President Joe Biden and congressional Republicans’ State of the Union
outburst
last month signaled Medicare reforms would be off the table in congressional debt ceiling negotiations, but the
looming fiscal crisis
driven by federal health programs remains. These programs’ financial burden grows every year as the population ages and the number of workers to support recipients declines. Years of “
grannies going over cliffs
” scaremongering suggest that any well-meaning attempts to reform Medicare will be portrayed negatively.
Yet
both parties
have proposed
Medicare
savings – while too often condemning the other side for doing so. Histrionics aside, lawmakers have no problem funneling Medicare dollars to their own pet causes. Wouldn’t it be better to instead keep health spending fiscally sustainable for future generations?
A simple approach would be to reduce excessive payments rather than cutting benefits. After all, high hospital spending is the
biggest reason
why U.S. health costs exceed other countries. Medicare’s convoluted “
provider entitlement system
” currently rewards volume over value and prioritizes the political clout of those delivering care over those receiving it.
There are many worthy — and
unworthy
— ways to transform Medicare. Here are just a few simple bipartisan ideas that will put the needs of current and future beneficiaries first and serve as a starting point for bigger reforms. In a recent Paragon Health Institute
report
, we list several others too, including ways to bring down prices within the healthcare system outside of Medicare.
The first solution is to reduce overpayments. Despite convoluted payment calculations by central planners, Medicare regularly overpays providers. One reason for this is that it reimburses for similar services under different payment systems. Paying hospitals more to treat patients with more complex needs makes sense, but the current system pays them more than physicians for providing identical services to identical patients. These financial incentives encourage more expensive services and hospital
acquisitions
of independent physician practices, reducing market competition.
CLICK HERE TO READ THE WASHINGTON EXAMINER’S EMPOWERING PATIENTS IN HEALTHCARE SERIES
Paying the same rate for the same service (“site neutral” payment) is a simple way to address this. Medicare already pays physician rates to off-campus hospitals built after 2015. Doing the same for older facilities and for common services delivered in on-campus hospitals would
save
the government at least $140 billion over 10 years, according to the Congressional Budget Office (CBO). This would also lower Medicare patients’ out-of-pocket expenses by billions.
Former Presidents Barack
Obama
and Donald
Trump
both proposed similar hospital payment reforms in their budgets. They also recommended reducing overpayments to post-acute care facilities and reimbursing them based on patient health status rather than site of care, which could
save
Medicare another $80 billion or more.
The second set of reforms involves uncompensated care. Medicare currently reimburses hospitals for uncompensated care they provide, including 65% of “bad debts” (where hospitals anticipate but don’t receive payment) from Medicare patients. These practices deviate from those of private insurers and leave taxpayers on the hook for uncompensated care that occurs outside the program.
CBO
and the
Obama
and
Trump
administrations all proposed reducing coverage of Medicare bad debt partially or entirely, which was estimated to save the federal government between $22 billion and $75 billion over 10 years. The Trump administration also recommended moving general reimbursement of uncompensated care outside the Medicare program and indexing those funds to inflation,
saving
about $88 billion.
Congress can also take up commonsense reforms to the 340B program. This program allows hospitals to purchase outpatient drugs at
discounts between 25% and 50%
, saving them tens of billions of dollars. This policy is meant to help hospitals that care for many uninsured and low-income individuals.
There is no requirement for hospitals to pass along these savings to patients, which makes the main benefactors of this public program the hospitals themselves. Medicare overpays for these drugs by
almost 60%
since it pays the same rate for these drugs as for non-discounted drugs. Unsurprisingly, 340B sales have doubled from 3.6% to 7.2% of the U.S. drug market, according to reports from
2018
and
2022
. About
40%
of hospitals now participate in the program.
During the Trump administration, the Centers for Medicaid and Medicare Services
unsuccessfully
attempted to
account for
these discounts by reducing payment for these drugs from 106% to 77.5% of their average sales price. However, Congress can implement similar reforms via legislation and retain the savings for the Medicare program. This policy was originally estimated to reduce federal spending by about $1.3 billion and save beneficiaries $320 million annually.
There are many ways to reform Medicare. Focusing on a subset of proposals that are bipartisan and that target inflated spending on healthcare providers can make a meaningful difference in improving the program and making it more sustainable. But the longer Congress waits to act, the harder it will be to get spending under control without painful benefit cuts for seniors. The only way to protect Medicare is to reform it, starting with some commonsense fixes to reduce overpayments to providers.
CLICK HERE TO READ MORE FROM RESTORING AMERICA
Joe Albanese
is a policy analyst at the Paragon Health Institute and was previously a program examiner at the White House Office of Management and Budget.
