and key to many communities' economy. There are about 35 million hospital admissions a year in the United States, 125 or more emergency room visits, and hospitals actually employ nearly 5 million people. Often, as I've mentioned, they're the key employer in an area. Next, we're going to look at doctors and nurses in more detail, the people who actually provide patient care.
