The trust fund that pays for hospital care of Medicare beneficiaries is on course to run out of money in 2026, and that assessment wasn't the only concerning part for hospitals in a new government report.
The 2021 annual report by the Boards of Trustees for the
The trustees' simulations "collectively suggest a deterioration of facility margins for hospitals, skilled nursing facilities and home health agencies, particularly over the long run," the report states.
In 2027, relative to 2019, the projections show 3% more hospitals experiencing negative total margins and 10% more facing negative Medicare margins. By 2040, roughly a third of hospitals would have negative total margins.
Why providers are in a tight spot
Hospital finances in recent years have been constrained by various Medicare payment policies, the trustees wrote. Examples are:
* An Affordable Care Act (ACA) provision that imposed a productivity adjustment on the annual Medicare market-basket payment increase
* Another ACA provision that altered the formula for determining Disproportionate Hospital Share (DSH) payments
* The 2% sequestration of Medicare payments, which was initiated in a 2011 law and has been frozen for much of the COVID-19 public health emergency - but is scheduled to resume in 2022 and run through 2031
The report's look at the Medicare payment landscape doesn't include a 4% decrease that is scheduled to be implemented in 2022 as a statutory adjustment stemming from passage of this year's COVID-19 relief legislation. Provider advocates are lobbying
"Such extreme cuts would have a long-lasting and devasting impact on patient care, which is unconscionable amid a public health crisis,"
Physicians could encounter a nearly 10% payment cut in 2022, with a statutory 3.6% reduction set to take effect in addition to the 6% in cuts facing hospitals.
Why Medicare APMs may become a more central focus
Given that fee-for-service price increases are below inflation under current policy, "The question is, can we develop payment models that encourage efficient care delivery and support the delivery system without increasing spending relative to where we are in current law," said
"While there are a lot of pricing improvements we can do in Medicare, in the big picture, Medicare has an efficiency problem, not a pricing problem," Chernew said during an
From a basic economics perspective, Chernew said, alternative payment models (APMs) can promote efficiency by giving providers more flexibility to change their use of inputs such as services and supplies.
He added, "Can we mix and match those inputs to reduce spending [and] get the same or even better outputs?"
Recent news about accountable care organizations may answer that question affirmatively. CMS reported that in 2020, the 513 participants in the Medicare Shared Savings Program generated a program-best
NAACOS and other healthcare associations signed a letter (https://www.naacos.com/press-release--national-health-groups-ask-congress-to-include-aco-bill-in-reconciliation-package) to
The practical upshot of fund depletion
Funded by payroll taxes, the
By 2026, revenues would cover only 91% of the fund's outlays. That share would drop to 78% in 2045, and the gap would be greater if healthcare costs rise by more than is seen in the report's relatively conservative projections.
Medicare policy experts have said providers should expect payment delays if the fund runs out of money.
"People could go to the doctor, but [for] the provider, it might take a little while because they have to wait for the payroll tax revenue to come in" to be paid,
Indirect impacts could be felt across the system of care, Uccello added. "Do people then face delays in getting care because providers are getting delayed in their payments?"
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