Imagine for a minute your favorite restaurant buffet. Think about the range of foods on that buffet. You can probably tell that some of the items cost more than others. The Jello on the desert table costs less to the owner than say, the steak medallions in white wine cream sauce or the made to order sushi. To keep the doors open the restaurant owner balances the price of the buffet against the need to draw customers and the need to cover costs.
Over time, your favorite buffet may raise its prices because of improvements in the food or the overall dining experience, or in response to inflation, or other factors. This should all be fairly obvious so far. This is how restaurants work generally; those with more expensive foods, better service, and a nicer building will want to charge more to their customers. Restaurant owners are free to charge what they like and those that don’t get the mix right lose business or money or both and don’t usually last very long.
But that is not how the buffet down the street from my house does things. This restaurant has to get federal approval before it can raise its prices. Recently, the restaurant owner, we’ll call him Ray, applied to the Center for Buffet Services for just such approval.
Approval is by no means automatic and comes only after the regulators at the CBS are satisfied that Ray has justified his rising costs according to complex regulatory regime that is written in such a way as to be both vague and exacting, allowing the regulator broad discretion to decide what counts as sufficient justification. (That last part is really just my opinion, and Ray was actually very optimistic about getting his request approved.)
According to the specific regs involved, Ray must show ‘substantial and permanent changes in furnishing customer services.’ The restaurant has indeed seen such changes since it first opened nearly 20 years ago; as casual perusal of its buffet line makes obvious. On par with an Old Country Buffet during its early years, Ray’s Buffet now rivals offerings at many business class hotels. Top chefs manage the kitchen. Even the line cooks have significantly more training and expertise than average. The service is better too: more wait staff, a hostess, and valet.
The changing menu also demands more expensive procedures to maintain quality and safety, and the support staff to make it all work. As just one example, the full time supply manager purchases smoked salmon from special Norwegian suppliers and the orders come in via overnight air freight in specially chilled packages.
The language used in the regulations means that the restaurant must not only justify current costs, but show the changes in costs over time. This means providing data showing the food has gotten better and by how much, showing the process for handling and preparing the food requires more expensive equipment and better trained personnel, and even showing that the customers are coming in hungrier than they used to.
As I mentioned earlier, Ray felt confident about the application process. Ray keeps all his old menus, and has pretty thorough book keepers. In fact, for some odd reason, Ray has every year voluntarily requested an audit of his books by the Center for Buffet Services. As a happy consequence, he and CBS are in full agreement on his current costs – AND the rise in his costs over time.
However, some months after the application was submitted, it came back denied; no higher prices at Ray’s buffet. According to the letter he received, to justify the request Ray will need to produce additional information. CBS needs ‘all the receipts from all the customers that have ever eaten there.’ The letter continues, ‘each one must include the customer satisfaction survey… (and) the details of each customer’s serving preferences and portion sizes’ (including – he found out in a follow up phone call – how much they left on their plate at the end of the meal).
Unfortunately for the restaurant, they aren’t able to meet those requirements. A point of sale system the restaurateurs put in place a couple of years ago can provide fragments of that information, but not all of it, and not going back 20 years.
To compound the problem, the restaurant was hit by a storm that destroyed the few more obscure data points they did track in their early days. Adding insult to injury, the regulators have deflected Ray’s request for reconsideration by accusing Ray of intending to only temporarily improve the buffet as a way to trick CBS into getting the prices raised.
Ray had contracted with a consultant on a contingency basis to help with the application. But, as prospects for relief dim, so too do the consultant’s efforts. He has considered taking legal action, but the cost involved would be far more than his business can bear. Ray also considered lobbying congress, but he isn’t very well politically connected in Washington, and with the pay-off too uncertain, he doesn’t want to hire a lobbyist.
It has finally reached a point where the restaurant may need to scale back on the food or other aspects of the restaurant – forsaking a very loyal customer base in the process – or otherwise consider closing permanently.
Now, if this sounds absolutely insane, that’s because it is. However, it is not a restaurant that I am referring to, it is actually a hospital, Guam Memorial Hospital, and it is not the Center for Buffet Services, but the Center for Medicare Services.
Guam Memorial Hospital has been battling Medicare for several years over its criminally low – and yet legally mandated – payment rates. Even though the Hospital’s fleecing has been highlighted in annual audits, raised in public hearings, and been the subject of legislative resolutions, little public attention has ever been paid to the issue; most politicians instead preferring to pillory the private insurance carriers.
This past week has been different though, with most of the local news outlets – and even one in Australia – taking up the story.
See:
GMH loses millions on Medicare
UPDATE: Here is an ABC Radio Australia Pacific Beat piece
Guam Memorial Hospital says it’s losing 600 US-dollars a day for every Medicare patient it treats.
