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News | CMS and MedPAC Guidelines and Trends

Verma points to hospitals as the largest driver of healthcare costs

News | CMS and MedPAC Guidelines and Trends

Verma points to hospitals as the largest driver of healthcare costs

  • The Trump administration is emphasizing hospital costs and ways to reduce spending on hospital services.
  • The CMS Office of the Actuary expects 2019 hospital spending increases to occur at rates near the middle of all healthcare segments.
  •  The administration is emphasizing ways that Medicare Advantage can help curb spending and improve quality.

The head of Medicare told insurers this week that hospitals are the leading cause of increasing healthcare costs.

Seema Verma, administrator of the Centers for Medicare & Medicaid Services (CMS), told attendees at a keynote address at the Better Medicare Alliance, which represents many Medicare Advantage (MA) plans, that Medicare pays more for services performed in hospital settings.

“This has led to a surplus of hospital beds in the country; and hospital spending is the largest driver of healthcare costs,” Verma said in her July 22 address.

Verma, who criticized Medicare’s “hospital-centric payment model,“ highlighted several ongoing Trump administration initiatives aimed at curtailing hospital spending. Among them:

  • Expanding site-neutral payments to disincentivize hospital purchases of physician practices
  • Allowing more procedures to move from hospitals to ambulatory surgical centers
  • Cutting Medicare payments under the 340B discount drug program
  • Reducing Medicare paperwork requirements on independent physicians to eliminate incentives for them to become employed by a health system

Another initiative aimed at hospital prices was touted this week by Alex Azar, secretary of the U.S. Department of Health and Human Services. Speaking to the same insurer group, Azar referred to a June 24 transparency executive order (EO) by President Donald Trump, which could require the unprecedented public release of hospitals’ negotiated rates with commercial health plans.

“Under the EO, hospitals would have to disclose information about their negotiated rates in a public format that is understandable and usable for patients,” Azar said July 23.

Proposed rules implementing that requirement are scheduled to be released by Aug. 24.

A possible counterpoint about hospital spending

Verma’s conclusion that hospitals lead healthcare spending increases was in some ways at odds with a February report from her agency’s actuary, which found that hospitals’ recent and projected rates of spending increases are near the middle among healthcare segments.

The CMS actuary’s 2019 projected spending-rate increases included:

  • 5.1% for hospitals
  • 5.4% for physician and clinical services
  • 6.8% for home healthcare
  • 4.6% for prescription drugs

However, the increase in hospital spending is larger than other segments in gross dollars because hospital spending comprises nearly one-third of all spending ($1.3 trillion of $3.8 trillion), according to the report.

MA plans seen as a solution

In contrast to their criticism of hospitals, the Trump administration leaders’ comments this week highlighted the increasing cost and quality benefits that MA plans have provided, and ways to expand those.

“What works in the Medicare program is Medicare Advantage because plans are competing on the basis of cost and quality, driving towards value and increasing choices for beneficiaries,” Verma said.

The administration executives touted coming initiatives to support MA, including:

  • Creating value-based insurance design arrangements
  • Moving more care to the home and community
  • Incentivizing improved patient health over the long term
  • Allowing more ways for plans to address the social determinants of health (SDOH)
  • Launching a redesigned plan finder

Those initiatives would add to previous administration MA rules changes that allowed expanded telehealth benefits and supplemental benefits tailored to address SDOH.

Verma credited such rule changes with driving the creation of 600 more MA plans and the lowest MA premiums in six years, including a 6% premium decline since 2018. In 2019, MA enrollment reached an all-time-high of nearly 23 million beneficiaries.

About the Author

Rich Daly, HFMA senior writer/editor,

is based in the Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

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