If President Obama wins the election and another four years in office, Medicare would be saved from the major overhaul GOP candidates Mitt Romney and Paul Ryan have endorsed. Right? Well, sort of. 

The notion that Obama is “saving Medicare” certainly is one the Obama campaign hopes will stick with the voting public and, in particular, with seniors and soon-to-be seniors in key swing states, such as Florida, Ohio and Virginia, who want to maintain Medicare in its current form.

An Obama victory would almost certainly mean another four years would pass without the possibility that Medicare would be converted into a premium-support, or voucher, program, the GOP’s plan for reform.

But make no mistake about it: President Obama has endorsed a slower but steady shift that would indeed change the program dramatically and qualify as Medicare reform in its own right. Another term for Obama would mean another four years over which key Medicare provisions of the Affordable Care Act (ACA) would be implemented, paving the way for fee-for-service to be replaced with pay-for-performance.

Medicare is at a financial crossroads, and if Obama’s vision for the program can achieve savings dramatic enough, it could put the nation’s fastest growing entitlement program on a much more solid road to sustainability. Through the ACA and his fiscal year 2013 budget, Obama has articulated a Medicare reform plan that focuses on getting the biggest bang possible for the government’s buck. Put another way, Obama wants to see if changing the way providers are paid for treating beneficiaries can ease the financial strain on the program while simultaneously improving the care seniors and many disabled Americans receive, according to the Centers for Medicare & Medicaid Services (CMS).

"Providers seek clarity. An Obama win would result in clear direction and more decisive action on the part of providers," said Larry M. Goldberg, president and CEO, of Chicago-based Loyola University Health System.  "The overarching goals for providers in the Affordable Care Act are clear -- improve the health status of the populations you serve while reducing per capita cost. The basic structures and timelines for accomplishing these goals have been identified in the legislation. That said, more is unknown than known.

"The health care industry is waiting for the myriad regulatory details that will provide a clear sense of direction," he said. "The details have not been forthcoming and won’t be until after the election."

Right now, Medicare is a fee-for-service program, and inherent to this payment structure is an incentive for health care providers to prescribe more—not less—services and treatments. The ACA has built in numerous mechanisms for shifting the payment structure of Medicare so that the government is paying for performance and that providers have an incentive to make appropriate use of health services. Obama’s payment reforms could, in theory, save the government money, put more money into providers’ pockets and improve the quality of care beneficiaries receive.

Created by the ACA, the Center for Medicare & Medicaid Innovation (the CMS Innovation Center) is chartered to do just that. The center aims to foster health care transformation by finding new ways to pay for and deliver care that improve care and health while lowering costs. 

“We have a pay-for-performance system now, but we pay for the wrong performance,” said Stuart Guterman, vice president and executive director of the Commonwealth Fund’s Commission on a High Performance Health System. “We pay for volume and complexity, but we don’t pay for appropriateness, better outcomes or effectiveness and efficiency. We need to change the signals we send from paying for more to paying for better and more appropriate. That’s what the move from the current payment system is formed and the way we need to go.”

Goldberg said that uncertainty about final ACA regulations has caused providers, and others, to move slowly or sporadically.

"Providers are at risk for moving too slowly (being left behind) or too rapidly (being on the “bleeding” edge)," he said. "Likewise, it is impossible to be focused on the actions that make one successful in a “fee-for-service” world while simultaneously being focused on the actions that make one successful in a “value-based payment” world."  

In a second Obama term, some of the pay-for-performance measures included in the ACA would be on a brisk march forward, including:

• The Hospital Readmissions Reduction Program, which went into effect on October 1, 2012, will reduce payments to hospitals with a high number of avoidable readmissions within 30 days for three common conditions (heart attack, heart failure and pneumonia). Additional conditions will be added if the program is found to be successful. The program aims to achieve a 20 percent reduction in hospital readmission rates by the end of 2013, preventing 1.6 million hospitalizations and saving an estimated $15 billion. Hospitals will lose about $280 million in payments this year due to high readmissions rates, according to a Kaiser Health News analysis. The maximum penalty increases from a 1 percent payment reduction this year to 2 percent in 2014 and to 3 percent in 2015.

• The formation of Accountable Care Organizations (ACOs) would both hold providers accountable for the quality of care they provide and give them a financial incentive to prescribe the right treatments for the right patients at the right times. ACOs comprise groups of doctors, hospitals and other health care providers who aim to achieve better care coordination by relying heavily on electronic health records and other health informatics to inform clinical decision-making.

• Payment Adjustments for Hospital Acquired Conditions will begin in 2015 and reduce Medicare payments by 1 percent for hospitals scoring in the top 25 percent for the rate of hospital-acquired conditions (HAC) as compared to the national average.  

• A Hospital Value-Based Purchasing Program, also stating October 1, 2012, will reward participating hospitals with incentive payments for providing high-quality care or improving care, based on a set of quality measures. The ACA also mandates value-based purchasing programs to be developed for facilities in industries that include home health, skilled nursing, ambulatory surgery, long-term care and hospice. The hospital program will withhold 1 percent of reimbursements to approximately 3,000 acute care hospitals, totaling about $850 million, which will then be redistributed to those meeting certain clinical and patient satisfaction standards.

• The Physician Quality Reporting System, which provides financial incentives to physicians for reporting quality data to the CMS, will be extended by the ACA through 2014, but incentive payments will be eliminated in 2015, and physicians who do not participate will receive reduced Medicare payments.

• Through the Medicare Advantage Star-Ratings Bonus Program, insurers that contract with the government to provide health care for Medicare beneficiaries began receiving bonus payments if they achieved at least a 4-star rating on a 5-star quality rating scale. In November 2010, the CMS announced a controversial demonstration project in which bonus payments would be awarded to Medicare Advantage Plans (Part C) that have at least an average of three stars, and it would increase the amount of the bonuses for plans with four or more stars.

• Through the Medicare Home Health Pay for Performance demonstration project, more than 100 participating home health agencies that are part of this two-year project will receive nearly $15 million in shared savings from providing better care at lower cost.

On the Backs of Providers

To drive Medicare costs down in the meantime, however, health care providers will continue to feel the pinch of Obama’s Medicare reforms, while beneficiaries remain protected. However, the cuts to providers mandated by the ACA could, ironically, result in a net harm to patients, the medical lobby has warned.

The ACA includes many provisions that would more directly and immediately impact Medicare’s financial picture. It includes up to $716 billion in Medicare spending cuts from 2013 through 2022—the target of many Republican attack ads that misleadingly claim Obama is “gutting” the Medicare program through the ACA. Of that $716 billion, 34.8 percent comes from reductions in hospital reimbursement rates. Decreased Part C plan reimbursements account for 30.2 percent, and the remaining 35 percent includes various small cuts, such as 5 percent in savings from Medicare Disproportionate Share Payment reductions and an 8.8 percent decrease in reimbursements to home health providers.

“You can do things like slash payment rates or make fewer people eligible, but that is sort of like putting out the flames without putting out the fire,” Guterman said.

Repeatedly, and as recently as October 29, the American Medical Association has said that declining Medicare payments could drive physicians out of the business of caring for Medicare beneficiaries, compromising patients’ access to quality care and choice.

Compounding the issue of declining reimbursements is additional instability in the Medicare reimbursement climate due to the Sustainable Growth Rate (SGR) and Congress’ failure to find a permanent fix for the flawed formula. Although Congress has always acted (usually at the last minute) to avert SGR cuts from taking effect, physicians say the uncertainty impacts practice operations and could ultimately contribute toward doctors walking away from serving Medicare beneficiaries.

The Medicare provisions in the ACA designed to preserve the program's solvency also include fighting Medicare fraud and waste in the program and creating a cost-cutting Independent Payment Advisory Board (IPAB) to recommend changes in reimbursement rates, reducing annual pay increases for Medicare Hospital Insurance (Part A) providers, decreasing payments to home health agencies and skilled nursing facilities, plus other adjustments. IPAB has been condemned by Republicans for being a “death panel” of sorts, run by bureaucrats with no medical training who will make draconian decisions to control Medicare spending.

“Providers are largely frustrated by the current system because they feel they are punished for doing a lot of the things that really would benefit their patients,” Guterman said. “Frequently, (the current) financial incentives reward for not doing those things and penalize for doing those things.”

And some providers are skeptical that pay-for-performance can achieve the savings needed to sustain the program without actually resulting in poorer health care quality, according to the authors of a recent Health Affairs policy brief. “Although they don't disagree with the need to focus on quality improvement, they are concerned that the underlying goal of pay-for-performance is cost containment at the expense of patient care,” the report said.

Some of the changes to Medicare found in the ACA will help providers improve the health status of the communities that they serve, Goldberg said.

"Expanded prescription coverage, payment, for preventive services, and increased payments to primary care physicians should improve access to care. Likewise, finding innovative new ways to deliver care is better funded under the Act," he said. "A lower payment rate for hospitals is a concern. Hopefully, lower payment rates to hospitals may be offset by more persons being covered. "

Other providers, such as insurers, support the concept of pay-for-performance, saying some models such as ACOs are similar to the managed care plans they innovated decades ago in the private sector and even within the Medicare program.

“Humana and other health plans have been operating ACOs for 25 years through the government’s own Medicare Advantage program,” Humana CEO Michael McCallister wrote in a blog for The Medicare NewsGroup, referring to the care coordination managed care plans foster “among doctors, hospitals, pharmacies, and ancillary providers who interact with beneficiaries.” McCallister credits that system of integration, inherent to the ACO concept, with providing care to Humana’s Part C members at “nearly 15 percent less than the cost of comparable care through traditional Medicare, with no diminution of quality.”

The Medicare cost-savings measures in the ACA extend the solvency of the Medicare Hospital Insurance (Part A) Trust Fund from 2016 to 2024, according to the Medicare Trustees’ 2012 Report. According to a 2010 analysis by the Congressional Budget Office, the ACA’s Medicare provisions are estimated to result in a net reduction of $428 billion in Medicare spending between 2010 and 2019, taking into account $533 billion in Medicare savings and $105 billion in new Medicare spending during the 10-year period. 

In addition, the law generates Medicare-related revenue through a higher Medicare payroll tax ($87 billion in revenue through 2019) by imposing an annual fee on brand-name prescription pharmaceutical manufacturers and importers ($27 billion in revenue through 2019), and by eliminating the tax deduction for employers who receive Medicare Prescription Drug Plans (Part D) retiree drug subsidy payments, beginning in 2013 ($5 billion in revenue through 2019). 

A Permanent Place in History?

Pieced together, all of the smaller but comprehensive changes Obama has put forth to “save” Medicare in its current form could spell out success for the cost-stricken program. Still, Republicans have vowed to repeal the ACA, including all of its Medicare provisions, and have introduced numerous pieces of legislation to that end.

If Obama wins the presidential election, however, the political feasibility of that happening is pretty much zero, experts say.

“There is no chance of a repeal with Obama winning,” said Larry J. Sabato, director of the Center for Politics at the University of Virginia. “He would veto anything that tried to do so.  That's his signature domestic achievement.” To override a veto, Sabato said, “They’d need 67 (seats) in the Senate and a two-thirds majority in the House, too. Not a chance.” 

Another four years for Obama means breathing room for his Medicare reforms and a chance for them to play out; if they are successful at achieving dramatic cost savings, a new light could be cast on Medicare deficit negotiations with Republicans. This could radically change the national dialogue on the best way to position the program for the future.

“We need to finds ways to both reduce the amount we spend and spend it better, with that being the most important thing,” said Guterman. “That’s what the move from the current payment system is about, and the way we need to go. The ACA provides some tools that are useful in moving in the right direction.”

MedicareNewsGroup.com (MNG) original articles can be reprinted or republished with credit to The Medicare NewsGroup. To use our content, simply copy and paste text from the MNG website. Use of our content is done in compliance with our Terms and Conditions but does not extend to material from other sources that are subject to their copyright.