Medicare Cuts – Hospitals Feel the Brunt

As President Obama and Congress try to thrash out a budget deal, the question is not whether they will squeeze money out of Medicare, but how much and who will bear the brunt of the cuts.

Republicans say that some of the savings should come from beneficiaries, and they are pushing proposals like raising the eligibility age or increasing premiums for people with high incomes, who already pay more than the standard premium. Even President Obama has proposed higher premiums, increasing the likelihood that the idea could be adopted. But any significant tinkering with the benefits for older Americans comes with significant political risks, and most Democrats in Congress strenuously oppose raising the age when Medicare coverage begins.

With growing pressure to reach an agreement on deficit reduction by the end of the year, some consensus is building around the idea that the largest Medicare savings should come from hospitals and other institutional providers of care.

“Hospitals will be in the cross hairs for more cuts,” said Lisa Goldstein, an analyst with Moody’s Investors Service, which follows nonprofit hospitals that issue bonds. While hospital executives fiercely defend the payments their own institutions receive, many acknowledge that Medicare is spending too much and growing too fast.

Those executives point out, however, that they have already agreed to $155 billion in cuts over a decade as part of the Affordable Care Act and they face billions more in additional cuts as part of the current negotiations. They argue that such large cuts to hospitals will ultimately affect beneficiaries.

“There is no such thing as a cut to a provider that isn’t a cut to a beneficiary,” said Dr. Steven M. Safyer, the chief executive of Montefiore Medical Center, a large nonprofit hospital system in the Bronx.

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Mr. Obama and Speaker John A. Boehner continued trying on Tuesday to reach an overall budget agreement, which would call for significant savings in Medicare and would avert a deep cut in Medicare payments to doctors, scheduled to occur next month.

Mr. Boehner said that an increase in the eligibility age for Medicare, favored by many Republicans, could wait until next year.

“I don’t believe it’s an issue that has to be dealt with between now and the end of the year,” Mr. Boehner said Tuesday when asked about a possible change in the Medicare eligibility age. “It is an issue, I think, if Congress were to do entitlement reform next year and tax reform, as we envision, if there is an agreement, that issue will certainly be open to debate in that context.”

The starting point for the current negotiations is President Obama’s most recent budget request, which proposed legislation that would save $300 billion, or 4 percent of projected Medicare spending, over 10 years.

By contrast, Republicans in Congress are seeking savings of $400 billion to $600 billion, at least some of which should come from beneficiaries, they say.

Members of the Medicare Payment Advisory Commission, an influential panel that advises Congress, see many opportunities to rein in costs, and they say that financial pressure on providers could make them more efficient without harming the quality of care. At a meeting of the panel earlier this month, one commission member, Scott Armstrong, president of Group Health Cooperative, a nonprofit health system in Seattle, said Medicare spent “too much” on inpatient hospital care — $117 billion last year. “In an efficient system,” he said, “we wouldn’t be spending that kind of money on hospital services.”

Although Congress may leave the details of Medicare savings to be worked out next year, there is already discussion of cutting special payments to teaching hospitals and small rural hospitals. Lawmakers are also considering reducing payments to hospitals for certain outpatient services that can be performed at lower cost in doctors’ offices. Medicare pays substantially higher rates for the same services when they are provided in a hospital outpatient department rather than a doctor’s office. The differential added $1.5 billion to Medicare costs last year, and as hospitals buy physician practices around the country, the costs are likely to grow, the Medicare commission says.

The savings contemplated by Mr. Obama and Mr. Boehner are substantially larger than the Medicare savings that would be produced by automatic across-the-board cutbacks scheduled to start next month if Congress does not intervene. Those Medicare savings have been estimated at $123 billion from 2013 to 2021. Some hospital executives favor the automatic cuts as more equitable — and less painful — than some of the specific reductions being contemplated.

Hospital administrators and others warn of potential hospital closings, shutting down of unprofitable services like hospitalization for psychiatric care and less access to medical care for the most vulnerable if the cuts are too deep. Nancy M. Schlichting, the chief executive of the Henry Ford Health System in Detroit, says severe cuts might make it harder for hospitals like hers to treat patients without insurance. “It’s a big question whether we can continue to do that,” she said. “We would have to make tough decisions.”

Many rural hospitals are worried about a reduction in certain special payments they received because they treat relatively few people and depend heavily on Medicare as a source of revenue. The payments were put in place after Medicare changed the way it paid hospitals in the 1980s and hundreds of rural hospitals disappeared, said Alan Morgan, the chief executive of the National Rural Health Association in Washington.

“We have really struggled in the last couple of years to improve our financial condition,” said Jodi Schmidt, the chief executive of Labette Health, a small hospital in Parsons, Kan. The hospital was able to provide trauma services to people in nearby Joplin, Mo., after a tornado devastated the hospital there. “With more cuts, the reality is we’re going to have to really cut services,” she said.

Urban teaching hospitals, which are already receiving some reduced payments for treating poor people under the federal health care law, say they, too, will have difficulty managing if there are significant cuts to medical education programs to train physicians and to the higher payments they get for outpatient care. Some of the hospitals say they have created integrated systems of doctors and hospitals, already delivering care at lower costs, that will suffer.

And any significant reduction in payments is likely to increase the pace of mergers among hospitals as they combine to become more efficient — and try to negotiate better rates with insurers, industry analysts say.

Other providers that could see cutbacks include home health agencies. Glenn M. Hackbarth, the chairman of the Medicare payment commission, said they provided invaluable services but were receiving “high levels of payment, way above costs” in many cases.

Complicating the negotiations is also a fundamental disagreement over where the savings should go. Republicans want to use Medicare savings to reduce federal budget deficits. By contrast, many Democrats and health policy experts would prefer to use the money to pay doctors.

Under current law, doctors face a 26.5 percent cut in their Medicare fees on Jan. 1. Just to block that cut and freeze payments to doctors would cost $11 billion next year and more than $240 billion over 10 years, the Congressional Budget Office estimates.

Lawmakers are considering other alternatives, including raising the Medicare eligibility age, a top Republican priority. Republicans say an increase in the Medicare eligibility age is justified because life expectancy has increased significantly since the program was created in 1965. Congressional Democrats say the change would shift costs to older Americans and increase the number of uninsured.

Mr. Obama considered such a proposal in budget negotiations last year and again in the last month. On Thursday, the No. 2 Senate Democrat, Richard J. Durbin of Illinois, said he understood that the idea of increasing the Medicare eligibility age was “no longer one of the items being considered by the White House.”

The Congressional Budget Office analyzed a proposal to increase the eligibility age by two months a year until it reached 67, up from the current 65. Under this proposal, the budget office said, the federal government could save $113 billion over 10 years.

Besides hospital cuts, negotiators are considering a proposal that would require drug manufacturers to provide deeper discounts on prescription drugs dispensed to low-income Medicare beneficiaries. Mr. Obama and many Democrats say this could save more than $150 billion over 10 years. But many Republicans and drug companies oppose it as a form of price controls.

Another proposal being debated would impose a surcharge on Medicare premiums for older Americans who buy the most generous private insurance to cover their deductibles, co-payments and other out-of-pocket costs. The White House and some economists say such Medigap insurance encourages the overuse of medical care. But many beneficiaries are willing to pay for the extra protection.

A White House proposal to impose the surcharge on new beneficiaries would save $2.5 billion over 10 years. The Congressional Budget Office says that another option, setting more stringent limits on Medigap policies, could save more than $50 billion.

But hospitals say they are worried that, in the end, Congress will turn to them for a large share of the savings. Montefiore’s chief executive, Dr. Safyer, said hospitals like his had already made significant changes, focusing much more on keeping patients healthy and out of the hospital. “We’ve become much more efficient,” he said. “We’ve had price compression. We’re innovating and changing.” Those changes take time, he said, but he said he was convinced that they would result in lower spending in the long run.

Dr. Safyer refused to speculate on what Montefiore might do if it faced additional cuts, which could easily total 6 percent of Montefiore’s revenue. “This is not crying wolf,” he said. He added, “I don’t have a Plan B.”

Medicare Advantage Piedmont-Wellstar Insurance Plan

Medicare Advantage plans coming soon from Piedmont

Piedmont Healthcare and WellStar Health System, two powerful medical organizations, are moving into a new realm: health insurance.

The hospital systems intend to create a health plan that will offer Medicare Advantage and commercial insurance in 2014, as well as serving the two organizations’ employee base that, with their families, exceeds 35,000.

The insurance plan follows the announcement last month that Piedmont and WellStar had formed a collaboration to develop health care delivery models.

Piedmont and WellStar combine 2,393 hospital beds, 10 hospitals, seven urgent care centers and more than 700 physicians.

WellStar dominates the suburbs west and northwest of Atlanta, while Piedmont has extensive operations south of the city, along with its prestigious hospital in Atlanta’s affluent Buckhead district.

The Wall Street Journal reported that in recent months, Northern California’s Sutter Health and New York’s North Shore-Long Island Jewish Health System have said they would start selling health plans. A 2011 survey of 100 hospital leaders by health research firm Advisory Board Co. found that 20 percent of them intended to market an insurance plan.

Some systems with limited insurance operations are expanding, including MedStar Health in the Baltimore-Washington area, which will add Medicare plans next year and is likely to have a plan on the Maryland health exchange, the Journal article said.

Driving the trend is the pressure to reduce costs, as well as the revolutionary changes set in motion by the Affordable Care Act.

A leader of a health insurance trade group in Georgia told GHN on Monday that Piedmont/WellStar will be an interesting partnership to watch.

Graham Thompson, executive director of the Georgia Association of Health Plans, noted that a previous insurance offering by another local hospital system organization, Promina, failed to gain a strong foothold a decade ago.

“They weren’t so adept at the back office’’ functions, he said.

It may be difficult for Piedmont and WellStar to cover the whole metro Atlanta area, Thompson said, noting that large employers have workers all over the region.

And he questioned whether Piedmont’s and WellStar’s relationships with traditional insurers will change by their becoming a health plan competitor.

Some hospital organizations, including the University of Pittsburgh Medical Center and Intermountain Healthcare in Utah, long have had health plans, the Journal article noted. Others, including some health systems considering them now, have tried and failed with them in the past.

The failures, the Journal reported, reflect in part the difficulties of reconciling conflicting interests: Hospitals typically make money when they fill their beds with patients, and health plans pay the bills for those admissions.

Piedmont said Monday in a press release that it began developing a health system-based health insurance plan in July when it partnered with Evolent Health, created in part by the University of Pittsburgh Medical Center. The Pittsburgh organization has one of the country’s most successful health system-based health plans, the news release said.

”We believe our industry’s future relies on successfully implementing a population health model of care – delivering disease prevention and care management with higher quality at lower costs,” said Gregory Hurst, president and interim chief operating officer at Piedmont. “Launching a health plan helps us move more quickly toward that future, and we consider this yet another area where we can demonstrate vision and leadership in Georgia’s healthcare industry.”

Reynold Jennings, president and CEO of WellStar, added that Piedmont and WellStar “are uniquely positioned to work together to achieve improved clinical results and reduction in costs” as called for in the Affordable Care Act. “Health systems that have a broader geographic reach and larger population base will be best suited to react to and sustain operations regardless of future federal and state legislative outcomes.”

Dr. Ronnie Brownsworth of Piedmont, a neurologist, will be CEO of the newly formed health plan.

“This health plan will keep patients and physicians at the center of our care model with the ultimate goal of improved health in our patient populations,” said Brownsworth in the press release. “We also look forward to continuing our work with other insurance plans in finding ways to deliver the best results for our patients.”

David Smith, a consultant with Kearny Street Consulting, told GHN on Monday that it’s a tough time to enter the health insurance business.

“Even the big guys [insurers] are having a very hard time figuring out what lies ahead with Obamacare,’’ Smith said.

The big unknown, he said, is how to price coverage under the health reform law’s new requirements.

“It’s going to be a new day in insurance,’’ Smith said. “To enter the market right now is a little scary.’’

Piedmont-WellStar alliance to launch health plan

Medicare Eligibility Age Increase Means Seniors Lose

The ferocious pushback on a trial balloon offer to raise the Medicare eligibility age continues, now at a very high level. First, adding to something started over the weekend by the Center for American Progress’ Neera Tanden, the think tank put out a white paper rejecting raising the eligibility age, because it would “harm seniors and increase health care spending.” I don’t think you have to say much more than that. But here’s the key point:

Using 2011 census data to add to existing Congressional Budget Office calculations, we estimate that in a single year, almost 435,000 seniors would be at risk of becoming uninsured. Our estimate is conservative and understates the impact of raising the eligibility age because the number of seniors affected will only continue to grow over the next decade as the boomer generation retires.

They fully explain the methodology for arriving at this number in the report. Consider that we know that certain percentages of the uninsured die from lack of coverage. The American Journal of Public Health study most frequently cited shows 45,000 deaths annually from a lack of coverage. That’s in a pool of around 50 million uninsured, or a little less than 1%. So this plan to raise the eligibility age, based on those numbers, would kill as many as 4,000 senior Americans, every year (maybe more, as this is a sicker population). I’m sorry to be crass about this, but those are the stakes.

In addition to CAP, House Democratic Leader Nancy Pelosi published her own opposition to raising the eligibility age in USA Today.

Raising the Medicare eligibility age is a case in point. On paper, it appears to save money for the federal government. In practice, it simply shifts the cost of health care to newly uninsured 65- and 66-year-olds, forcing them to pay more for their care out of their own pockets. It makes older Medicare beneficiaries pay higher premiums.

Under the Republican plan, it shifts costs to employers who wish to do right by their workers and cover their retirees for two additional years. It adds costs to states, as low-income seniors find themselves forced to seek out coverage through Medicaid.

It raises premiums for younger Americans who don’t receive insurance through their jobs and who are set to purchase coverage through new insurance exchanges. It asks them to foot the bill to cover the cost of insuring the many 65- and 66-year-olds who would enter the system at the same time […]

Put another way: raising the Medicare eligibility age asks the most vulnerable citizens to pay more with little to show for it in terms of long-term deficit reduction or more affordable care, for seniors or anyone else. It increases health spending across-the-board. It takes money out of the pockets of a small slice of Americans.

Pelosi’s being a good soldier by calling this “the Republican plan.” In reality, this makes it extremely difficult for any Democrats to carry this plan forward, at least if they expect to get votes of Democrats in the House (which they will probably need, since a substantial chunk of anti-tax Republicans will never vote for a deal that increases tax rates).

Given this fire against raising the Medicare eligibility age, I would expect similar scorn for ideas like cutting Supplemental Security for children with disabilities (heretofore known as the “clueless pundit Nick Kristof plan”), or using a “blended rate” for federal Medicaid participation, which amounts to a cut in funding. Chatter has increased on using the chained CPI to change the cost-of-living adjustment over a variety of federal programs, but when everyone realizes this constitutes a real benefit cut, mostly for the poor, but also for veterans benefits, as well as a regressive tax hike, I doubt that chatter will last too long.

None of which is to say that any of these ideas are truly dead.

Obamacare Tax Hits Knee Replacements

Knee replacements may become a thing of the past under Obamacare. In the way America “used” to be, the better biomedical technology we had, the more Americans could live longer, healthier lives. However, in the world of Obamacare and the “new” normal, health ingenuity will be too costly for everyone except the wealthy.

According to a recent study by the Journal of the American Medical Association (JAMA), the number of knee replacements paid for by Medicare has more than doubled over the past 20 years. In 2010, 243,802 Medicare recipients underwent knee replacements, up from 93,230 in 1991. According to the study, demand for the popular surgery, which costs approximately $15,000 per replacement, could reach $3.5 million annually by the year 2030.

“There’s no doubt this is a successful operation,” said Joseph Zuckerman, chairman of the orthopedic surgery department at the New York University Hospital for Joint Diseases. Zuckerman added that more older people want the procedure so they can remain active or improve the quality of their lives. Further, the introduction of better quality devices has allowed more people — even those who have not yet reached their senior years — to obtain the surgery.

Nevertheless, Peter Cram, a health-policy researcher at the University of Iowa-Carver College of Medicine, who contributed to the study, said, “Ultimately, there’s going to be [only] some number of these we can afford.” According to Cram, the decision on who gets knee replacement surgery and who is rejected will be a “really contentious debate.”

Studies of this nature will likely be used to support the “necessity” of the ObamaCare Independent Payment Advisory Board (IPAB), the group of unelected officials who will be responsible for handing down the “rules” to physicians about who gets the knee surgery and who does not. The IPAB will, indeed, be in charge of “rationing” knee replacement surgery and other treatments and procedures, as well.

In addition, it is essential to understand the effects of the $716 billion that ObamaCare takes from Medicare to give to Medicaid. This money will be removed from Medicare in the form of payments to Medicare physicians and other providers, who, by the end of this decade, will end up being paid less than Medicaid providers. If ObamaCare is allowed to move forward, older Medicare recipients will be less likely to obtain the types of surgeries, such as knee replacements, and treatments they need because of both the IPAB rationing rules and the fact that more physicians will reject Medicare patients. This will leave a system where only wealthy seniors will be able to afford high-quality healthcare.

According to the Weekly Standard, just fifteen minutes of the first presidential debate are devoted to healthcare. This could be the most important fifteen minutes in the lives of all Americans, and it is Mitt Romney’s chance to tell the world what life will be like under fully-implemented ObamaCare — a life that could begin in about 35 days, if we are not aware.