iting tighter profit margins, the chief executive of the Mayo Clinic recently told his employees that the prestigious health system will prioritize the care of privately insured patients over those on Medicare and Medicaid.

That bold pronouncement by Dr. John Noseworthy — made in a speech to employees late last year — reflects the growing unease among hospital executives who are watching profits shrink due to steady increases in the number of government-insured patients. Medicaid, whose enrollment has increased dramatically under the Affordable Care Act, traditionally pays hospitals significantly less than commercial insurers.

“We’re asking … if the patient has commercial insurance, or [if] they’re Medicaid or Medicare patients and they’re equal, that we prioritize the commercial insured patients enough so … we can be financially strong at the end of the year,” Noseworthy said.


The Minneapolis Star Tribune reported his comments Wednesday.

The policy is being implemented at an uncertain time for hospital finances, with many executives concerned that the GOP’s plan to replace Obamacare could cause people to lose both private and public insurance coverage, forcing hospitals to absorb more uncompensated care.

But those pressures — and Noseworthy’s statement — predate the current debate over the law.

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“There is this thought that hospitals treat whoever comes to their door, but this is a statement that lays out what happens,” said Christine Spencer, a health economist at the University of Baltimore. “It’s a surprise to hear it out loud like that, but hospitals, probably for decades, have engaged in these more subtle attempts to get privately insured patients over Medicaid or the uninsured.”

In a statement, Mayo Clinic representatives said that about 50 percent of their care goes to patients on Medicare and Medicaid.

“Balancing payer mix is complex and isn’t unique to Mayo Clinic. It affects much of the industry, but it’s often not talked about. That’s why we feel it is important to talk transparently about these complex issues with our staff. We will continue to discuss these complicated issues and work to find solutions that benefit our patients,” the statement said.

As a top hospital system, Mayo stands to lose big on the spread between public and private insurance reimbursement from those sources, said Harold Miller, chief executive of the Center for Healthcare Quality and Payment Reform. Mayo told STAT that it lost $546 million in indigent care and in unpaid Medicaid portions in 2016 and $1.8 billion in unpaid Medicare portions.

The health system’s market power gives it the ability to charge more for its services and command high payments from commercial insurers, a clout it can’t wield with the federal government. So, Miller said, in prioritizing those commercially insured patients, it is following the money.

“It’s a very lucrative thing for them to do,” said Miller. While it makes sense from business perspective, he said, it doesn’t help to solve the underlying problem of America’s sky-high medical costs. “True leadership would be to figure out how to deliver high-quality services at the lowest cost possible,” Miller said. “If institutions are simply going to say, ‘I’m not going to serve patients unless I get paid more,’ that’s only contributing to the problem.”

The hunt for higher-paying patients plays out in all sorts of ways, experts said. A medical center may locate its satellite offices and target its advertising in wealthier suburbs. Hospitals might reduce emergency room services so they do not have to handle the chronic yet untreated issues — such as diabetes or high blood pressure — that regularly bring people without insurance to the hospital.

Mayo’s policy would not apply to emergency care, and Noseworthy said that Mayo will continue to take all patients, regardless of their ability to pay. He said the change would affect only a small number of patients, and only in circumstances when government-insured individuals and those with private coverage are seeking care for similar medical problems at the same time.

Mayo operates facilities in Minnesota, Arizona, and Florida, and has reported increases in unreimbursed costs related to Medicaid patients in recent years. The disparity in payments between commercial and government insurers has grown wider under the Affordable Care Act, which reduced Medicare reimbursements and instituted penalties for readmissions and poor quality. It also changed the mix of patients hospitals see by increasing the number of Medicaid patients. In Minnesota, the Medicaid rolls have expanded by 300,000 people.

While having more paying patients is generally a good thing for hospitals, it can also exert financial pressure on hospitals that serve high numbers of Medicaid patients, because government reimbursements are lower and do not cover all billable costs. Experts said the gap between public and private reimbursement is ripe for public discussion.

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Noseworthy said in his comments to employees that a recent 3.7 percent increase in Medicaid patients was a “tipping point” for Mayo. “If we don’t grow the commercially insured patients, we won’t have income at the end of the year to pay our staff, pay the pensions, and so on,” he said, “so we’re looking for a really mild or modest change of a couple percentage points to shift that balance.”

Even if Noseworthy’s statement was a moment of honesty, Daniel Polsky, a health economist at the University of Pennsylvania, said it doesn’t mean he and Mayo should be chastised for their strategy.

“I don’t think they should be shamed for saying it,” he said. “I think there should be some public discussion about whether elite systems such as Mayo should provide equal access to all payer types. I don’t know the answer to that, but it’s a reasonable debate.”

Despite the increase in publicly insured patients, Mayo has still generated significant profits. Its income jumped to $612 million in 2013. Last year, however, income dipped to $475 million, translating to an operating margin of 4.3 percent.

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