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
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.
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.