Frag­ile fore­cast

Trus­tees: Con­trol costs to re­tain qual­ity, avail­abil­ity

Modern Healthcare - - THE WEEK IN HEALTHCARE - Jes­sica Zig­mond

Gov­ern­ment of­fi­cials and pol­icy ex­perts again un­der­scored the ur­gency for sys­tem re­forms to rein in ris­ing health­care costs as Medi­care’s trus­tees de­liv­ered a mixed re­port card last week.

In the short term, Medi­care’s hospi­tal in­sur­ance trust fund is pro­jected to re­main sol­vent and cover ben­e­fits through 2024, the same pro­jec­tion the trus­tees re­ported last year. Sched­uled hospi­tal in­sur­ance tax and pre­mium in­come would be suf­fi­cient to cover 87% of es­ti­mated hospi­tal trust fund costs in 2024 and 69% by 2086, ac­cord­ing to the 2012 re­port.

The trus­tees con­cluded that although the Pa­tient Pro­tec­tion and Af­ford­able Care Act makes changes to Medi­care that im­prove the pro­gram’s fi­nan­cial out­look, there is a “strong like­li­hood that cer­tain of these changes will not be vi­able in the long range.” For in­stance, an­nual price up­dates for most non­physi­cian ser­vices will be ad­justed down­ward an­nu­ally be­cause of pro­duc­tiv­ity growth in the econ­omy. But the trus­tees warn that most health­care providers can­not im­prove their pro­duc­tiv­ity to this de­gree be­cause health­care ser­vices are so la­bor-in­ten­sive.

“There’s some con­cern among providers that they may not be able to work with the pro­vi­sions of the health re­form law in terms of pro­duc­tiv­ity ad­just­ments and se­ques­tra­tion,” said Juli­ette Cuban­ski, as­so­ci­ate di­rec­tor of the pro­gram on Medi­care pol­icy at the Kaiser Fam­ily Foun­da­tion. Cuban­ski also said there’s an ex­pec­ta­tion that hospi­tal uti­liza­tion will in­crease, but that se­ques­tra­tion will cut provider pay­ments by 2%. “It el­e­vates the im­por­tance in be­ing ac­tive par­tic­i­pants in the de­liv­ery of health sys­tem re­forms and be­ing an ac­tive par­tic­i­pant in adopt­ing value-based pur­chas­ing—and com­ing to the ta­ble with new ideas.”

Medi­care’s trus­tees said in the re­port they as­sume var­i­ous cost-re­duc­tion mea­sures, par­tic­u­larly pro­duc­tiv­ity ad­just­ments, will oc­cur as the Af­ford­able Care Act re­quires. But if the health­care sec­tor does not shift to more ef­fi­cient mod­els of care de­liv­ery, and if provider pay­ment rates from com­mer­cial in­sur­ers con­tinue to fol­low the same process, then both the avail­abil­ity and qual­ity of care that Medi­care ben­e­fi­cia­ries re­ceive rel­a­tive to those with pri­vate in­sur­ance will fall and add pres­sure to change Medi­care’s pay­ment rates.

In 2011, Medi­care cov­ered 48.7 mil­lion peo­ple, in­clud­ing about 40 mil­lion aged 65 and older and about 8 mil­lion Amer­i­cans with dis­abil­i­ties. Ex­pen­di­tures for the pro­gram in 2011 to­taled $549.1 bil­lion.

The trus­tees’ re­port showed that Medi­care’s sup­ple­men­tal in­sur­ance fund—which cov­ers parts B and D—is bal­anced, with ben­e­fi­ciary

pre­mi­ums and gen­eral rev­enue fi­nanc­ing set to cover ex­pected costs.

Mean­while, the long-term out­look for the hospi­tal fund is darker. Be­cause of changes in an­a­lysts’ cost-pro­jec­tion meth­ods, Medi­care’s hospi­tal in­sur­ance trust fund has a long-range ac­tu­ar­ial deficit equal to 1.35% of tax­able pay­roll, com­pared with the 0.79% fig­ure re­ported in 2011.

The re­port ex­plains that the changes raised neart­erm costs and the long-range rate of in­crease in both the av­er­age hospi­tal in­sur­ance trust fund and the sup­ple­men­tal med­i­cal in­sur­ance part B costs per ben­e­fi­ciary. But the rea­son the short-term sol­vency date hasn’t changed is be­cause those higher costs were off­set dur­ing 2013-21 due to the 2% re­duc­tion in ex­pen­di­tures that last year’s Bud­get Con­trol Act es­tab­lished and that are sched­uled to take ef­fect through se­ques­tra­tion next Jan­uary.

“In the long run, they talk about what per­cent­age of pay­roll would pay 100% of cov­ered ben­e­fits in the 75th year,” said Don Mo­ran, pres­i­dent of the Mo­ran Co., an Ar­ling­ton, Va.-based health­care re­search and con­sult­ing firm. “It went from 0.79% of pay­roll to 1.35% of pay­roll, mean­ing the longer-term sit­u­a­tion is de­te­ri­o­rat­ing a lit­tle faster,” he added.

Trea­sury Sec­re­tary Tim Gei­th­ner, one of the pro­gram’s trus­tees, said in a news con­fer­ence that one of the most im­por­tant things to do to pre­serve Medi­care is “to im­ple­ment the Af­ford­able Care Act fully and ef­fec­tively.”

On the same day the trus­tees re­leased their re­port, the CMS an­nounced it ex­pects the Af­ford­able Care Act to pro­duce more than $200 bil­lion in sav­ings through 2016 be­cause of mea­sures that in­clude end­ing ex­ces­sive pay­ments to in­sur­ers that of­fer Medi­care Ad­van­tage plans and through im­ple­ment­ing anti-fraud poli­cies.


The re­port as­sumes the 31% re­duc­tion in Medi­care pay­ment rates to physi­cians will take ef­fect in 2013, said Robert Reis­chauer, a public trustee for the Medi­care and So­cial Se­cu­rity trust funds.

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