Washington Health Policy Week in Review

Washington Health Policy Week in Review is a weekly newsletter that offers selected stories from the daily newsletter CQ HealthBeat.

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CMS Actuary Cites Short-Term Medicare Savings from Health Law

By Nellie Bristol, CQ HealthBeat Associate Editor

April 23, 2012 -- The health care overhaul will save Medicare more than $200 billion through 2016 largely through provider and Medicare Advantage payment reductions, the CMS Office of the Actuary says in a report released last week.

The law (PL 111-148, PL 111-152), would save $85 billion in "improved productivity" by tying provider payments to the growth of the economy at large, the report says. Affected providers include hospitals, home health providers, skilled nursing facilities and hospices, among others. An additional $68 billion in savings comes from reductions in payments to Medicare Advantage plans, which have been paid about 14 percent more per patient than under traditional Medicare. "The Affordable Care Act levels the playing field by gradually eliminating most of this excess in payments to Medicare Advantage plans compared to Medicare's costs for beneficiaries in the traditional program," the report said.

The estimates come as the Medicare Trustees set an insolvency date of 2024 for the Hospital Insurance Trust Fund, the same forecast as last year's. But, the trustees stress, despite some short-term stability in the program's finances, action is needed to strengthen them over the long term.

While CMS says the overhaul extends the life of the fund by an additional eight years, savings under the act were questioned in a report released last month by a Republican trustee. Charles Blahous of the George Mason University Mercatus Center said the overhaul would add more than $340 billion to the deficit. The claim was disputed by White House officials, who said Blahous used a different set of assumptions than those used by the Congressional Budget Office. CBO estimates the act will reduce the deficit.

The CMS report outlines $41 billion in savings through expanded benefits, lowered payments for hospital acquired conditions, readmission reductions and adjustments to premium subsidies under the overhaul. Efforts to improve patient safety would save an additional $10 billion through 2013. Fraud and abuse-reduction efforts and changes to durable medical equipment payments would net $7.8 billion in savings.

In addition to reducing program outlays, the law will decrease costs for beneficiaries in traditional Medicare by $60 billion through 2016 and $208 billion through 2021, according to the Health and Human Services assistant secretary for planning and evaluation.

CMS says the overhaul also lays the foundation for sustained changes to the health care delivery system that will continue to reduce costs. Many of the efforts are conducted through the CMS Innovation Center "which has already launched initiatives involving more than 50,000 health care providers that will touch the lives [of] Medicare and Medicaid beneficiaries throughout the nation."

Among demonstration programs cited by the report are those that provide higher payments to primary care providers and a variety of pilots to test different payment arrangements, encouraging home care and improving care coordination. It also cites pay for performance arrangements, chronic disease prevention programs and initiatives to reduce pre-term labor.

Among programs cited is the "five star" plan bonus system for Medicare Advantage Plans, an arrangement GAO recently blasted for costing $8.6 billion.