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California Could Lose $61B in Medicare Pay. Does it Matter?

ObamaCare takes about $716 billion out of Medicare spending across a decade. That much isn’t up for debate.

But does that figure represent “cuts” to Medicare, as opponents of the Affordable Care Act contend? Or is it just payment reductions phased in over time that won’t affect benefits, as the White House maintains?

Where you stand on that may depend on your politics — and semantics.

Either way, the ACA will play a role in tamping down spending on Medicare. But how much those billions of dollars will be missed … well, that is the debate.

Mapping Costs

One challenge: Big budget numbers in Washington, D.C., may not feel real when taken out of context.

“No one really understands what that [$716 billion] means to their community, or what that distribution looks like along the country,” the American Action Forum’s Michael Ramlet told California Healthline.

One way to get a sense for the impact, Ramlet says, is to map how the ACA reductions would play out — state by state and county by county.

And that’s exactly what Ramlet and Robert Book, senior research director of the HSI Network, did in a new working paper. Drawing on the latest Congressional Budget Office analysis, the two researchers modeled the impact of the changes to Medicare fee-for-service and Medicare Advantage payments across a decade.

Golden State Will Take Big Hit

By assuming proportional reductions to FFS and MA payments, the two researchers projected that California would see a loss of $60.6 billion between 2013 and 2022 — the most of any state in the nation, by far. Specifically:

  • About one-quarter of the reductions would come in Los Angeles: A $16.8 billion hit over a decade. (For comparison, Ramlet and Book projected that the entire state of North Carolina would see a $16.5 billion reduction.)
  • Orange County would see payments decline by $4.8 billion; and
  • San Diego would see payments decline by $4.6 billion.

To be clear: Those changes are to provider payments, not to beneficiaries’ benefits. But those figures also don’t reflect the full impact of the ACA’s $716 billion reduction. Ramlet notes that the study didn’t account for $144 billion in other Medicare spending reductions, like the creation of the Independent Payment Advisory Board, which is projected to take $114 billion out of the program across the decade.

The researchers didn’t include potential changes to disproportionate share hospital payments either. That’s largely because those changes are still being finalized, but Ramlet notes that DSH cuts could hit areas like Los Angeles — with its large network of safety-net hospitals — especially hard.

Tracking the Impact

The $716 billion figure has been politicized in recent weeks. Both President Obama and Republican presidential nominee Mitt Romney have traded shots over whose plans would do more to preserve — or dismantle — the Medicare program. And amid the partisan sniping, the actual impact on Medicare beneficiaries has been lost in the shuffle.

Trying to explain the ACA’s changes, an alert from the Center for Medicare Advocacy takes pains to “clarify that the Medicare reforms do not reduce Medicare’s guaranteed benefits.” (Emphasis in the original.) And the ACA contains payment incentives designed to reward providers that band together to deliver better care.

But some say that the intent of the law’s reductions doesn’t matter. The trickle-down effect is bound to hit patients eventually, argues Avik Roy, a Forbes contributor and health adviser to the Romney campaign.

“What happens when you reduce payments to doctors?” Roy asks at Forbes. “Doctors stop being willing to see Medicare patients. And if you can’t actually get a doctor’s appointment, what does it really matter what your insurance plan covers on paper?”

Cuts May Impact Financial Health — and Then Patient Health

Importantly, the evidence on how payment changes actually affect patient outcomes is mixed.

One study looking at the impact of the 1997 Balanced Budget Act — which made significantly larger and more direct changes to Medicare than the ACA — drilled down on acute myocardial infarction mortality rates at hospitals between 1995 and 2005. Researchers found little difference in AMI outcomes immediately after the BBA’s cuts took effect.

But as Sarah Kliff points out at the Washington Post‘s “WonkBlog,” the researchers observed a more pronounced effect by taking a long view and contrasting hospitals that saw small cuts with facilities that took a bigger hit.

About four years post-BBA, “small-cut hospitals [kept] making improvements in mortality rates, while large-cut hospitals have results that are pretty stagnant,” Kliff writes. Essentially, providers that grappled with the most painful BBA payment reductions had deeper challenges investing in staff and infrastructure, which can lead to continued quality and process investment.

Speaking with California Healthline, Ramlet acknowledges that it’s hard to link cutting provider payment with negative outcomes, but some hospitals will need to tighten their belts post-ACA. That may be a tall order, given that many hospitals have already made cuts since the economic downturn began and analysts think providers may be running out of tactics to find cost savings.

Will the ACA’s reforms incent hospitals to deliver more efficient care or just lead to more pain for providers and patients? That may be next year’s Medicare debate.

Here’s what else is happening around the nation.

Medicaid Expansion

  • Several states are considering only partially participating in the Medicaid expansion under the Affordable Care Act. The new strategy comes after the U.S. Supreme Court in June ruled that states can opt out of the Medicaid expansion without any effect on current funding. The states have applied for federal waivers to allow them to expand their Medicaid programs to residents whose incomes are up to 100% of federal poverty level (Radnofsky/Weaver, Wall Street Journal, 9/18).
  • Idaho taxpayers could save $380 million over six years if Idaho participates in the Medicaid expansion beginning in 2014 because state costs for an indigent health care program would be reduced by more than $60 million annually over the period (AP/Idaho Statesman, 9/10).
  • Last week, Greg Moody — director of the Ohio Office of Health Transformation — said Gov. John Kasich’s (R) administration is evaluating the savings and costs the state would bear if it decides to participate in the Medicaid expansion, and acknowledged that the state’s potential savings on providing health care to prison inmates under the expansion will be a factor (Johnson, Columbus Dispatch, 9/13).

In the Courts

  • Last week, the First U.S. Circuit Court of Appeals “summarily denied” a lawsuit filed by Maine Gov. Paul LePage’s (R) administration for an accelerated review of the state’s request to drop about 36,000 beneficiaries from its Medicaid program (Stone, Bangor Daily News, 9/13). Maine requested that CMS make its decision promptly, to give it time to implement the changes before Oct. 1 (Russell, Waterville Morning Sentinel, 9/13).
  • Last week, the evangelical founders of the retail chain Hobby Lobby filed a federal lawsuit in Oklahoma challenging the ACA’s contraceptive coverage requirement. The suit argues that providing contraceptive coverage for the chain’s employees would violate the freedom of speech and religious beliefs of its founder and CEO David Green and his family (Mecoy, The Oklahoman, 9/12). The suit also claims that certain contraceptives can prevent the implantation of a fertilized egg in the uterus, which Green considers to be an abortion (Greene, Tulsa World, 9/12).

In the States

  • California is leading states in establishing a health insurance exchange. Given the state’s size, diversity and geographical spread, successful implementation of its exchange could spur other states with large uninsured populations to follow suit. Health Access California Executive Director Anthony Wright said, “We are the example. If it can be done here, it can be done anywhere” (Goodnough, New York Times, 9/14).
  • Illinois Gov. Pat Quinn (D) and a group of state officials working on an essential health benefits package required under the ACA for basic health plans in the state will consider affordability and public comments on the matter, and they expect to finish before the Sept. 30 federal deadline (Modern Healthcare, 9/7).
  • The Maryland Health Education Advocacy Unit under the state’s Office of Attorney General has received $717,000 from the ACA to assist residents with health care coverage decisions and disputes (Ambrose, Baltimore Sun, 9/12).
  • Health officials in about two dozen states are working to establish insurance exchanges required by the ACA, despite political opposition from their Republican governors and legislators (Yukhananov, Reuters, 9/16). Meanwhile, a recent Urban Institute report examined exchange activities in 10 states and found that all are getting opinions from stakeholders and would prefer to create their own exchanges, but “many state policy environments remain politically contentious” (Norman, CQ HealthBeat, 9/14).

On the Hill

Rolling Out Reform

  • Last week, a group of more than 100 religious leaders released a statement urging governors to participate in the ACA’s Medicaid expansion (Zigmond, Modern Healthcare, 9/10). The statement urges “governors who are considering refusing or have already refused to accept [the expansion] to put the well-being of their constituents ahead of their political ideology and accept the Medicaid funding” (Viebeck, “Healthwatch,” The Hill, 9/10).
  • The ACA’s $10 billion Prevention and Public Health Fund is helping some local governments fight obesity and other public health problems. Some scientists doubt that the small-scale public health campaigns can work to significantly reduce obesity, but certain public health experts say the programs could spur a cultural shift (Tavernise, New York Times, 9/10).

Studying Its Effects

  • In 2010, the U.S. spent $2.6 trillion on health care, or about $8,233 per person, and CMS analysts expect that health care spending will remain high in the coming years. According to CMS, health care spending will reach $4.6 trillion by 2020, accounting for about 20% of the U.S. gross domestic product. However, experts say ACA is helping to address various issues that contribute to rising health care costs (Zamosky, Los Angeles Times, 9/8).

Spotlight on ACOs

  • CMSPhysician Group Practice Demonstration — a five-year program that is considered a precursor to the ACA’s Medicare accountable care organization program — generated $532 in average annual savings per “dual eligible” patient, according to a study in the Journal of the American Medical Association (Evans, Modern Healthcare, 9/11). Launched in 2005, the program involved 10 large medical practices nationwide and awarded bonus payments based on practices’ ability to meet spending and quality benchmarks (Kulkarni, “Capsules,” Kaiser Health News, 9/11).

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