Bracing for More Medicare Cuts

October 20, 2011
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I attended a depressing forum this morning on cost-saving ideas for Medicare to present to the Congressional “Super Committee” charged with coming up with $1.2 trillion in budget savings by the end of the year. The tone was ominous, best summed up by Mark Smith, president of the California HealthCare Foundation. “In times of crisis, meat-axes are taken to whole sectors. If you don’t believe me, ask the people who used to work for Lehman Brothers,” he said.

I attended a depressing forum this morning on cost-saving ideas for Medicare to present to the Congressional “Super Committee” charged with coming up with $1.2 trillion in budget savings by the end of the year. The tone was ominous, best summed up by Mark Smith, president of the California HealthCare Foundation. “In times of crisis, meat-axes are taken to whole sectors. If you don’t believe me, ask the people who used to work for Lehman Brothers,” he said.

Here’s the backdrop. President Obama in his mid-September budget reduction plan called for coming up with an additional $320 billion in Medicare savings over the next decade, which would be on top of the half trillion dollars in Medicare cost reductions contained in the Affordable Care Act. The president would get there largely by cutting payments to hospitals and other providers, although the president also called for higher premiums on wealthier seniors for physician and drug coverage.

Will the Super Committee look for the same $320 billion in cuts to Medicare? A good case can be made that Medicare’s contribution to the $1.2 trillion recommendation should be less than what the president sought. The Congressional Budget Office’s current baseline projections for federal spending over the next decade has Medicare spending $7.4 trillion out of a total of $44 trillion. That’s 16.8% of ALL federal spending (defense, Social Security, discretionary domestic programs, you name it). Apply that 16.8% to $1.2 trillion and you get about $202 billion as Medicare’s “fair share,” not the $320 billion proposed by the president.

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Still, there were precious few ideas at this morning’s forum that would come up with even a fraction of that total. Robert Berenson of the Urban Institute and Steve Phurrough of the Agency for Healthcare Research and Quality, both former top-ranking officials at the Center for Medicare and Medicaid Services, outlined a series of steps CMS could take to get better pricing, stop paying for uncalled for operations, and only pay the price of the “least costly alternative” when medical interventions are comparable. But most of those changes would require Congressional approval (fat chance), and none of the examples given (they spent a lot of time talking about implantable cardio-defibrillators, where an estimated 25% to 30% of the million operations each year are in patients who don’t really need them) raised more than a billion dollars.

Then there’s the question of whether CBO would actually “score” those changes as savings. David Auerbach, a former CBO staffer now at RAND, said the official scorekeeper tends to score savings when there is a track record from pilot programs or solid studies suggesting there is a high likelihood that a change in policy will lead to reduced health care spending. In other words, when it comes to things like using comparative effectiveness research to set prices at the level of the least costly alternative, the answer is no.

So where are we? As the Congressional clock winds down toward the end of the year, a bi-partisan Super Committee is looking for ways to hold down spending while the rest of the Congress (and the 12 members of that committee) need to come up with an additional $300 billion for Medicare over the next decade to avoid sharp cuts in physician reimbursement — the so-called “doc fix.” By my calculation, that’s somewhere in the neighborhood of another $500 billion in cuts elsewhere in Medicare over the next decade. To put that in perspective, that’s an average of $50 billion a year in a program that is slated to grow from $555 billion in 2011 to $966 billion in 2021, according to CBO.

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The best hope for avoiding “meat-axe” cuts of that magnitude or the privatization and cost-shifting to beneficiaries sought by Republicans is rapid success of the structural reforms included in the ACA — the formation of accountable care organizations, increased use of bundled payments, and better care coordination. These experiments are being forged under intense budgetary pressure. Anyone who cares about the future of Medicare has to be rooting for their rapid success.