Health Care Costs: How Real are the New Law's Savings?

Health Care Costs: How Real are the New Law's Savings?

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The administration is touting a new report showing that the health care law is already racking up big cost savings, but the brief is based on some shaky estimates. The report, from the Center on Medicare and Medicaid Services, says that Medicare will save about $8 billion by the end of next year, and $575 billion over the rest of the decade. The cuts will help lower seniors' monthly premiums by nearly $200 per year by 2018. Dig a little deeper, however, and you find warnings that these savings won't materialize.

For example, the report claims $205 billion in savings over the next 10 years from making "improvements to productivity and market-based adjustments in certain provider settings." If that sounds a little vague, that's because it is. As a source for the claim, the report cites CMS actuary Richard Foster's estimate of the costs and savings from the bill.

About such gains, Foster writes: "It is important to note that the estimated savings shown … may be unrealistic." While changing prices to account for greater productivity will yield some efficiency, the report says, it's doubtful that it will be as great as the law assumes. "Thus, providers for whom Medicare constitutes a substantive portion of their business could find it difficult to remain profitable and, absent legislative intervention, might end their participation in the program (possibly jeopardizing access to care for beneficiaries)," the report says.

The new CMS report also claims $23.7 billion in savings over the next decade from the new Independent Medicare Advisory Board, which is charged with making recommendations to control costs that go into effect unless Congress overrules them. But that's a tall order, the actuary says. "In general, limiting cost growth to a level below medical price inflation alone would represent an exceedingly difficult challenge," the report says.

The actuary's report, prepared in April, also expresses skepticism about Congress's willingness to go along with the proposed cuts. It points out, for example, that Congress has routinely overridden planned cuts to Medicare's reimbursement rates to doctors, while CMS assumes that these cuts will take place.

On a conference call this morning, Secretary of Health and Human Services Kathleen Sebelius disputed Foster's accounting methods. She and Jonathan Blum, director of the federal Center for Medicare Management, told reporters that they're confident the estimates would be born out.

"When you look at the history of hospital financing and provider payment, when large payers like the Medicare program face continued financial pressure, that hospitals become more productive, they improve, they invest in changes," Blum said.

Sebelius added that she thought the political climate was right to make the changes stick in Congress, giving her more confidence in the numbers. "I would suggest that there seems to be a growing consensus, a bipartisan consensus within the halls of Congress that dealing with solvency issues on health care, dealing with the growing deficit on health care is a critical matter," she said. "We are more optimistic that this is not only the right direction, to have increased efficiency, increased productivity, increased quality, but that the will of Congress to in fact move in this direction is more substantial than it's ever been."

Only time will tell.

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