What Does The Hospital Deal Mean For Health Care Reform?

Today, the hospitals formally announced that they will contribute “some $155 billion in Medicare and Medicaid savings over the 10 years to cover health care cost reform.” Hospitals account for approximately 40 percent of all spending in the health care system and reformers believe that some of that spending is wasted on unnecessary services. The trick is to cut out the excess spending and re-invest it in financing health care reform.

This agreement follows the President’s June proposal to cut “more than $200 billion in expected reimbursements to hospitals over 10 years” by incorporating productivity adjustments into Medicare payment updates and reducing subsidies to hospitals for treating the uninsured, and suggests that the industry believes that health reform may be inevitable. Thus, rather than accept the steeper cuts, the hospitals — who fear that reductions in reimbursements would not parallel increases in coverage — voluntarily chose to embrace fewer savings on a more favorable time line. Still the reductions are significant:

– Lowering the annual update rates paid to hospitals.

– Reducing Medicare payments for excessive and preventable readmissions.

– Lowering bonus payments for hospitals who treat the undeserved: As more Americans become insured, hospitals will be spending less resources on uncompensated care. The hospitals agreed to a less aggressive schedule for implementing these reductions. Instead of a hard date of 2013, the decrease in payments would be triggered by coverage expansion a year or two after the implementation of the new insurance program for the uninsured. Obama’s proposal would have saved $106 billion over ten years (on this provision), thE\e compromise would save about $50 billion over a decade.

The savings are smaller than some progressives would have liked but they are real, perhaps even more so than the pharmaceutical industry’s recent pledge to lower (how, we’re not yet exactly sure) spending on prescription drugs by $80 billion. As the industry itself has admitted the savings are there for health care reform. Combined with additional savings from health care modernization and the additional revenue from an employer mandate, vice taxes, and possible changes to the tax treatment of employer-provided health insurance, the resources for reform are at at least $1.2 trillion. Most importantly, this agreement keeps the hospitals in line and supportive of reform.