An Even Bleaker Prognosis For Medicare?

If readers can bear the first 276 pages of bad news in the annual Medicare trustees report,  released Monday, they will come to several pages in which Medicare Chief Actuary Richard Foster argues the program’s financial future is even bleaker than what the trustees suggest.

Foster acknowledges the trustees did exactly the job they were asked to do, basing their findings on current law, including the 2010 overhaul.

But that future is unrealistic, and Congress won’t be able to avoid changing course, he says. Medicare spending will grow faster than projected, he says, because it is “implausible” that Congress will follow the requirement in current law to cut physician fees by about 30 percent in January. The trustees say as much in another part of the report where they note that eventually, physician payments would be less than half current levels — and far less than what private insurers pay — if those reductions go into effect. See page 216, where the group puts forth “illustrative alternative projections.”

The trustees are required to assume those reductions will occur, even though lawmakers regularly circumvent statutory reimbursement cuts. The health law also is slated to reduce Medicare payments to hospitals and other medical providers, which lowers the trustees’ estimate of program spending. Foster writes that that is unrealistic, noting “the best available evidence indicates that most health care providers cannot improve their productivity to this degree – or even approach such a level – as a result of the labor-intensive nature of these services.”

In an interview Tuesday, Foster said that while he’s “optimistic that providers can improve the quality of care [and lower costs] … I’m not so sure we can reduce the growth rates forever.”

Medical providers could become more productive by reducing waste and making other changes in how they deliver care, the trustees say. But to be successful in the long term, they would have to sustain “unprecedented levels of productivity gains – a very challenging and uncertain prospect,” they write.

To be sure, the Obama administration has talked up efforts in the health law to pay Medicare providers based on quality, rather than on volume. For example, the law encourages doctors, hospitals and other medical providers to work together to deliver more efficient care in so-called accountable care organizations.

The Obama administration has touted such changes as key to reducing costs, and the trustees agree they hold potential, but that the promise is still “uncertain at this time, since specific changes have not yet been designed, tested or evaluated.”

Foster is even more skeptical. Without “unprecedented” changes in how health care is delivered and payments are made, “the prices paid by Medicare for health services are very likely to fall increasingly short of the costs of providing these services,” he writes.

Over time, he projects that payments for some services would be halved, forcing them below Medicaid rates, which are so low that some medical providers refuse to treat beneficiaries.

Foster’s comments come as the Obama administration Monday painted a rosier picture of Medicare’s financial future. Hours before the trustees released their report, the administration issued its own analysis, saying the health law would save over $200 billion in Medicare spending through 2016 and that beneficiaries in the traditional, government-run program would save nearly $60 billion through lower payments. Those savings would come from ending extra payments to private health plans in Medicare, cracking down on fraud and “changing provider payment policies to reflect improvements in productivity,” according to the report from the Centers for Medicare and Medicaid Services.

The trustees asked Foster to quantify how much more Medicare might possibly cost under current law. By 2086, under what he sees as changes Congress is likely to make, Foster estimates that Medicare spending could account for more than 10 percent of Gross Domestic Product, instead of 6.7 percent.

Health care policy experts pay attention to Foster, and with good reason. He doesn’t have to toe the administration’s line. Although Foster is part of the Department of Health and Human Services, he works independently, and he has clashed with both Republican and Democratic administrations in his long history as actuary.

In addition, Foster’s role in the implementation of a key provision of the health law will be critical. His estimates will determine when an expert panel created in the 2010 law to curb costs will have to make recommendations to decrease Medicare spending. Unless Congress intervenes, those recommendations would become law. And if Congress makes the changes that Foster predicts, that panel could be pressed into action sooner.