Medicare costs rise at slowest pace in 6 years-S&P

Thu Aug 18, 2011 5:21pm EDT

* Medicare costs up 2.5 pct vs private insurers 7.5 pct

* Hospitals may shift more costs to private insurers -S&P

* Medicare funding in focus with U.S. budget deficit

By Anna Yukhananov

WASHINGTON, Aug 18 (Reuters) - Growth in hospital revenue from Medicare patients was roughly one-third the rate seen from patients on private health insurance during the past year, according to data from Standard & Poor's.

Medicare revenue rose 2.5 percent per patient in the year before June, the slowest rate since S&P started keeping track in January 2005, the S&P Healthcare Economic Index showed on Thursday. Revenue for patients on commercial insurance rose 7.48 percent in the year ending in June.

The S&P Healthcare Economic Indices measure the revenue hospitals and other healthcare providers receive for treating each patient under Medicare and commercial insurance programs.

Medicare is the federal health insurance program for the elderly and disabled, with most patients 65 years or older. It has come under heightened public scrutiny as Congress seeks ways to cut government spending, with healthcare costs being one of the biggest contributors.

Defenders of programs like Medicare note that it has done a better job at negotiating down costs with hospitals and other providers than insurance companies, and Thursday's data may bolster that argument.

"In Medicare, the government sets the rules. It's a single payer, which means it's a single market structure," driving costs lower, said David Blitzer, chairman of S&P's Index Committee.

However, Blitzer could not say why Medicare costs were so much lower than those in the private sector this year, and it could depend on how hospitals and physicians calculate costs.

For example, in times of economic downturn, hospitals may have a greater incentive to seek reimbursement for general costs, such as heating and rent, through private insurers rather than through Medicare, since Medicare rates are lower, he said.

"There may also be some downward rate pressure that may be generated by the government pushing down Medicare costs," Blitzer said.

S&P's Hospital Commercial Index, which calculates hospitals' revenue from private insurers, rose 8.4 percent, versus 1 percent for hospitals' revenue from Medicare.

As a whole, health care revenue rose 5.6 percent in the year ending in June, almost 2 percent slower than the prior year.

Left unreformed, Medicare, along with Social Security and Medicaid, will devour 100 percent of all tax revenue by 2047, according to the nonpartisan Government Accountability Office.

Paul Van de Water, a senior fellow at the Center on Budget and Policy Priorities think-tank who specializes in Medicare and health coverage issues, said the S&P figures are a reminder that high healthcare costs are not just a problem for government.

"In fact, Medicare may be doing better than the private healthcare sector (in limiting costs)," he said. (Editing by Michele Gershberg and Matthew Lewis)

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