Citing 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.

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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.

“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.

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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  • Mayo is one of the most mismanaged hospitals with 20% too much staff for service they provide. Their reputation has been slipping for 25 years. Time to change management of Mayo to get them back to their original founding mission statement.

    • It sounds as though your position is, “we aren’t going to fund the research you are doing to improve public health unless you treat our federally insured patients at a loss.” That reminds me of the sheriff in Blazing Saddles taking himself hostage, and the townspeople falling for the ploy.

  • Does Mayo receive gov’t money?? Yes. How does an entity that receives gov’t money prioritize private insurance over gov’t insurance. I don’t blame Mayo for not wanting to become the equivilent of a VA hospital. That being said, private insurance for those over the age of 60 is expensive. Over 65 and it is exorbitant. It is gonna hurt bad for those who pulled there own weight their entire lives to be medically considered second class citizens.
    This is a slippery slope indeed. Quality medical for the monied and elites, VA style medical for the masses? Not good.

  • Those of you expressing shock and disapproval, hear me out. Would it really be better if Mayo silently went bankrupt and closed its doors? The problem isn’t with hospitals/doctors being “greedy”. The problem is that Medicare simply doesn’t pay enough to sustain the healthcare system by itself, and while people seem to think “the government” pays when the patient and/or his insurance can’t, the truth is the hospital, group practice or individual doctor eats the cost.

    In other words, the problem here isn’t Mayo, and the solution sure as hell isn’t single-payer government insurance paying pennies on the dollar. The problem is that the government underfunds Medicare/caid, as well as schools, libraries, parks, science, etc etc. If Congress diverted even a fraction of the defense budget into Medicare/Medicaid, we wouldn’t be having this conversation. So if you really want to change things, don’t grumble about doctors/hospitals, and don’t (as in one comment below) scoldingly repeat a 70 year old rewrite of a 2000 year old document. Call your Senators. Call your Representatives. Tell them they need to fund Medicare better and make it a reasonable alternative to private insurance. And then vote in a way that’s consistent with that.

    • I assume that you are referring to my quote from the Hippocratic Oath. While the current version may be more than 70 years old, its relevance is evidenced by the fact that it is taken by most doctors worldwide (in some form) prior to commencement of practice.

      Your statement about Mayo going bankrupt and closing its doors would be salient, but, as the article points out, their operating margin was 4.3 percent last year. Average for a not-for-profit hospital is 2.2%. Using this standard, they are financially sanguine.

      While I agree with your comment on funding and particularly on the defense budget, this does not justify the corruption of the practice of medicine.

    • To tell you the truth, Doc, I couldn’t care less how Mayo decides to run its business. They are nothing more to me than an auto supply store or my local mechanic or Blaine Lumber Co. They are going to do what is in the best interest of the company and/or the stockholders. Until physicians and the medical profession in general finally decides to quit killing people indiscriminately, all of these places are the same to me. Mayo has a fairly reasonable kill rate, relatively speaking, but it isn’t the best and I don’t know if there is such a thing a “good” kill rate. I define kill rate as: A human being who dies in the care of a physician or hospital from a Medical Error that was preventable. And almost all of them are preventable. They are also almost never reported; or even acknowledged. So how Mayo decides how to juggle their books is of no interest to me. Their continued existence is of no interest to me. What IS of interest to me — and should be of interest to anyone who has an IQ above 30 — is whether they are instituting reporting regimens for medical errors committed by anyone working there, and laying down punishments for those who fail to utilize those regimens and rewards for everyone who actively participates in those regimens.

    • Mayo is taking in all sorts of Federal money at all levels. If they want to treat Medicare-caid patients as second class customers, then the Feds should take back public research money/grants.
      If your going to treat some taxpayers as second class citizens, then return all their money Mayo, and maybe they could afford that “upscale” private insurance.

  • My wife and I are both in our 70’s and we’re forced to go on Medicare when we turned 65 because our private insurance would no longer insure us. We both worked all of our lives and never asked for any financial assistance from anyone. All we ask is that our Medicare insurance be valued by Mayo, and other medical providers, as much as private insurance. We payed into Medicare all of our working lives and consider the insurance as something we earned, not something that is being given to us. Don’t throw us under the bus just so you can increase the profits and increase pay scales for medical and administrative staff. A single payer system for ALL persons, regardless of age or position, is the most Christian way to provide health care to all Americans.

    • Terry: I hear your anxiety. Which is truer, though–that Mayo owes its business interest to you and your wife, or that the government owes you health insurance that is truly competitive? Isn’t it true that your health is the government’s responsibility–and if they aren’t making your insurance competitive, then you need to take your fight to your representatives?

  • Questions for Mayo.
    How will restricting access to wealthier patients skew research at Mayo? How does/will Mayo justify getting more than a third of its revenue from the government under its new plan? Or is that revenue the Medicaid/Medicare revenue it receives now and expects to replace with private insurance patients and those able to pay medical fees without insurance? Finally, what is Mayo doing to figure out a better system (not high-overhead, profit generation required,insurance company focused) to fund medical costs? Mayo may have just chosen to go down a path will destroy its reputation as the Lourdes of the medicine.

  • If you view the video. He never says to turn away Medicare patients. He speaks to the larger issue of Growing Commercial paying patients so that they can continue to serve the Medicare/Medicaid population.

  • “I will apply, for the benefit of the sick, all measures which are required, avoiding those twin traps of overtreatment and therapeutic nihilism.”

    Copied and pasted directly from the Hippocratic Oath. As a nursing student, I was stunned to read the headline and thought that it was information leaked by a whistleblower. To discover that it was said publicly was a second shock. This policy runs counter to everything we are taught about medical ethics. If this is the shape of things to come, single payer may be our only savior from the creation of a medical caste system.

  • Better than HMA hospitals that had ER admission quotas to increase revenues & among other odious acts admitted insured patients even though they didn’t have available resources to treat. Profits above all else including the law was CEO Gary Newsome’s Mantra and hospital administrators and ER docs chanted along with him. When will the Feds enforce the law and arrest and try corporate healthcare criminals for their crimes?

  • Has anyone compared the survival of patients with serious illness or patients requiring intensive care with private or Medicare insurances at hospitals that use such “prioritizing”? Wonder what that would be like…

  • Mayo should not be shamed–they should be praised. The only way that complex systems remain balanced and efficient is by encouraging rational actors to use data to choose strategy in order to maximize outcomes. All payers need to have their feet held to the fire in order to promote a sustainable system. Otherwise, calamity ensues for payers and providers, which results in bad outcomes for patients. No one gets a free pass. Competition dictates actions which dictates outcomes.

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