Answer to Question #49611 in Economics of Enterprise for Obinna

Question

Do changes in Medicare change the value of hospitals? Do they change the value of the hospitals’ bonds?

Answer 1

Medicare is changing the way it pays hospitals for services provided to people with Medicare. Instead of only paying for the number of services a hospital provides, Medicare is also paying hospitals for providing high quality services. The Centers for Medicare & Medicaid Services (CMS), the federal agency that runs Medicare, is changing the way Medicare pays for hospital care by rewarding hospitals for delivering services of higher quality and higher value.

The convergence of three major factors brought hospitals to the fore for everyone from the late 1950s onward. First, aggressive medical and surgical treatments—such as chemotherapy regimens, extended courses of IV antibiotics, and increasingly invasive surgeries for breast cancer began going mainstream. By the late 1960s intensive-care technologies were becoming common, and patients and physicians wanted more of them. Congress, the executive branch, and state legislatures obliged with expanded federal subsidies for hospital-building programs and tax-exempt bonds.

What cemented the centrality of hospitals was the passage of Medicare and Medicaid (Public Law 89-97) in 1965. By 1966, more than 19 million individuals ages 65 and older were enrolled. Premiums were modest: in 1970, Medicare Part A, which covered hospitalizations, had a deductible of $52 per year, and Part B (supplemental medical insurance) charged a monthly premium of $4. Nonetheless, for hospitals, especially urban ones, Medicare and Medicaid caused a sea change. What had been for centuries their most problematic service group—the elderly indigent—in a trice had become, now that their care was monetized, desirable. So, we can state, that changes in Medicare change the value of hospitals.