News | Medicare Payment and Reimbursement

Policy advisers urge continued Medicare 'squeeze' of hospital pay

News | Medicare Payment and Reimbursement

Policy advisers urge continued Medicare 'squeeze' of hospital pay

  • Continued Medicare hospital pay cuts will improve their productivity and cost control efforts, say policy advisers.
  • Large Medicare pay boosts for hospitals would require tax increases due to the vulnerable trust fund.
  • Another view is Medicare by itself lacks the heft to drive hospital cost-control efforts.

A gathering of prominent healthcare policy advisers urged federal officials to continue ongoing cuts in regular Medicare hospital pay updates in order to drive productivity increases.

The growing divergence between Medicare and commercial health-plan payment rates for hospital services led health policy advisers attending a meeting June 25 at the Brookings Institute in Washington, D.C., to argue that the pressure for them to control costs through productivity improvements only will come through continued federal pay cuts and value-based pay.

“Change will come through public policy,” said Chapin White, adjunct senior policy adviser for RAND Corporation.

Part of that push will mean continuing reductions in the annual Medicare hospital payment updates based on productivity growth in the broader economy. Those cuts were required by the Affordable Care Act (ACA).

In FY19, the 2.9% rate increase for the hospital inpatient prospective payment system was cut for inflation by 0.8%.

The cut raised concerns about undermining the viability of healthcare providers. But White countered that those organizations can off-set the cuts with productivity improvements.

“A lot of it comes back to this question of ‘Are hospitals at the efficient frontier?’ My big picture take is ‘No, clearly not in the U.S.,’” White said.

The sentiment that hospitals have far to go in boosting their productivity was echoed by other health policy experts.

“It is possible to achieve a relatively high level of efficiency, even at Medicare rates,” said James Mathews, executive director of the Medicare Payment Advisory Commission (MedPAC).

In contrast, any boost in Medicare hospital rates is unlikely because it would require “massive tax increases,” White said.

“I don’t think that’s really on the table,” White said.

White was more concerned that a pending legal challenge could strike down the entire ACA, which also would eliminate the hospitals’ ACA-mandated productivity cuts.

Medicare seen as irrelevant

The primacy of Medicare’s role in driving hospital productivity improvements and cost controls was questioned by another long-time health policy adviser.

“I hate to tell you, but hospitals are increasingly thinking of Medicare as being irrelevant,” said Stuart Altman, chairman of the Massachusetts Health Policy Commission. “If you have two people walk in and one is giving you a dollar and the other is giving you three, who are you going to listen to?”

In contrast, Medicare rates matter a great deal to safety-net hospitals “and they’re furious because they’re getting squeezed,” Altman said.

Continued Medicare cuts may have a similar effect on hospitals that low rates had on physicians, where an increasing number stopped accepting Medicare patients, said Altman, a Medicare beneficiary who has lost three primary care physicians.

“Concierge medicine is illegal, immoral and fattening, and I joined them because I needed it,” Altman said about the brief appointments and long wait times of non-concierge physicians.

Hospital spending reductions instead may be driven by all-payer systems. Six states are moving to implement total payment systems, including Oregon, Delaware, and New Mexico.

“To talk about how Medicare payment policy is going to impact the productivity of the health sector is a joke — unless we get them all playing from the same set of song sheets,” Altman said. 

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