Medicare Payment and Reimbursement

Medicare Expansion Proposals Draw Hospital Concerns

February 12, 2021 5:17 pm

Feb. 25—Hospital advocates are increasingly voicing opposition to various Medicare expansion proposals over concerns about their adverse financial impacts.

Responding to the growing talk among Democrats of Medicare-for-all, Rick Pollack, president and CEO of the American Hospital Association (AHA), warned about the financial ramifications of broad adoption of Medicare payment rates.

“Access could be impacted because physicians and other providers may limit the number of Medicare or Medicaid patients they see because of chronic government underpayment,” Pollack wrote in a blog post. “Hospitals are already paid far less than the cost of caring for Medicare patients, and more patients with Medicare would strain hospitals even more, and could threaten hospitals’ survival.”

Pollack’s concerns come ahead of this week’s expected introduction of an expansion Medicare-for-all bill from Rep. Pramila Jayapal (D-Wash.).

Instead of Medicare expansion, Pollack urged implementing the Medicaid expansion in all states, allowing new expansion states to obtain a 100 percent federal matching rate for the first three years, improving the affordability of coverage on the Affordable Care Act (ACA) marketplaces, and maintaining the employer mandate to retain that critical access point to coverage.

Rate Impacts

The financial impact of the various Medicare expansion proposals on providers has been little discussed by the growing number of congressional Democrats urging that access to the program be widened through buy-in proposals, eligibility expansions, or Medicare-for-all.

Hospitals advocates, however, have become increasingly concerned.

“There is no question that Medicare works for seniors and others who depend on it,” Chip Kahn, president and CEO of the Federation of American Hospitals, wrote in a blog post. “But expanding the program with hospitals facing the lowest Medicare margins in history will make it more difficult to provide the critical care that all Americans expect and deserve.”

Hospitals’ overall Medicare margins deteriorated to -9.9 percent in 2017, according to an analysis by the Medicare Payment Advisory Commission (MedPAC). The 2017 decline especially affected non-teaching hospitals (-12.2 percent margin), not-for-profit hospitals (-11 percent), and urban hospitals (-10 percent). Margins were best at for-profit hospitals (-2.6 percent) and rural hospitals and critical access hospitals (-5.9 percent combined).

Similarly, all-payer operating margins for not-for-profit hospitals fell to 1.6 percent in FY17, the lowest level Moody’s Investor’s Service has ever found in its tracking, according to an analysis of audited financial statements for 303 free-standing hospitals, single-state health systems, and multistate systems.

The effect of those low rates has helped undercut hospital finances, with a new Navigant analysis concluding that 430 rural hospitals, or 21 percent, across 43 states are at high risk of closing unless their financial situations improve.

Medicare payment reductions are “a major factor, with the average rural hospital counting on Medicare for 46 percent of gross patient revenue,” the analysis stated.

Paying Medicare rates—a common feature across Medicare expansion proposals—is a key mechanism for achieving promised savings in the proposed bills because commercial rates are so much higher, said Christopher Holt, healthcare policy director for the American Action Forum. Such savings allow the proposals to have lower budgets while promising cheaper enrollee costs.

In Medicare expansion legislation—both new bills and bills from the last Congress that are expected to be reintroduced—provider payment rate details include:

  • Medicare fee-for-service rates (Stabenow expansion bill—2019)
  • Fee schedule established by the secretary of Health and Human Services (HHS) (Sanders Medicare-for-all bill—2018)
  • Rates for a public plan negotiated by the HHS secretary (Schakowsky bill—2018)
  • Rates for “Medicare Part E” negotiated by the HHS secretary (Merkley bill—2018)
  • Global budget for hospitals; FFS for physicians (Jayapal bill—2019)

In response, hospital advocacy groups joined several large health systems and national advocacy groups for physicians, insurers, and pharmaceutical companies to found the Partnership for America’s Health Care Future as a way to push back on the Medicare expansion initiatives.

The effort reminds Holt more of the healthcare industry’s response to a Clinton administration healthcare reform initiative in the 1990s than the response to the legislation that would become the ACA. Many segments of the healthcare sector actively supported enactment of the ACA. The gist of the difference may be that the industry viewed enactment of healthcare reform in 2010 as inevitable, while the proposed overhauls of the 1990s and today seem less certain.

Details of the Bills

The first Medicare expansion bill introduced in the current Congress would allow anyone at least 50 years old to buy into the public insurance program designed for seniors.

Sen. Debbie Stabenow (D-Mich.) recently introduced a “Medicare at 50” bill that would allow those 50 and older to buy into Medicare using premiums that cover the full cost of benefits and administration. Although the Stabenow bill has not received an official cost estimate, a Congressional Budget Office estimate of a Medicare buy-in bill 11 years ago estimated such a premium would cost at least $7,600.

“The idea behind a lot of Medicare buy-in plans is that your premium will be cheaper because Medicare pays lower rates to providers,” Holt said. “Obviously providers offset that in other parts of the system, so if more people are getting those rates it’s going to put pressure on other insurance sources to pay more.”

Stabenow’s bill drew the support of 16 Democratic cosponsors, as well as companion legislation introduced in the House of Representatives by Rep. Brian Higgins (D-N.Y.).

Her bill also drew concern from Kahn.

“Allowing more people into Medicare actually weakens the coverage options of people who currently depend on the individual-insurance market, leaving them with fewer choices,” Kahn said.

Holt downplayed the expected impact of such a measure because the pool of people to which it aims to appeal generally already qualifies for subsidized coverage in the ACA marketplaces.

Supporters of the bill noted that the appeal of such provisions might not be so limited. For instance, Sen. Sherrod Brown (D-Ohio), a cosponsor, highlighted a poll finding 27 percent of adults approaching retirement were not confident that they could afford health insurance over the next year, and more than a quarter had issues navigating health insurance options, coverage decisions, and out-of-pocket costs.

A similar bill from Sen. Jeff Merkley (D-Ore.) would allow anyone to use ACA marketplace subsidies to buy into Medicare.

The highest profile expansion bills, expected as soon as this week, are Medicare-for-all billsfrom Sen. Bernie Sanders (I-Vt.) and Jayapal. The Sanders bill, not yet reintroduced in the current Congress, has drawn endorsements from most major Democratic presidential candidates, making it the most prominent Medicare expansion proposal, Holt said. The bill would replace all existing types of coverage with a new single-payer system.

“That would obviously have the most significant impact on providers,” Holt said. “That would change everything.”

Similar in scope, the Jayapal bill that is expected this week reportedly would set a global budget for hospitals while continuing to pay physicians FFS rates.

Between the Stabenow and Sanders bills in terms of scope are bills to lower the eligibility age to enroll in Medicare, such as one introduced in the last Congress by Rep. Jan Schakowsky (D-Ill.).


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