Medicare under pressure to cut costs

October 1, 2005

Elderly Americans will have to pay higher premiums for Medicare outpatient care next year than originally predicted to cover more doctors' office visits and increased use of hospital clinics. The rising expenditures also will boost payments to Medicare Advantage (MA) plans, further increasing overall program expenditures. While this trend may prompt more seniors to join MA plans, it also is fueling talk of cutting MA rates.

ELDERLY AMERICANS will have to pay higher premiums for Medicare outpatient care next year than originally predicted to cover more doctors' office visits and increased use of hospital clinics. The rising expenditures also will boost payments to Medicare Advantage (MA) plans, further increasing overall program expenditures. While this trend may prompt more seniors to join MA plans, it also is fueling talk of cutting MA rates.

The Medicare Part B premium will be $88.50 a month in 2006, a whopping 13% jump from the current $78.20 fee and slightly more than the $87.70 estimated in March.

The main reason is rapid growth in the "intensity and utilization" of services provided by physicians and hospital outpatient departments, according to the Centers for Medicare and Medicaid Services (CMS). And more doctor office visits mean more lab tests, outpatient procedures and use of physician-administered drugs. Medicare physicians' services will rise 5.6% this year and 6.5% in 2006, continuing an upward trend since 2000.

BOOST FOR PLANS?

Another factor boosting Medicare spending is higher payments to MA plans, which are linked to Medicare fee-for-service payments. Premiums will be even higher if more seniors join MA plans with the expansion of the MA program.

CMS announced last month that it had approved 143 new MA plans so far this year, including new and expanded PPOs sponsored by United Healthcare in southern Maine, Empire Blue Cross Blue Shield in New York City and suburbs, and Excellus in the Rochester, N.Y,. area. The situation is aggravating complaints about "overpayments" to MA plans. Sen. Jeff Bingaman ( D-N.M.) has introduced legislation to cut Medicare payments to private plans and use the savings to reduce premiums overall.

COUNTING ON IT

A prime strategy for reducing healthcare costs while improving the system is to implement a nationwide electronic health records network. HHS Secretary Mike Leavitt has been promoting this initiative in recent months (see Newswire), and a new study from RAND predicts $81 billion in annual savings if 90% of providers adopt EHR technology. Medicare would save about $23 billion a year, and private insurers would realize $31 billion in annual gains.

Unfortunately, these savings will take years to realize, while the costs of implementing a national EHR system are huge and immediate. A study from the Commonwealth Fund puts the cost of establishing a "workable national health information network" at $156 billion over five years in capital investment and $48 billion in annual operating costs. The RAND estimate is more than $100 billion over 15 years to implement an EHR system-$6.5 billion a year for hospitals and $1.1 billion annually for physicians.

Some critics believe that RAND researchers are overemphasizing the potential savings and underestimating the real costs of getting all the nation's doctors and health facilities wired up. While MCOs are investing in this area considerably, most physician group practices lack the resources to do so.

The federal government aims to spur the EHR revolution by assembling parties to set data standards for health records that will promote interoperability. Other initiatives call for paying bonuses to providers who adopt health information technology as well as backing programs that finance IT purchases by physicians and other providers.

Jill Wechsler, a veteran reporter, has been covering Capitol Hill since 1994.