Value Based Payment

Could value-based payment be used to shore up the Medicare trust fund?

November 17, 2020 2:03 pm
  • As insolvency looms for the Medicare hospital trust fund, possible pay-fors could include more than $450 billion in provider cuts proposed by the Biden campaign. 
  • Other savings could come from value-based payment models, including an increased emphasis on mandatory and risk-based approaches.
  • Savings targets also could include greater use of site-neutral payments and shifts to outpatient care.

The fast-approaching insolvency of the Medicare hospital trust fund could spur a scramble for solutions, including leveraging value-based payment (VBP), some industry analysts say.

The Part A Hospital Insurance Trust Fund will become insolvent by 2024, according to Congressional Budget Office (CBO) estimates, and some unofficial estimates have concluded that could happen as early as 2022. Without congressional action, CBO estimates Medicare spending in 2025 would have to be cut by 17% to keep the program operational.

That looming reality will create tremendous pressure on Congress and the Biden administration to shore up the fund’s finances, according to policy watchers. Steps could include some combination of:

  • New taxes
  • Increases in beneficiary premiums
  • Cuts to provider rates.

Other options could include enacting legislation on so-called surprise billing or drug pricing, according to healthcare policy advisers. But the various options would have widely varying effects on the trust fund’s solvency. For instance, Moody’s Analytics estimated the 10-year savings for various policies proposed by Biden include:

  • $50 billion from ending surprise billing
  • $300 billion from direct negotiation of drug prices
  • $100 billion from capping drug price increases to inflation and allowing drug reimportation

Provider-focused options to bolster the fund

Some see the possibility that Medicare payment policies will be overhauled to drive greater savings.

“There is an opportunity to look at that with regard to hospitals and alternate settings of care and shifting payment models more rapidly,” Brenda Pawlak, a managing director for Manatt, said in an interview.

However, any move to bolster the fund using provider cuts will need to consider the financial weakness of those organizations due to steep pandemic-related revenue losses, she said.

“It’s going to be a tightrope balancing act, at least over the next 24 months,” Pawlak said.

Congress may try to use VBP to avoid the unpopular options of taxes, premium increases and rate-cutting options.

“Value-based care is a pretty strong lever to being able to make that happen, in which case that would militate in favor of mandatory and performance-oriented [models],” Chris Kerns, a vice president for the Advisory Board, said in an interview.

Using VBP to squeeze greater savings for the trust fund will be complicated for the Biden administration. That’s because many left-leaning policymakers oppose both implementing more mandatory models and advancing the Trump administration’s push toward greater downside risk, analysts say.

Significantly increasing Medicare VBP savings would require big changes in the approach of the Center for Medicare & Medicaid Innovation (CMMI), given that CMMI models are on track to generate much less savings than projected. For instance, a January 2020 analysis by Avalere concluded CMMI models will produce $18 billion in savings from 2017 to 2026, far less than the $34 billion projected by CBO in 2016.

Other potential savings targets

In seeking Medicare trust fund savings, a Biden administration also could look at previously proposed Medicare payment changes.

For instance, 2020 budget proposals by President Donald Trump, as scored for 10-year savings by CBO, included:

  • 102 billion from changing payment rates for hospital outpatient departments to those for physician office rates for certain services
  • $164 billion from modifying hospital uncompensated care payments
  • $36 billion from reducing Medicare bad debt payments
  • $168 billion from cutting graduate medical education payments

Biden’s site-neutral payments proposals would build on Trump administration initiatives. The current administration’s CY21 Outpatient Prospective Payment System proposed rule would eliminate the inpatient-only (IPO) list of procedures over three years, among other initiatives aimed at moving patients to outpatient care settings.

Biden historically has not shied away from hospital cuts.

As vice president, Biden was a leading champion of the Affordable Care Act, which included $450 billion in 10-year cuts to Medicare, including about $150 billion in reduced hospital payments.

The last budget proposed by the Obama administration would have cut Medicare expenditures by $240 billion, including through hospital payment cuts, according to CBO projections.

Many congressional initiatives to cut Medicare spending are derived from Medicare Payment Advisory Commission (MedPAC) proposals. In its 2020 report to Congress, MedPAC recommended making “payments site neutral by reducing or eliminating differences between hospital outpatient departments and physician offices in payment rates for evaluation and management office visits and selected other services.”


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