Will Cutting Medicare Reimbursements To Doctors And Hospitals Lead To Health Care Rationing?

Rep. Paul Ryan (R-WI) got to the heart of the GOP’s criticism of the Affordable Care Act’s Independent Payment Advisory Board (IPAB) — a 15-member commission that would make recommendations to Congress about lowering Medicare reimbursements if costs increase beyond a certain point — during this morning’s House Budget Committee hearing when he said that reducing payments to providers would undercut seniors’ access to doctors and hospitals and thereby ration their care. His argument is that Medicare already underpays providers, forcing them to either shift costs to individuals with private insurance or close off their Medicare business altogether, and any additional cuts will only exacerbate this problem.

The point is somewhat disingenuous, since Ryan’s budget maintains many of the provider reductions in the Affordable Care Act (while repealing the IPAB), and it ignores the fact the ACA will begin to change not just how much providers are paid for their services, but how they’re paid for delivering them. The law invests in delivery reforms that move away from the inefficient fee-for-service system and pay providers for episodes of care and greater care coordination. That’s something the Ryan budget does not do, as HHS Secretary Kathleen Sebelius, who was testifying before the committee, highlighted in her back and forth with the Chairman:

RYAN: Obviously if we underpay them it will save more money. The question is, if we underpay them, will they keep delivering the benefit? … Don’t you agree that if we underpay them they will just stop seeing beneficiaries?

SEBELIUS: Mr. Chairman, I think the assumption is that nothing changes in care…that we keep paying at the same not only rates, but keep saying for the same kinds of services. So if you assume that care delivery doesn’t change at all, that we keep paying for good care, the same that we pay for bad care, if we don’t have any changes in underlining care, if we dont’ coordinate care, if we don’t have more home based patient based care….That trend line is probably accurate.

I would suggest that what the Affordable Care Act does and what we have begun to do pretty successfully with the innovation center and the very enthusiastic support of a lot of health care providers across the country is look at where the best practices are…groups that have actually delivered very high quality care well below the trend line and capture that and then reach out to others to try to accelerate that change and use the enormous levers of the Medicare payment system to do just that to drive best practices.

Watch it:

Ryan’s other sleight of hand is his fundamental assumption: Medicare’s lower reimbursement rates are responsible for providers losing money. That may not always be true, however. Research into hospital costs suggests that the real culprit of lower hospital margins from Medicare is some combination of private payer laxity in setting competitive rates and provider clout in negotiating higher prices for their services. A study published in Health Affairs found that the higher reimbursements hospitals earn on payments from private payers are actually a “key reason that Medicare margins have declined.” “The apparent chain of causation is as follows. Strong market power leads hospitals to reap higher revenues from private payers. This in turn leads these hospitals to have weaker cost controls. The weaker cost controls lead to higher costs per unit of service. As a result, hospitals have a narrower margin on their Medicare business.”

In other words, hospitals are losing money precisely because the current reimbursement system — the very system that Ryan’s budget perpetuates — does not incentivize delivering efficient care — it encourages providing more care! That’s something the ACA seeks to change and IPAB can help accelerate.