ObamaCare cuts MediCare reimbursements

Obamacare cuts Medicare reimbursments

It’s no secret that if we want to create a sustainable Medicare system it is paramount that we tackle the rising growth of Medicare spending. The questions facing Medicare are do we have the seniors conserve or do we make the Medicare providers innovate to reduce costs. The Affordable Care Act, Obamacare, has decided to have the providers find efficiencies since they have the resources to develop programs that reduce costs. Under the ACA, Medicare will reduce some reimbursements to providers while at the same time offering incentives for performance.

Pays like a rigged slot machine

Medicare providers work under contract. They know exactly how much they will be paid for each visit, procedure, or item provided to the Medicare beneficiary. Similarly, insurance companies offering Medicare Advantage and Part D Prescription drug plans know their monthly reimbursement rate from the government. Consequently, they all design services or plans to maximize the profit from the set government payment. While the overwhelming majority of Medicare services are fairly priced, there is always room for improvement.

Pay to play

Medicare providers and insurance companies are a pretty ingenious lot. I have no doubt that they will find a way to meet the program requirements, reduce costs and maximize their profit when faced with the gradual reduction of reimbursements. It is estimated that the changes to Medicare reimbursements under the ACA will have net reduction of $428 billion in spending between 2010 and 2019.

Here are few of the items set to have the largest quantifiable spending reductions.

Reducing payments to Medicare Advantage (MA) plans

MA plans are private insurance that replace original Medicare for the eligible enrollee. Medicare reimburses MA plans based on a statutory formula per county. Currently, Medicare reimburses most MA plans at a higher rate than the average cost for enrollees in original Medicare. These payments will be trimmed starting in 2012 to get closer to the average cost of traditional Medicare. There will be payment and enrollment incentives for MA plans that receive a 4 star rating or better. By 2014 MA plans must also meet a Medical Loss Ratio of no lower than 85%.

Reducing annual market basket updates

Medicare actuary crunching the numbers

Medicare uses complicated formulas for determining the average reimbursement rate to Medicare Advantage and Part D Prescription Drug Plans

Market baskets are estimates of purchasing the same mix of goods and services that was purchased in a base period. The Centers for Medicare and Medicaid Services (CMS) uses the market baskets for determining reimbursement rates to certain Medicare providers for their services. The reduced updates will effect the reimbursements to inpatient and outpatient hospital services, long-term care hospitals, home health agencies, skilled nursing facilities, hospices, and other Medicare providers. There are productivity adjustments and bonuses for primary care providers if 60% of their Medicare allowed charges in the previous year were for primary care services. Plus, bonuses for surgeons practicing in areas with a shortage of health professionals.

Reducing hospital payments

In an effort to prompt hospitals to reduce preventable hospital re-admissions, the ACA will reduce payments that would otherwise be made to hospitals by no more than 1 percent in 2013, 2 percent in 2014, and 3 percent in 2015. In addition, Medicare will reduce payments to hospitals for re-admissions resulting from hospital acquired conditions, like infections, by 1 percent starting in 2015.

Fraud, Waste and Abuse

While not a direct reduction, the ACA mandates that providers develop stronger programs and databases to detect fraud, waste and abuse, especially in the durable medical equipment area.

There are many provisions within the ACA to encourage savings and innovation such as Accountable Care Organizations, Center for Medicare and Medicaid Innovation, and the Medicare Independence at Home demonstration program. These programs have the potential to save Medicare even more money with no appreciable benefit changes.

Medicare enhancements

To be fair, the reduction in Medicare spending under the ACA will not necessarily reduce the overall growth of spending. Real reduction in spending growth will come from the development of programs that more efficiently deliver care or reduce the need for care. The ACA actually increases spending to reduce the Part D Prescription coverage gap and adds new prevention benefits like screenings for a variety of illnesses and vaccinations with no coinsurance or deductible applied.

Challenges are opportunities

When we look at what has been called “cuts” to Medicare, it is evident that the changes to Medicare spending are on the provider side, not the beneficiary side. The ACA has improved and enhanced Medicare for current and future beneficiaries. The bureaucratic reduction of reimbursements is a clever “market based” approach to force Medicare providers to create savings. If history is any indicator, those who provide the services for Medicare will not shrink away from the “cuts” but embrace the challenge and prove that American businesses are the best at addressing change in the market place with new and innovative care delivery systems.

  • Rosemary

    If I may, Kevin, let me add the following to your technical explanation, which was very thorough.

    ZERO BENEFITS WERE CUT BY OBAMA …only savings due to waste and fraud.

    Medicare Advantage:

    Medicare Advantage was, for most insurance companies, a scheme to rip off taxpayers from the onset. Insurance companies said, “Hey, we want to get in on the Medicare market beyond the traditional Medicare Supplement policies.” They said, “We, as private industry, can manage the dollars better and ultimately offer seniors more their Medicare dollars in care.” Sounded great, no?

    So, the Medicare Advantage program was born and instead of Medicare paying directly for the care of individuals, these insurance companies got the premiums and paid the bills.

    Take Kaiser, for example of how the “extra benefits under Medicare Advantage” are supposed to work.

    Kaiser leads the country in care for Medicare patients, cutting costs and increasing better patient outcomes through a variety of means, including massive education programs and preventative care for patients with (or to prevent) heart disease, diabetes, pro-active breast and colon cancer screenings and more, all geared towards either early detection or prevention. By managing disease better and thus, preventing many of the risk factors involved, their Medicare Advantage patients suffer fewer hospital admission, take fewer drugs and are more empowered to live better, healthier lives. In short: they save lives AND MONEY. For the most part, mission “Advantage” accomplished.

    Further savings …

    For instance, its abundantly clear a high % of senior patients are getting staph and other life-threatening infections CAUSED BY POOR INFECTION CONTROL WHILE IN THE HOSPITAL. Go in for a minor surgery and end up staying for weeks due to a lethal infection you picked up as a patient there.

    Or, in order to control costs, many seniors were being discharged far too early from the hospital before they were stable enough to manage care at home, which caused more complications to crop up after being sent home. The result? They landed right back in the hospital worse than when they were discharged the first time, and this costing the system far more in the end, to say nothing of hurting the patient and putting them through more than was necessary.

    Kaiser leads in aggressive “in-house” infection control, and also slashes Medicare costs by keeping patients longer until they’re ready and stable enough to be discharged.

    Kaiser, therefore, saves money while increasing better outcomes of patients. As a Medicare Advantage program, it does what it promised to do in order to participate as a Medicare Advantage player.

    And lets be clear …my mother paid $93 a month EXTRA to participate in a Medicare Advantage program. Shouldn’t she expect to get added benefit for that money, since those not choosing MA pay NOTHING EXTRA! If she’s not getting something more, why pay an insurance program more money …why ask taxpayers to pay more for the same care as the average Medicare patient?????

    Compare that to other Medicare Advantage players — the one’s Obama cut.

    Insurance plans wanted in on the Medicare Advantage gig and in doing so, promised to develop programs (like Kaiser has done) that would increase patient health and control costs through enhanced care practices proven to benefit the patient. MOST FAILED and provided nothing more above and beyond what traditional Medicare patients received, yet they were being paid extra for the privilege of doing nothing!

    So Obama, seeing those plans and providers as nothing more than collecting extra money (for doing nothing extra over that of traditional Medicare requirements) called it was it is …waste and fraud that had been allowed to persist in the face of utter failure.

    He took away the privilege of calling themselves Medicare Advantage (leaving only those, like Kaiser who could prove it with clear and demonstrated goals and achievements) and instead, put the extra money they were being paid into the Prescription Drug Program, giving all seniors an extra $600 annually — EXTRA to help close the doughnut hole Bush create, which was harming seniors! By 2014, EVERY Medicare patient will have $1200 in additional drug benefit coverage, effectively CLOSING the doughnut hole altogether.

    If your parent has struggled to pay for their medications, or if you have had to help them financially to buy their medications, then both of you should be sending Thank You letters to Obama! Remember, Obama’s action SAVED SENIORS OVER $6M IN 2011 ALONE!

    So what happened to all those patients that had Medicare Advantage with a plan that was clearly ripping off the patients and the system?

    ABSOLUTELY NOTHING! They continue to see the same doctors and get the same benefits they had before with the exception that they now got MORE of their drugs covered.

    But those insurance programs and the docs/hospitals involved no longer get to screw over the patients and the taxpayers for more money for doing nothing. They get paid the same as every other Medicare provider.

    NOT ONE MEDICARE BENEFIT TO SENIORS WAS CUT. Obama cut waste and fraud where Americans and Medicare was being taken advantage of, and put the money right back into added benefits for patients, where it should have been all along, providing more for the seniors who depend upon it.

    To say, simply, over and over and over again that President Obama Medicare and BENEFITS TO SENIORS IS A LIE. The ONLY thing BOLD in the Ryan Plan is THE BOLD LIES THEY TELL.

    Republicans favor drug companies and tax cuts for the rich over Medicare and the seniors it provides for. In order to give the rich MORE tax cuts and still balance a budget, they are going to TAKE FROM MEDICARE AND THE PATIENTS WHO RELY UPON IT.

    The Ryan plan, however, actually does CUT $700 MILLION in benefits from Medicare patients!!! It DOES AWAY with those savings going back to cover more drug costs for seniors AND INSTEAD, BOASTS ABOUT CUTTING THE COSTS OF THE PROGRAM OVERALL. Who suffers those cost cuts? SENIORS ON MEDICARE!

    They are trying to say that their plan keeps Obama’s cuts (which is lie #1 — that its a cut in the first place) and completely glosses over the fact that he cut fraud and waste to give seniors more, which the Ryan plan simply CUTS BENEFITS AS A MEANS TO REDUCE THE COST OF MEDICARE ALTOGETHER (lie #2) …as part of how the Ryan budget pays for all the TAX CUTS FOR MILLIONAIRES AND BILLIONAIRES.


    The Ryan Plan does nothing to make Medicare better or more solvent. It does nothing to increase the quality or access to care for those who rely upon Medicare. And once again, only if you’re rich enough to cover the added costs yourself, the Republicans would rather you quietly die …in the shadows preferably.

    Young and disabled, or suffering MS as a 50 year old dependent on Medicare? Ryan wants YOU! Your life, your health, your dignity and your tax dollars please!

    • randy owens

      Thank you so much Rosemary for clearing this up. Now I can respond to these nincompoops who keep saying Obama “stole” from Medicare to give money to the Affordable Health Care plan. It’s good to have people like you doing their homework!

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  • Scott McAtee

    When the reimbursements to Medicare providers are cut, there will be fewer providers available from which to choose. Did I hear someone say, “if you like your doctor, you can keep him”?. If you believe Rosemary’s analysis, I have some land in far south Florida to sell you.
    Scott McAtee

    • Kevin Knauss

      Reduction to physician reimbursements is not part of the Affordable Care Act which has been the topic of much debate regarding how much is being cut from Medicare. There is fat in the system that needs to be excised. What are the other suggestions that will move the market place to reduce expenses to make Medicare solvent for the long term? I am willing to listen, read and report on any substantive ideas. As for Florida land, I am happy in California.

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