Why Medicare Cuts Will Quietly Kill Seniors

April 28, 2013
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The recent news that thousands of seniors with cancer are being denied treatment with expensive chemotherapy drugs as a result of sequestration-mandated budget cuts raises the question of whether other patients are being equally harmed, but less visibly.

The recent news that thousands of seniors with cancer are being denied treatment with expensive chemotherapy drugs as a result of sequestration-mandated budget cuts raises the question of whether other patients are being equally harmed, but less visibly.

A careful study of the impact of past federal budget cutting suggests a troubling answer. That study, in a National Bureau of Economic Research Working Paper published in 2011 and revised last year, established an eerily direct link between slashing hospital reimbursement and whether Medicare patients with a heart attack live or die.

Using data from California hospitals, researchers Vivian Y. Wu of the University of California and Yu-Chu Shen of the Naval Postgraduate School examined mortality rates for heart attack patients following the Medicare payment cuts resulting from the Balanced Budget Act (BBA) of 1997. The impact of the BBA was not as sudden or clear as the current situation, where Medicare’s two percent across-the-board cut on April 1 instantly transformed some expensive chemotherapy drugs into money losers, but it was significant and long-lasting.

The researchers examined hospitals claims data for a three-year period before the BBA, a three-year period when the BBA first took effect and, finally, a six-year period after budget cuts had either permanently changed care or failed to do so. They also tried to adjust for the severity of illness of the heart attack patients – the condition is formally known as acute myocardial infarction (AMI) – and other factors.

In the end, the researchers were able to trace a clear path from Congressional budget decisions to the patient’s bedside. Payment reductions triggered by the BBA , Wu and Shen concluded, led to “worse Medicare AMI patient outcomes, and more importantly, that the adverse effect only became measurable several years after the policy took place.”

They even quantified the effect: every thousand dollars of Medicare revenue loss from the BBA translated to a six to eight percent increase in mortality rates from heart attack.Those findings, said the researchers,  “are very consistent with prior literature that finds short-term adverse effects of Medicare payment reductions.” They’re also consistent with broader research showing that Medicare coverage, does, indeed, save lives.

Wu and Shen’s National Bureau of Economic Research Working Paper was published in 2011 and revised slightly last year. It provides disturbing parallels to the present crisis, beginning with the fact that the BBA, like sequestration, represented a deliberately drastic effort by Congress to reduce the federal deficit.

Suddenly slashing payments an organization has been counting on and assuming that they’ll simply adapt is very different than announcing a change in reimbursement rules that takes place gradually. When the BBA went into effect, some analysts predicted that hospitals would make up deep cuts by becoming more efficient. Instead, Wu and Shen found, the heart attack death rate spiked because hospitals cut back on staff to slash operating costs. Left unexamined by the researchers, but profoundly important in a policy context, is what happened as a result to Medicare patients being treated for all medical problems, not just heart attack.

Just as in the 1990s, there’s no question today that billions of dollars are wasted on inappropriate or unsafe care. But brandishing the meat cleaver of across-the-board budget cuts represents a dangerous approach when many providers already feel as if they are already under severe financial pressure. Even before the chemotherapy denial hit the news, hospitals, nursing homes and others were already warning that sudden, across-the-board Medicare cuts would force them into just the kind of reactions the Wu and Shen paper found could be deadly.

Unlike with the BBA, the sequestration is playing out is occurring at the same time that a far more fundamental change in health care reimbursement policy is already underway, with a “bundled payment” approach increasingly adopted by government and private payers that links provider payment directly to high-quality outcomes. Yet in a kind of Gresham’s Law, the “bad” solution of indiscriminate cuts threatens to overshadow and drive out the “good” solution of more careful and coordinated care.

The White House estimates the current sequester cuts will result in $11 billion less in Medicare payments. There’s little question that those crude cuts, if they continue, will quietly, and unnecessarily, cost the lives of some seniors. The only question is how long it will take us less than a decade to find out who those victims really were.

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