How Congress, hospitals and lobbying inflate healthcare costs

Lobbying and political negotiating have a surprisingly direct effect on U.S. healthcare spending, according to a working paper published by the National Bureau of Economic Research and featured in The New York Times.

When legislators earmark bills or steer funding to specific districts to woo targeted members of Congress — such as the extra funds added to the Graham-Cassidy healthcare bill for Maine, Arizona, Alaska and Kentucky — it can add up to millions, or even billions, of dollars of added healthcare costs over time.

For example, the working paper focuses on earmarks added through Section 508 of the Medicare Modernization Act of 2003, which allowed hospitals to apply for increased Medicare funding based on location and labor costs. Of the 400 hospitals to apply for Section 508 funding, 120 succeeded in securing Medicare rate increases. Researchers found hospitals were seven times more likely to be granted funding increases under Section 508 if they were located in districts represented by a Republican who voted for the bill, according to The New York Times.  

Those hospitals received a 6.5 percent boost in Medicare funding, and 29 hospitals received an even larger boost of 10 percent. These increased funds allowed the hospitals to treat more Medicare patients, grow the nurse workforce, invest in new technology, and pay employees and executives more. This increased hospital spending by more than $100 million annually, according to the paper. And as The New York Times notes, the 29 high-recipient hospitals racked up $1.25 billion in additional spending over just five years without changing the quality of care.

However, the spending didn't stop there. Hospitals that received the additional funding in turn formed a coalition and spent millions to lobby for continued funds. Ahead of the vote to reauthorize the program, healthcare workers increased donations to Congress 65 percent, and Congress members who represented districts with Section 508 hospitals raked in 22 percent more in campaign funding, according to the paper.

Read more here.


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