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Consulting group releases report on bending the Medicare cost curve

Posted on October 18, 2012 | No Comments

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Key Developments

According to a study released last week by Dobson DaVanzo and Associates, the Medicare program could save as much as $100 billion over the next decade and the Part A trust fund could be extended by two-and-a-half years if post-discharge patients were served in a more clinically appropriate post-acute care setting. Experts have estimated that the Medicare trust fund will go bankrupt by 2024 without reform. The consulting group’s report offers ideas regarding how the Medicare system could improve the efficiency and quality of care delivered to effectively bend the cost curve and thus extend the solvency of the program. The report found that Medicare savings can be achieved by identifying the patient pathways to the receipt of care, targeting ways to avert readmissions, and placing patients in the most clinically appropriate and cost-effective setting.

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The Centers for Medicare and Medicaid Services (CMS) issued a rule to change the payment adjustment for low-volume hospitals and Medicare-dependent hospitals. The changes would be issued under the hospital inpatient prospective payment systems (IPPS) for the second half of fiscal-year 2014. According to the rule, a hospital is considered low-volume if it is more than 15 miles from another hospital and has less than 1600 discharges of individuals entitled to or enrolled in Medicare Part A.
In an expansion to the hospital charges data released last month, the Centers for Medicare and Medicaid Services (CMS) provided data describing charges for 30 different outpatient procedures. The data include charge estimates for Ambulatory Payment Classification Groups, which are paid under the Medicare Outpatient Prospective Payment System. Presented data are hospital-specific and report charge values collected during calendar year 2011. CMS also released data on geographic variations in Medicare public use and Medicare utilization by those with chronic conditions.
In an effort to increase health care affordability and transparency, the Centers for Medicare and Medicaid Services (CMS) published data pertaining to hospital charges for the 100 most common services provided during Medicare inpatient stays. With more than 163,000 entries, the data released by CMS indicated wide variation in costs, both across the country and within similar regions. For instance, a joint replacement procedure can cost $5,300 in Ada, Oklahoma, while a similar procedure may cost upwards of $223,000 in Monterey Park, California. Similarly, heart failure treatments can cost anywhere between $9,000 and $51,000 in Jackson, Mississippi. To further promote the spirit of the Affordable Care Act (ACA), the US Department of Health and Human Services (HHS) will also be offering grants for entities to collect and analyze medical pricing and reimbursement data to aid consumers in their health care decision-making and promoting cost-effective care.
The Centers for Medicare and Medicaid Services (CMS) released a proposed rule of more than 1400 pages describing the new Medicare payment schedule for 2014. The annual Acute Care Hospital Inpatient Prospective Payment System (IPPS) rule proposes that general acute-care hospitals will see a payment increase of 0.8% and long-term care hospitals will see their payments rise by 1.1%. Pursuant to the Affordable Care Act (ACA), the NRPM also details the new penalty program for hospitals that do not reduce nosocomial infections, adding hip and knee implants and chronic obstructive pulmonary disorder to the 30 day readmission penalty program. Another component of the proposed rule alters Medicare disproportionate share hospital (DSH) payments. Additional payments to each hospital will be made based upon its percentage of the total uncompensated care rendered at all DSH hospitals at a given time, ultimately reducing overall DSH payments by 0.9%. Furthermore, hospitals that do not participate in the Hospital Inpatient Quality Reporting (IQR) Program will be subject to additional penalties. Comments will be due by June 25th, 2013.
The Department of Treasury's Internal Revenue Service (IRS) published a final rule detailing the Affordable Care Act’s (ACA's) tax on certain medical devices. The rule will take effect in 2013. To help pay for the expansion of health coverage, the ACA imposes a 2.3-percent excise tax on the sale of any taxable medical device by the manufacturer or importer of the device starting in 2013. Although lawmakers initially considered a higher tax, the medical device industry ultimately succeeded in halving the amount of revenue that device taxes would raise. IRS also released a final rule that imposes fees on health insurers and plan sponsors to fund the Patient-Centered Outcomes Research Trust Fund. Insurers criticize the new fee, which they called a tax.
The Centers for Medicare & Medicaid Services (CMS) released a final rule yesterday which revises the Medicare hospital inpatient prospective payment systems (IPPS). The rule will increase inpatient hospital Medicare payments by about $2 billion and long-term care hospital payments by about $92 million in fiscal year 2013. The rule sets Medicare reimbursement rates for 440 long-term care hospitals. The rule also address value-based purchasing under the Affordable Care Act (ACA) and includes provisions to strengthen a variety of quality reporting programs, such as the hospital value-based purchasing program.
The Government Accountability Office (GAO) yesterday released a report on the long-term costs of the Affordable Care Act (ACA). The report found that the long-term fiscal outlook depends largely on whether elements in the ACA designed to control cost growth are sustained. As federal health care spending is expected to continue growing faster than the economy over the next 75 years, the federal budget is on an unsustainable path, even with ACA measures intended to curb cost growth. Yesterday, at a Senate Budget Committee hearing, ranking member Jeff Sessions (R-Alabama), said the report showed the ACA will increase the deficit by $6.2 trillion over the next 75 years. ACA cost curbing provisions include reduced payments from Medicare and Medicaid, the creation of a 15-member Independent Payment Advisory Board to make recommendations to reduce Medicare costs, and new taxes to pay for the health care expansion.
In a report released yesterday, the Center for American Progress (CAP) introduced the Senior Protection Plan, a proposal to reduce federal spending on health care delivery. Instead of shifting costs and/or ultimately increasing costs, the Senior Protection Plan, according to CAP, would improve health care delivery efficiency, eliminate waste, and improve the quality of care. This approach, in theory, would ultimately reduce health care spending. The Senior Protection Plan serves as an alternate to the other proposals made in the past years with the goal of reducing health care spending. Such proposals include transforming Medicare into a premium support or voucher program, raising Medicare's eligibility age to 67, increasing cost-sharing, and slashing Medicaid and increasing long-term care costs for seniors. The Senior Protection Plan would enhance competition based on price and quality, increase transparency of price and quality information, reform health care delivery to provide better care at lower cost, repeal the Sustainable Growth Rate (SGR) mechanism, reform graduate medical education and the workforce, reform Medicare premiums and cost-sharing, reduce drug costs, bring Medicare payments into line with actual costs, cut administrative costs and improper payments, reduce the costs of defensive medicine, reform the tax treatment of health insurance, and promote better health. CAP's Senior Protection Plan yields substantial savings, as scored by the Congressional Budget Office, without harming beneficiaries. The plan would save over $385 billion in federal expenditures over 10 years. In addition, the tax policies related to health care would generate up to $100 billion over 10 years. The plan also includes an array of reforms that would bend the cost curve over the long term. For the report summary, click here.
In the Health Affairs article, "How Medicare Could Use Comparative Effectiveness Research In Deciding On New Coverage And Reimbursement," the authors call for research regarding ways to control escalating Medicare costs, while maintaining access to beneficial services. The article proposes a payment model that would incorporate comparative effectiveness research into the Medicare reimbursement model. The authors suggest that Medicare pay equally for services that yield comparable benefits and appropriate higher payment for services with benefits proven to exceed those derived from alternative options. New services without such evidence would receive usual reimbursement rates until enough evidence mounted to justify reevaluation. Although difficult to modify Medicare reimbursement, especially in such partisan political times, the authors urge government to employ comparative effectiveness research in service rewards, improve incentives for cost-effective innovation, and place Medicare on a more stable fiscal footing.