How Medicare Savings Will Be Made

In today's NEJM there is an article on how Medicare's $500 B savings will be achieved. With the appointment of Donald Berwick this will be interesting to watch especially for the poor folks in Medicare.

The author states:

But the currently projected savings come from two main sources:

(i) reduced payments to private Medicare Advantage plans and

(ii) reduced payment updates for hospitals and most other providers.

A phased elimination of the substantial overpayments to Medicare Advantage plans, which now enroll nearly 25% of Medicare beneficiaries, will produce an estimated $132 billion in savings over 10 years. Since health plans have used the extra payments to enhance benefits packages and entice beneficiaries to leave traditional Medicare, the reductions will not be painless; payment cuts in the Balanced Budget Act of 1997 led to health plans’ withdrawing from Medicare and benefit cuts that made plan offerings less attractive, which together resulted in a 25% reduction in private-plan enrollment.

CMS Chief Actuary Richard Foster projects that the ACA cuts will cause a decline in Medicare Advantage enrollment of one third by 2017. The Medicare Payment Advisory Commission (MedPAC) has been calling for such fee reductions for years, to keep Medicare Advantage from undermining traditional Medicare.

The ACA also produces nearly $200 billion in savings by assuming that providers can improve their productivity as firms in other industries have done.

On the basis of this presumed improvement, the law reduces Medicare’s annual “market basket” updates for most types of providers — a provision that has generated controversy. Foster believes that many providers will not be able to improve their productivity to the required degree and questions whether the payment reductions will stick after providers plead their cases to Congress.

On the other hand, there is evidence that hospitals and physicians facing reduced Medicare payments can shift costs to commercial payers — a strategy that could negate the law’s potential for reducing health care spending and increase scrutiny of Medicare as a poor payer because of the growing differential between Medicare and commercial-insurance payment rates.

In effect the Medicare system will just ratchet down reimbursements and this will squeeze our providers which will result in rationing. This is business 101, not even economics. Yes not economics, because no economist has a clue what will happen but if you ever ran a candy store you would.

The article also brings up the Dartmouth data which has been shown to be highly questionable. The article states:

On another track, the suggestion that as much as 30% of Medicare spending is wasted figured prominently in the reform debate. Legislators from lower-spending U.S. regions invoked Dartmouth Atlas research on geographic variation in arguing that current payments are unfair because apparently inefficient providers receive more money than efficient ones.

They sought payment penalties for high-spending areas and increases for low-spending areas. Representatives from high-spending areas objected, citing information suggesting that the Dartmouth data are insufficiently adjusted for differences in patients’ underlying health and socioeconomic status and that they ignore needed price adjustments for providing graduate medical education or caring for a disproportionate share of Medicaid and uninsured patients.

With the new Administration appointee one should hope to avoid getting ill, because the costs will be explosive out of pocket and the care will be deplorable. Medicine will become what teaching in Grammar and High School is today, union members with great benefits and incompetent educations, all with attitudes, to teach what is needed in a highly competitive global market!