Are Future Medicare Reimbursement Reductions to Providers the Key To Cost Reduction?

Lower payments to non-physician providers in the upcoming years, as a result of the productivity adjustments of the Patient Protection and Affordable Care Act (PPACA) will lower the rate at which health care costs have been increasing, according to testimony delivered by CMS’ Chief Actuary Richard S. Foster to the House of Representative’s Budget Committee.    These factors will contribute to a projected growth rate of 5.9 percent during the years 2012 to 2020, according to Foster, as opposed to a 9.6 percent annual increase from 1965 to 2010. 

 The largest single contributing factor to the estimated 5.9 percent growth rate in the next ten years is due to the baby boomer generation becoming Medicare eligible. Contrary to popular belief, the baby boomers have not yet substantially become eligible for Medicare.  Foster says the full eligibility of baby boomers in the upcoming years accounts for nearly 3 percent of the 5.9 percent growth rate.  There will just be more people spending money on health care in the upcoming years.  If the Medicare population stayed at the same level the growth rate would only be 2.9 percent each year.

 Over time, productivity adjustments required by PPACA will mean that prices paid by Medicare will grow in all future years by about 1.1 percent per year more slowly than the input prices providers will be required to pay purchase the goods and services they use to furnish health care services to beneficiaries.  Foster is worried that this inequity in cost to reimbursement will result in providers eventually become unwilling or unable to treat Medicare beneficiaries. As the availability of care is threatened, Foster sees Congress moving to not impose cost cutting requirements just as they have not imposed the reduction to the physician fee service schedule as law required.

 In previous years, Foster demonstrated that the increase in spending in medical care was the result of new and improvement technologies and an increase in disposable income. Of the average 9.6 percent year-to-year increase in health care spending, 1.0 percent was a result of the increasing in the Medicare population, 4.0 percent was a result of general, economy-wide inflation, 1.4 percent was a result of medical care specific inflation due to the higher component of labor in medical care, and 2.9 percent as a result of individuals being able to order more expensive procedures.  This 2.9 percent is the result of growing incomes being able to afford more care and the high cost of new technologies to provide that care, and he sees this continuing.

 Foster is concerned though that the only way to reduce the amount that is spent on care is to reduce the amount paid to providers.  From 1965 to 2010 when the cost of health care grew 9.6 percent per year, and the number or workers only increased 1.7 percent per year.  The result being that economic growth factors only increased 6.9 percent while spending on health care increase 9.6 percent.  Foster noted that could not continue over time.  He concluded that based on past trends labor productivity growth is not likely to keep pace with continuing increases in excess medical prices. 

 Foster noted that provisions in PPACA have already started the process of reducing health care spending.  Under current law, Medicare payment rates are projected to decline relative to private health insurance payment rates.  Medicare payment rates for inpatient hospital services would be 33 percent less the average level of private heal insurance rates and about one-half of the current Medicaid payment rates.  By 2085 Foster predicts that Medicare payment rates would be 27 percent of what private insurers pay.  These reductions are all a result of the productivity adjustments put into place by PPACA.

 Foster see this reduced federal spending on health care as being the impetus to develop less expensive technology that will result in more curtailed spending on health care.  “Over time, as all payers continue to seek ways to reduce costs and as providers can no longer be assured of revenue flows that will automatically adjust to higher cost level, the medical research and development community may direct their efforts more toward new treatments, devices and drugs that can  provide health outcomes that are equal to or better those provided by existing technology, but at a much lower cost,” Foster said in closing his remarks before the committee.

Birth Control Coverage Already Mandated By 28 States

In recent weeks access to birth control has become a controversial issue, in particular the requirement of the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148) that group health insurance plans cover FDA-approved contraception has been hotly debated. An interim final rule adopted in 2010 requires coverage of:

  • evidence-based items or services rated at A or B in the current recommendations of the United States Preventive Services Task Force; and
  • for women, evidence-informed preventive care and screenings provided for in comprehensive guidelines supported by the Health Resources and Services Administration. HRSA adopted the recommendations of the Institute of Medicine that all FDA-approved drugs and devices be included in the mandatory preventive benefit.

A proposed amendment to the regulation published last August added an exemption for religious employers.  The administration received and considered comments contending that the insurance coverage available to an employee should not depend on where she works and an uproar has ensued.

The House Committee on Oversight and Government Reform held hearings on the issue, to decide whether the requirement would infringe on the religious freedom of employers. The first five witnesses scheduled were men; most, if not all, were clergy or affiliated with religious institutions. Two women who opposed the administration’s policy testified. However, the committee did not hear a woman who came to testify in favor of the required benefit.

The final rule, which was published February 15, adopted the religious exemption in last year’s proposed rule.  To qualify for an exemption, an organization must:

  • have as its purpose the inculcation of religious values;
  • primarily employ individuals who share its beliefs;
  • primarily serve individuals who share its beliefs; and
  • have tax-exempt status.

This definition excludes organizations that serve the public, such as hospitals or universities. Reasonable people might well believe that some or all of those organizations  should be considered exempt as well. Because of the continuing controversy, the administration also issued guidance providing a “safe harbor” for religiously affiliated nonprofits delaying enforcement for the first year while it considers changes to the policy.

Amendments to PPACA were proposed to address the problem. S. 1467, introduced by Senator Roy Blunt (R-Mo.), provided that no health plan would be in violation of the PPACA minimum coverage requirements if it “declines to provide coverage of specific items or services because” providing or paying for them…”is contrary to the religious beliefs or moral convictions” of the sponsor, issuer or entity offering the plan. Note that the ability to “opt out” of coverage was not limited to reproductive services or to religious organizations.  For example, an employer could refuse to cover substance abuse treatment based on a belief that substance abuse is a sin or a character defect and not a medical problem.

On March 1, the Senate defeated Blunt’s bill but the Senator says the battle isn’t over and House Speaker John Boehner (R. Ohio) plans to introduce his own legislation. From the tone of the debate, one would never know that 28 states have mandated coverage of birth control.

According to a breakdown by the Guttmacher Institute,

  • eight states have no religious exemption;
  • four limit the exemption to churches and church associations, excluding hospitals and other entities;
  • seven have a broader exemption that allows religiously affiliated schools and, potentially, charities and universities, to opt out of coverage; and
  • four of the states with exemptions provide for the employee to access coverage without the employer’s participation.

There also is plenty of precedent in federal law for requiring contraceptive coverage. For example, the Equal Employment Opportunity Commission ruled in 2000 that an employer’s  exclusion of birth control pills from their prescription drug coverage benefit violated the Pregnancy Discrimination Act.  Under Soc. Sec. Act  Section 1905(a)(4), Family planning services are a mandatory Medicaid benefit. A birth control benefit has been available to federal employees since 1999. Other federal programs, such as the Indian Health Service and TRICARE, cover it as well.

Like other PPACA requirements, this mandate will apply only to plans that are neither grandfathered nor exempt. So, most likely, the employers who haven’t been covering contraception won’t have to start. How long the debate will continue remains to be seen.