CMS: House bill great on coverage, weak on cost controls
The weekend's big health-care reform news was that the Centers for Medicare and Medicaid Services released their analysis (pdf) of the House's health-care reform bill. What they found depends on who you ask. Republicans saw a mortal blow to health-care reform. "This is a stark warning to every Republican, Democrat and independent worried about the financial future of this nation," said Rep. Dave Camp. Democrats saw a confirmation of their promises. "By 2019, an additional 34 million U.S. citizens and other legal residents would have health insurance coverage," said CMS.
In reality, the CMS report isn't terribly relevant in the tussle between House Republicans and Democrats. After all, the bill has already passed the House, and won't come back for another vote until after it's merged with the Senate's legislation, at which point it will be a radically different bill. But the report may prove very important in the coming negotiations between the House and the Senate.
The report found that the House bill does an excellent job on coverage and an insufficient job on cost control. As promised, the House bill covers 34 million people at a cost of about $900 billion. It also raises national health expenditures by about 1 percent compared with where they'd otherwise be, which isn't all that bad given that we're covering another 10 percent of the population, but isn't exactly "bending the curve."
But the big news, and the big talking point, is that CMS is skeptical about the $500 billion in savings that come from Medicare.
H.R. 3962 would introduce permanent annual productivity adjustments to price updates for institutional providers (such as acute care hospitals, skilled nursing facilities, and home health agencies), using a 10-year moving average of economy-wide productivity gains. While such payment update reductions would provide a strong incentive for institutional providers to maximize efficiency, it is doubtful that many could improve their own productivity to the degree achieved by the economy at large.
Over time, a sustained reduction in payment updates, based on productivity expectations that are difficult to attain, would cause Medicare payment rates to grow more slowly than, and in a way that was unrelated to, the providers’ costs of furnishing services to beneficiaries. Thus, providers for whom Medicare constitutes a substantive portion of their business could find it difficult to remain profitable and might end their participation in the program (possibly jeopardizing access to care for beneficiaries). While this policy could be monitored over time to avoid such an outcome, so doing would likely result in significantly smaller actual savings than shown here for these provisions.
In other words, the proposed payment reductions in Medicare could squeeze providers, which could mean they stop treating Medicare patients. It's unclear whether this would happen at all, and if it did, how many people it could affect. CMS, due to the high level of uncertainty in this estimate, declined to offer specifics. But it's worth being concerned about.
On the bright side, cutting payment such that providers flee the program isn't very likely. As the report notes, these problems would be easy to spot, and Congress could ease the cuts. Democrats aren't going to let Medicare flounder. Seniors aren't going to get kicked off the Medicare rolls. But if Congress revisits the cuts, the bill doesn't save as much money as is currently being projected.
There are a couple of things to say about this. The first is that CMS admits that this is good policy. The "payment update reductions would provide a strong incentive for institutional providers to maximize efficiency," the agency concludes. In other words, the health-care system will be more efficient and less costly in the presence of these cuts than in their absence. That's a good thing.
Second, Medicare will become unaffordable whether or not this bill is passed, and these cuts are implemented. Eventually, we are going to have to pay providers less money than they currently expect to be paid, and our health-care system will have to adapt. Otherwise, the government goes bankrupt. Indeed, CMS finds that the bill actually lengthens Medicare's period of solvency by five years.
Put those two findings together, and it seems like the smart path forward is to give these cuts a credible shot, and if they don't work, either ease the cuts or reform Medicare to save money in other ways, perhaps by going after fee-for-service more aggressively.
But Medicare cuts are a crude tool. The more damning conclusion from the CMS report is that the House bill has little else to control costs, and that's largely accurate. This report shouldn't lead reformers to abandon efforts to trim Medicare, but it should convince them that the bill can do more on the cost control front.
The Senate now has the advantage of reading this report, questioning CMS about its methodologies and tweaking its bill to ensure a better verdict. But it's already part of the way there. The Senate Finance Committee's bill has two cost-control measures the House simple doesn't: Super MedPac and the excise tax. Alongside that, it has a much more aggressive package of delivery-system reforms. But more on all that later.
November 16, 2009; 8:37 AM ET
Categories: Health Reform
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