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Report Says Current Trends Indicate Huge Medicare Savings

March 21, 2014:

Nannette Orme, Clinical/Technical Editor

A report released by the Federation of American Hospitals claims that if current downward trends in spending growth hold, the Medicare program could save $900 billion more over the next decade than Congressional Budget Office projections. This is saying quite a bit, since the CBO has reduced its Medicare spending projections for six years in a row.

The report, compiled by the consulting firm Dobson DaVanzo in February 2014, points to a slowdown in the growth of spending over the past few years—Medicare’s annual growth in spending on hospital costs per beneficiary dropped from 6 percent in 2008 to 0.03 percent in 2013. The report attributes this decline to structural changes in the health care industry, namely a shift to value-based payments, lower adoption rates of expensive technologies, reduced readmission and health care associated infection rates, and various state initiatives.

Value-based payments: Thanks to payment reform, by fiscal 2017, 8 percent of a hospital’s payments for Medicare inpatients will hinge on such quality measures as meaningful use, hospital-acquired conditions, hospital readmission rates, and value-based purchasing. Only 2 percent of those payments were based on quality measures in fiscal 2013.

Patient cost-sharing: The percentage of workers with high-deductible health plans has ballooned from 4 percent in 2006 to 20 percent in 2013, which puts downward pressure on health care prices.

Expensive technologies: The patents for certain drugs with high utilization among Medicare beneficiaries, such as Lipitor, have expired, and beneficiaries can now take much less expensive generics in their place. The report also notes an annual decline in some procedures, such as coronary artery bypass graft, angioplasty, and complex imaging, which is then reflected in lower hospital costs.

Readmission and infection rates: Since 2009, readmission rates have fallen one percentage point. Although this looks like a small change, the financial impact is substantial, as Medicare readmissions double the cost of care. Hospital-acquired conditions are also on the decline, saving Medicare an estimated $5 billion to $5.5 billion per year.

State initiatives: The report singles out initiatives in Massachusetts, Arizona, Maryland, and Colorado that show promise in reining in health care costs. Among the programs in these states are accountable care organizations, a focus on episode-based care, bundled payments, and a global budget model that captures all hospital revenue statewide.


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