Dr. Mu did not received the $117,000 as a private check from Mr Drier.

"When Mr. Drier complained to his insurer, Anthem Blue Cross Blue Shield, that he should not have to pay the out-of-network assistant surgeon, Anthem agreed it was not his responsibility. Instead, the company cut a check to Dr. Mu for $116,862, the full amount."

"If the surgery had been for a Medicare patient, the assistant would have been permitted to bill only 16 percent of the primary surgeon’s fee. With current Medicare rates, that would have been about $800, less than 1 percent of what Dr. Mu was paid."

So at least we should agree that this is a perfect example of cost shifting / price gauging.

> If the doctor makes $120K/year with Medicare patients only, and $500K/year with only non-Medicare patients, and the hospital is profitable both ways, then where's the subsidy? While an extra $380K/year is very lucrative. If what you are saying is true, then, there should be a mass wave of hospitals and doctors which don't accept Medicare

Well, that's the very definition of subsidy, so I don't know quite how to respond. Where's the subsidy? Right there! Very few people become chief neurosurgeons for $120k per year. A lot more become chief neurosurgeons for $500k per year.

As I a said, running a hospital has massive fixed costs, so like an airline, taking on patients which pay 85% of cost is still better for the bottom line, as long as your hospital is running below capacity. So Medicare is an overall good deal for the hospital, even though it pays below cost, as long as it doesn't exceed a certain percentage of the overall patient population. If the patient population was entirely Medicare, then the hospital would not be profitable.

> "It's very hard for me to accept that the payment-to-cost ratio chart you linked to is meaningful. That appears to be the average cost across everyone. A better chart would be the cost of Medicare treatment vs. the reimbursement by Medicare, and the same for the private insurers."

The better chart you ask for--the cost of Medicare treatment vs. the reimbursement by Medicare, and the same for the private insurers--is exactly what this chart shows. It shows separately for Medicare, Medicaid, and Private Insurance, what percent of the cost of the procedures is actually paid. Medicare has lately been covering 89% of costs, while private insurance has ballooned to 150% of cost. Here's the full set of charts; http://www.aha.org/research/reports/tw/chartbook/ch4.shtml

> Otherwise, this could be showing that Medicare does a better job of cost containment than private insurers, so that private insurers end up paying for more medically needless but profitable procedures than Medicare.

Quite clearly Medicare does a fantastic job of containing its costs. You can strike the "medically needless" part from that, since I think it's unsupported. Private insurers absolutely pay for more profitable procedures, as indicated by the chart; private insurance pays 150% of cost overall. But obviously ACA legislation setting a lower payment rate does not inherently make the procedures being paid for actually cost less to perform. But it does certainly force the hospital to search for ways to make up the difference.

> Instead, I find papers like "How Much Do Hospitals Cost Shift? A Review of the Evidence

I'm somewhat confused by this paper, since it reads like an op-ed. After a bit a searching, it appears Frakt has quite a few editorials claiming hospitals lack the market power to meaningfully shift costs to private insurers, despite abundant and uncontroversial data showing Medicare pays below cost.

Frakt himself has the following to say, quite amusingly, in a editorial titled 'The End of Hospital Cost Shifting and the Quest for Hospital Productivity';

"The ACA will permanently reduce the Medicare payments hospitals would otherwise receive. Its ‘productivity adjustment’ will scale payments downward by the average rate at which private nonfarm businesses’ productivity increases. That rate has been estimated to be 1.1 percentage points per year…Actuaries for [CMS] have estimated that by year 2040, Medicare payment rates to hospitals will be half those of the commercial market, and lower still thereafter."

That's payments rates not total payments. I trust the CMS to know exactly how much it's underpaying. http://www.cms.gov/Research-Statistics-Data-and-Systems/Stat...

I didn't know that the ACA puts downward pressure on rates equal to the average rate at which private nonfarm business productivity increases. Since that productivity rate increases significantly higher than the historical productivity gains in healthcare, and is expected to do so for some time, CMS states this will require new legislation to fix, or else payment rates will be so low as to significantly effect availability and quality of services. That's pretty scary, to have built a failure mode like that into the system.