Rosier or rose-colored glasses?
Critics take Obama administration to task on Medicare projections
August 9, 2010, Modern Healthcare
Two reports released last week by Obama administration officials contend that the new health reform law will tamp down healthcare costs and put Medicare on substantially more solid footing
But a growing number of skeptics insists that the outlook may not be so sunny. Instead, they argue that the projections ignore the often-messy way that legislation gets implemented. Even Medicare's chief actuary has sounded a contrarian note, offering an alternative take on the Obama administration's cheerier claims.
At the core of the cost and savings argument are twin reports—one from Medicare Trust Fund trustees and another from the CMS—that essentially say the package of sweeping reforms signed into law by President Barack Obama in March would extend the solvency of Medicare longer than previously predicted.
Both reports come after the reform law took back-to-back hits. In Missouri, voters going to the polls overwhelmingly approved a measure to reverse the federal provision requiring the purchase of some level of insurance coverage. And in Virginia, a federal judge ruled that a lawsuit against the 4-month-old law could move forward, fueling hope from other state officials who have similar legal challenges against the federal government.
While it is unlikely that either event will put a dent in the implementation of the reform provisions, it underscores to lawmakers and even Obama that opposition to healthcare overhaul is still vibrant.
The two reports rely on the assumption that the basic core of the reform effort—including changes to how providers are paid, programs to streamline and improve care—would work in lock step to slow ever-rising healthcare costs. In the CMS study, the agency found that reform would save Medicare almost immediately to the tune of $7.8 billion through 2011 alone and $418 billion over a 10-year window ending in 2019.
HHS Secretary Kathleen Sebelius, during a news conference in Washington, heralded the findings. “Because we began making changes right away, the savings from Medicare add up fast,” she said, referring to a raft of measures that are in the beginning stages of implementation.
The CMS report focused primarily on the delivery system changes that will be inherent upon the provider community to implement. Those programs meant to help reduce the number of hospital readmissions, reshape how hospitals and doctors are reimbursed and those that target fraud and abuse are expected to reduce Medicare spending by tens of billions of dollars.
In a separate report, the Medicare trustees extended out that scenario over decades in their annual evaluation of the health of the Medicare Trust Fund.
The trustees concluded that under an overhauled health system, Medicare's hospital trust fund would stay flush until 2029, 12 years longer than previously predicted.
In addition, Medicare's Part B fund would also see a longer financial life. As is, spending on Part B is equal to about 1.5% of the gross domestic product. While prior estimates predicted that spending would increase to 4.5% of GDP after 75 years, the latest report shows a deep cut, to 2.5%, because of the reform law.
If accurate, analysts agree that it's a much rosier scenario than those made in the past. In a written statement, the American Hospital Association tried to see the bright side of the findings, offering that the trust fund's new solvency date of 2029 was “good news.”
“Making Medicare strong and solvent for generations to come is a goal that can be shared by all. The report reinforces that there's no need for more cutting of hospitals because Congress already took so much out,” the AHA stated.
But increasingly those same policy analysts see the predictions as an overreach by a White House eager to sell its reform package to a wary public. For starters, the reform package is so intricately woven that even the slightest tweak—an almost certainty considering its size and scope—could alter those projections downward.
“Under the assumptions they calculated, it's probably correct,” said Robert Book, a senior research fellow in health economics at the Heritage Foundation, a conservative Washington-based think tank, said about the most recent Medicare trustees report. “But it's based on a bunch of assumptions that are not necessarily realistic.”
Driving the skepticism are provisions that may have been given more credit for cost reduction than possible. For instance, while recalculating provider payment based on productivity adjustments may be a cost-saver, it nevertheless could fluctuate wildly, and current estimates in the law are considered unlikely.
What's more, both reports assume that the double-digit cuts to physician reimbursement will hold—something Congress has yet to allow. Changing the Medicare payment formula would cost the government a budget-busting $275 billion over 10 years and play havoc with the estimates made just last week.
Others also voiced skepticism regarding the reports. “This report is just the latest warning bell for members of Congress who know the Medicare physician payment system is broken,” American Medical Association immediate past President J. James Rohack said in reaction to the trustees' findings.
Marion Goldberg, a partner at WinstonStrawn, Washington, also isn't taking any comfort in the trustees' report. Even the trustees themselves freely state that the report on the financial status of Medicare is much rosier than what's likely to take place, she said.
Trustees, for example, “are skeptical that providers and suppliers will be able to achieve the productivity improvements anticipated in the health reform law. In addition, revenue from Medicare taxes are down, both because of unemployment and underemployment during the recession,” she said.
“I think it is more likely that we have ‘kicked the can down the road,' and we will continue to face the dilemma of trying to control healthcare costs and the risk of chasing providers and suppliers out of Medicare if payments are reduced or do not keep up with the cost of living,” she said.
Regarding the question of whether cuts to physician pay are actually going into effect, J.B. Silvers, a professor of health systems management at Case Western Reserve University in Cleveland, said, “that's not going to happen.” And if it doesn't happen, the savings to Medicare will be much lower, he said. Silvers wouldn't characterize the findings as optimistic—just that the scenario is better than it was with the passage of health reform. “We're still driving toward the cliff, but at a slower rate,” he said. “We still have to deal with some issues.”
Even Richard Foster, who heads the team of actuaries at the CMS, in an alternative look at the report released by the trustees, found the report to be unrealistic. His analysis provides a look at “a more plausible outcome for future spending.”
In Foster's estimate, the changes to provider payment calculations and the sustainable growth rate factor, or SGR, assumed in the trustees report are, he said, “highly unlikely.” Foster makes a number of changes to the assumptions used by the trustees, but most noticeably he runs the numbers reflecting that physicians will see a positive update each year, productivity adjustments to providers would phase out after 2019, and the cost lines for both Medicare Parts A and B are altered.
Under Foster's alternative take, the hospital insurance fund is instead exhausted one year earlier, in 2028, and Part B is expected to increase more rapidly, reaching 1.98% of GDP by 2020 and 5.07% by 2080.
“So we have great news, but with sort of a question or a cloud hanging over it,” Foster said, referring to the findings.
Robert Greenstein, executive director of the Center on Budget and Policy Priorities, said that while Foster's view is less optimistic, he nevertheless does not dismiss the trustees' report.
Foster's alternative projection, which assumes that only 60% of the health reform law's savings are achieved in the long run, “is still a dramatic improvement” over what was projected last year, prior to health reform, Greenstein said. In Greenstein's view, the most likely outcome will be something between Foster's predictions and those made by the trustees.
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