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.”

Medigap Policies Might Get More Expensive

Your Medigap policies might get more expensive if Congress and HHS get their way.

The nation’s insurance commissioners have some stern advice about proposals to shrink Medicare spending by asking seniors with supplemental Medigap policies to pay more out of pocket for their health care: Don’t do it.

The health law requires the National Association of Insurance Commissioners to advise the administration about whether seniors would use fewer Medicare services – and therefore, cost the government less money — if the most popular Medigap plans were less generous. 

“Everything we’ve looked at has shown that increasing cost-sharing does stop people from seeking medical care,” said Bonnie Burns, training and policy specialist at California Health Advocates who serves on an NAIC committee that has studied the issue for more than a year. “The problem is they stop using both necessary and unnecessary care.”

In a draft letter approved unanimously by NAIC’s Senior Issues Task Force and Health Insurance Committee last week, the commissioners warn that limiting Medigap could backfire and raise Medicare costs when seniors don’t receive the medical care they need. The letter, to Secretary of Health and Human Services Kathleen Sebelius, was approved during the association’s annual meeting near Washington, D.C.  The letter will be sent after a third committee is expected to approve it next week.

“Once.the letter has cleared the Senior Issues Task Force, it’s probably a done deal,” said Guenther Ruch, a former administrator of the Wisconsin insurance department who, until March, chaired the Medigap subgroup that prepared the letter.

About 9 million Medicare beneficiaries – or one out of five – bought a Medigap policy in 2010, to cover a portion of medical expenses not covered by Medicare. And two-thirds of them purchased the most comprehensive plans that offer “first dollar” coverage, which protects them from having to pay almost anything out of pocket, including copays and deductibles.

The Obama administration and congressional leaders are considering similar proposals as part of their effort to avoid automatic spending cuts and tax increases as part of the “fiscal cliff” negotiations. The Congressional Budget Office has estimated that cost-sharing changes could save the Medicare program as much as $53 billion over 10 years.

Medigap policies are popular with seniors because Medicare does not cap out-of-pocket expenses. The policies are not cheap — the average premium nationwide was $178 a month in 2010 — but they protect subscribers from unexpected high medical bills, which is important to people on fixed incomes. The C and F Medigap plans cover nearly all of the out-of-pocket costs that beneficiaries would usually pay.  Two thirds of people who buy Medigap plans have incomes below $40,000 a year — about the same income levels for all Medicare beneficiaries.

“People are buying Medigap because they need the [medical] treatment, said Dotti Outland, director of regulatory affairs for UnitedHealthcare and a member of the Medigap subgroup.  “And they are paying something out of their pocket now, they are paying premiums.”

Advocates of increased cost-sharing point to studies showing that seniors with Medigap coverage tend to use more Medicare services than those without it, and they likely get unneeded care for which the government pays a large share.

The insurance commissioners were supposed to recommend specific cost-sharing changes for these Medigap plans with first-dollar coverage to reduce Medicare spending for unnecessary medical treatment and, as the law says, “encourage the use of appropriate physicians’ services.” The law requires their recommendations to be based on peer-reviewed studies or current successful managed care practices.

But after a year and a half of research and discussion, they came up empty handed.

“None of the studies provided a basis for the design of nominal cost sharing that would encourage the use of appropriate physicians’ services,” the letter says. “Many of the studies caution that added cost sharing would result in delayed treatments that could increase Medicare program costs later (e.g., increased expenditures for emergency room visits and hospitalizations) and result in adverse health outcomes for vulnerable populations (i.e., elderly, chronically ill and low-income).”

The letter acknowledges that Sebelius may disagree with the NAIC and seek cost-sharing changes regardless.  “If that is your decision, please know that the NAIC stands ready to continue its regulatory role in developing Medicare supplement standards.”

Nevada state insurance commissioner Scott Kipper, who chairs the Senior Issues Task Force, said the letter conveys “without any doubt that we want to continue to be the organization that HHS turns to on Medigap.”

An earlier version of the letter had rejected cost-sharing overall, but recommended $25 co-payments for advanced diagnostic imaging tests and $50 co-payments for scooters as a way to reduce fraudulent charges. But the group’s consumer representatives argued strongly against including that option. Three days before the Senior Issues Task Force vote, 15 national consumer and patient advocacy groups, along with eight NAIC consumer representatives, wrote Kipper urging that the co-pay recommendations be dropped.

“The Centers for Medicare and Medicaid Services has the ability, and obligation, to discourage improper use of these services by all Medicare beneficiaries, not only those who purchase Medigap plans,” they said, adding that increasing Medigap cost-sharing is the wrong tool for reducing Medicare spending.

http://www.kaiserhealthnews.org/stories/2012/november/29/medigap-insurance-costs-medicare-seniors.aspx?referrer=search

Obamacare Medicare Cuts Drive Doctors Away

Obamacare Medicare cuts will lead to doctors abandoning Medicare patients.

There are 600,000 physicians in America who care for the 48 million seniors on Medicare. Of the $716 billion that the Affordable Care Act cuts from the program over the next ten years, the largest chunk—$415 billion—comes from slashing Medicare’s reimbursement rates to hospitals, nursing homes, and doctors. This significant reduction in fees is driving many doctors to stop accepting new Medicare patients, making it harder for seniors to gain access to needed care. Here are a few of their stories.

Paul Wertsch is a primary physician inMadison, Wisconsin. In 1977, he and his two partners invested $500,000 of their own money and opened their own practice, the Wildwood Family Clinic, on the east side of town. Wertsch’s clinic is popular with the seniors who go there, but over time, Medicare’s fee schedule has made it harder and harder on the practice.

Wertsch billed Medicare $217 to care for a Medicare patient with a sinus infection whose appointment ran late, because the patient required more time. Medicare reimbursed the clinic for $54.38. Later in the day, a younger patient with the same sinus infection, requiring half the time, was charged the same $217. But his private insurer reimbursed the clinic for twice the amount of Medicare: $108.04.

“I love taking care of Medicare patients,” Wertschtold the Capital Times, a progressive paper in Madison. “But every time we treat them we have to dig into our wallets. What kind of business model is that?” Today, Medicare patients represent one-quarter of Wildwood’s practice overall, and as much as 70 percent for some of the clinic’s veterans, like Wertsch. In 2011, Wildwood decided to stop accepting new patients from the Medicare program.

Wildwood was the first clinic in the Madison area to stop taking new Medicare patients. But, nationally, doctors like Wertsch are increasingly common.

‘Well, honey, it’s just going to get worse’

Joseph Shanahan is a rheumatologist in Raleigh, North Carolina. Shanahan told his local ABC affiliate, WTVD, that he was one of the few rheumatologists left in the Research Triangle area who accepted Medicare patients. “The reimbursement is so low [with Medicare]—in some cases 60, 80 dollars—it costs you more to get a plumber to come to your house than to get a rheumatologist to come to the hospital,” he said.

This spring, Shanahan decided to stop taking new Medicare patients. “Not by choice,” said Shanahan, “but I’ve got to pay off the business loan I got, and I got to pay my staff, and I got to pay my malpractice insurance.” Shanahan reiterated what you hear from a lot of doctors: that they don’t want to stop taking new patients, but the government has left them no choice. “I don’t do medicine for the money,” he explained. “I never got into it to get rich. The real reward in medicine is taking care of patients and making them feel better.”

Steve Daniels, a reporter with WTVD, led an investigation into problems with Medicare access in North Carolina. A team of volunteers used the “mystery shopper” method, posing as Medicare beneficiaries looking for a new doctor. Of the 200 family physicians they called, nearly half said that they were no longer accepting new Medicare patients.

“I have had many friends who have moved down here to retire and they cannot find a physician to take them,” said one of WTVD’s volunteers. “It’s very sad because they are coming down here to start a new life, a lot coming to be closer to families, and they have medical problems. Unfortunately, they’re finding that no one wants to take them.”

Beverly Frake was one of those people. Frake moved to North Carolina in 2010 from upstate New York, to escape the northern winters, and to be closer to her daughter, who lived in the area. “I moved into this nice apartment complex, big medical complex across the street, I thought, ‘How lucky am I?’” she told Daniels. “And I went there and was told in the waiting room, well they just don’t take Medicare patients. One of the receptionists said to me, ‘Well honey, it’s just going to get worse.’”

Medicare’s problems have been building for decades

These problems with the Medicare program predate the passage of Obamacare. For decades, politicians have been wrestling with Medicare’s runaway costs. Conventional fixes, like raising the retirement age, reducing benefits, or raising premiums were considered politically toxic. So instead, Congress sought the path of least resistance: paying doctors and hospitals less to provide the same level of service.

In 1988, Congress instituted a new system of price controls, called the Resource-Based Relative Value Scale, or RBRVS. Designed by an acclaimed Harvard health economist, William Hsiao, experts thought that the RBRVS system would succeed in controlling Medicare spending. It didn’t. Doctors, especially specialists, compensated for being paid less per-service by performing more services.

In 1997, Congress tried to fix the RBVRS using a new system called theSustainable Growth Rate, tying growth in physician fees to growth in the size of the nation’s economy, as measured by GDP. That didn’t work either. As Medicare spending continued to grow at a faster pace than the economy, the SGR law required Congress to reduce Medicare fees accordingly. But both parties in Congress, at the behest of the American Medical Association, routinely overrode the SGR provision with costly “doc fix” legislation.

Obamacare significantly worsens the Medicare access problem

The AMA supported Obamacare, on the promise that the law would include a permanent “doc fix.” But Democrats reneged on that promise, owing to the cost of a permanent SGR adjustment: something on the order of $200 billion over ten years, depending on the prescribed growth rate of the fees.

Instead, the Affordable Care Act further reduced fees to health care providers, by $415 billion over the 2013-2022 time frame. As these reductions go into effect, more and more physicians are certain to stop taking new Medicare patients. We already see this problem with the Medicaid program for low-income Americans, where doctors don’t accept Medicaid patients, leading to poor health outcomes.

The Obama campaign offers several lame defenses of these cuts. “The President’s plan doesn’t cut [benefits] by one dime,” insists deputy campaign manager Stephanie Cutter. “He ends taxpayer subsidies to insurance companies, and weeds out waste, fraud, and abuse, which saves the Medicare system $716 billion.”

But Cutter’s assertion the law doesn’t cut benefits only makes sense if you don’t count getting a doctor’s appointment as a “benefit.” And her argument that the provider cuts merely amount to eliminating “waste, fraud and abuse” displays a callous disregard for how the law’s blunt, across-the-board payment reductions affect doctors like Joseph Shanahan, and seniors like Beverly Frake.

In 2011, the Department of Health and Human Services attempted to conduct an investigation into the problem of physicians opting out of Medicare. But they had to shutter the inquiry, because the government doesn’t “maintain sufficient data regarding physicians who opt out of Medicare.”

memorandum sent by the lead investigator to acting Medicare chief Marilyn Tavenner concluded that the problem is getting worse. “Based on the limited data that we received, the number of opted-out physicians appears to have increased each year from 2006 to 2010,” wrote the inspector. “More physicians may opt out in the near future.”

If you want to reduce waste, increase choice and competition

The Romney and Wyden-Ryan plans for Medicare reform do far more to get at the problem of waste, by using the tried-and-true methods of choice and competition. The plans use competitive bidding to challenge insurers, and traditional Medicare, to pay doctors whatever they want to pay, while providing a Medicare benefit package at the best possible price.

A similar method is already used in the Medicare prescription-drug program, or Part D, which has, remarkably, come in more than 30 percent underCongressional Budget Office projections for its fiscal cost. This year, the program actually reduced premiums, relative to 2011: something that almost never happens in government health-care programs.

Instead of a politically-motivated, one-size-fits-all, across-the-board fee cut, the Romney approach allows competing insurers to negotiate with hospitals and doctors to gain the optimal combination of access and price. Under a competitive bidding system, insurers are likely to pay primary care physicians more, while bearing more scrutiny upon the wasteful, costly procedures that drive Medicare spending higher.

The key to putting Medicare on a fiscally sustainable path isn’t to take a sledgehammer to the program, as Obamacare does, and ration care from above, but to make structural improvements that give seniors and their doctors the bottom-up incentive to avoid wasteful spending.

So far, many media reports have displayed confusion about these concepts. But if we have an honest debate between who should control Medicare’s health dollars—bureaucrats or seniors—I have a feeling as to which side will win.

http://www.forbes.com/sites/aroy/2012/08/20/how-obamacares-716-billion-in-cuts-will-drive-doctors-out-of-medicare/