The famous hospital will no longer take some senior patients.President Obama last year praised the Mayo Clinic as a "classic example" of how a health-care provider can offer "better outcomes" at lower cost. Then what should Americans think about the famous Minnesota medical center's decision to take fewer Medicare patients?
Specifically, Mayo said last week it will no longer accept Medicare patients at one of its primary care clinics in Arizona. Mayo said the decision is part of a two-year pilot program to determine if it should also drop Medicare patients at other facilities in Arizona, Florida and Minnesota, which serve more than 500,000 seniors.
Mayo says it lost $840 million last year treating Medicare patients, the result of the program's low reimbursement rates. Its hospital and four clinics in Arizona—including the Glendale facility—lost $120 million. Providers like Mayo swallow some of these Medicare losses, while also shifting the cost by charging more to private patients and insurers.
Of course, only governments can lose that much money and pretend they don't have to change. "Mayo Clinic loses a substantial amount of money every year due to the reimbursement schedule under Medicare," the institution said. "Decades of underfunding and paying for volume rather than value in Medicare have led us to this decision."
The $500 billion in Medicare cuts planned as part of ObamaCare won't help this trend. The hospital industry agreed earlier this year to chip in $100 billion over the next decade in lower annual payment increases for Medicare. The chief Medicare actuary estimates that up to 20% of hospitals could become unprofitable as a result of the scheme.
The irony is that the Obama Administration has repeatedly praised Mayo as an example of the efficiency and lower cost that will spread everywhere if ObamaCare passes. And it's true that Mayo is a sterling example of the kind of health reform that many economists—notably White House budget chief Peter Orszag—extol.
Mayo's doctors are salaried and work in teams, which have become known more broadly as accountable care organizations, or ACOs. Mayo would prefer to receive a bundled payment for an episode of illness, rather than the Medicare practice of reimbursing for individual procedures. As it is now under Medicare, Mayo's less-is-more model means it can't make up its true costs on volume.
We have our differences with this ACO model. It essentially converts health-care providers into the equivalent of managed care in the 1990s. While HMOs did lead to less health spending for a time, patients and doctors rebelled. Congress threatened to intervene with a "patients bill of rights" until insurers backed off. The promoters of ACOs are saying that managed care will work better this time because the providers will be reducing costs at the behest of government, instead of insurance companies.
That may work for Mayo, which has spent decades building an institutional culture by trial and error. But it takes a special kind of hubris to believe that government can replicate such a culture nationwide. The ACO model still hides the cost of care from individuals, who thus have no incentive to reduce their utilization. Mayo also serves a more affluent population than most hospitals, which may make cost-saving easier.
The double irony is that earlier this year Mayo itself came out against the House health bill as offering too little cost-saving reform. And, six months later, the truth is that neither bill in Congress includes the kind of cost-saving innovations that would lead to more Mayos. Instead, the highly touted insurance "exchanges" will essentially import Medicare's rules. Mr. Orszag and the Obama whiz kids have settled for "pilot programs" and cost-saving quarter measures because Congress doesn't want to give up political control over government health payments.
In other words, the real Mayo story is that sclerotic Medicare is preventing more Mayos, and ObamaCare is paving the way for all of health care to operate like Medicare.