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Medicare Reimbursement Sustainability

By September 4, 2015Commentary

One method used by the reform law to control health spending was a reduction in growth in Medicare reimbursements.  The Medicare Trustees have expressed concern about whether these reductions are sustainable or will lead to provider quality and access issues.  An outstanding presentation at an Altarum Institute conference deals with these questions.  (Altarum Slides)   The primary concern is that reductions in what payments would otherwise have been are predicated on the ability of health care providers to show at least the same level of productivity growth as the general economy has.  Historically this has not been the case.  Productivity growth means using the same number of resources to create a higher level of output.  Health care is very labor intensive and achieving productivity growth in labor intensive businesses is often difficult.  If a provider is having difficulty breaking even on Medicare reimbursements, it could skimp on care or it could decide not to see Medicare patients.

According to the presenters, the amount of productivity growth in health care may be understated; information technology and treatment technology may be creating more improvement than is measured.  If this is true, then even the reduced payment updates may be adequate to cover the normal increases in operating costs (largely due to rises in input prices, like wages and supplies) that providers incur.  The researchers further suggest that because of frequent ad hoc downward adjustments in reimbursement in the past, the changes put in place by the reform law may not really represent a significant reduction.  But the presentation further finds that Medicare payment to cost ratios are at historic lows and are low compared to private payers’ reimbursements.  This could lead to access issues.  Further complicating the analysis is the quality of outcomes.  If you are paying the same amount in total but the treatments are improving health and outcomes, the total value of the outputs has increased.  It is hard to measure this accurately in health care.  The researchers conclude that it is unclear which path we are on.  Currently MedPAC is finding no beneficiary access issues, but there are increases in the number of providers declining to accept Medicare.

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