Medicare hospital fund runs dry

May 1, 2012

No one is optimistic that Congress will make changes in benefits or outlays needed to improve the financial picture.

WASHINGTON-The financial health of the Medicare program continues to deteriorate, according to the annual Medicare Trustees report. No one is optimistic that Congress will make changes in benefits or outlays needed to improve the financial picture.

The report forecasts that Medicare's hospital fund will start running out of money in 2024. The time frame has held steady only because last year's deficit-reduction legislation calls for 2% cuts in program spending-a policy that is unlikely to stand. Instead, both short-term and long-term Medicare spending will rise higher than previously predicted.

The solution, according to the Obama administration, lies in implementing the Patient Protection and Affordable Care Act (PPACA). An analysis from the White House says that the reform legislation will save more than $200 billion in Medicare spending through 2016. Savings would come from ending extra payments to Medicare Advantage plans, cracking down on fraud and abuse, and shifting reimbursement to pay providers based on quality performance.

Last month, the Centers for Medicare and Medicaid Services (CMS) announced that 27 provider groups will participate in the Medicare Shared Savings program. It still remains far short of predictions that up to 270 ACOs would participate. CMS now is reviewing more than 150 additional ACO applications.

Bonuses also will depend on how well an ACO performs on 33 quality measures across four domains. Data from earlier demonstration projects indicate, however, that ACOs might do better in meeting quality standards than in generating savings.

Although Medicare is supposed to save billions by cutting rates to Medicare Advantage, CMS is giving MA plans more time to achieve star quality ratings that carry hefty bonuses and rebates. CMS is permitting the vast number of three-star plans to enjoy the bonuses through a large demonstration project.

Now the Government Accountability Office (GAO) and Republican critics are blasting that decision as likely to cost $8.35 billion over 10 years. And the demonstration program is so broad that it's unlikely to yield a valid assessment.

In an analysis prepared for Sen. Orrin Hatch (R-Utah), GAO urges CMS to cancel the star-rating bonus demonstration. Hatch charges CMS with abusing its authority and using the demonstration program for political purposes. The aim, he says, was to "divert attention away from cuts to the popular Medicare Advantage program."

Hatch, who faces a tough re-election campaign, raised questions about the legality of a demonstration program that costs billions of dollars and is unlikely to assess whether a scaled bonus structure spurs quality improvement.

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