Health Reform Provisions Will Save Medicare $120 Billion

Medicare stands to save $120 billion over the next five years due to program improvements, including implementation of many provisions in the Affordable Care Act, a new analysis released by the Centers for Medicare and Medicaid Services (CMS) reported. The improvements include new tools and resources to help crack down on fraud, waste, and abuse in the Medicare system, and reforming payment systems to reward high quality care. “These efforts are aimed at creating better health, better care, and lower costs for patients, providers, and taxpayers,” the CMS said.
The types of reforms and the anticipated resulting savings are as follows:

Health Care Delivery System Reforms Savings through 2015
Reforming provider payments—rewarding quality of care $55 billion
Improving patient safety—lowering hospital readmissions and hospital-acquired conditions $10 billion through 2013*
Cracking down on fraud and abuse in the Medicare system $1.8 billion**
Getting the best value for Medicare beneficiaries and taxpayers for durable medical equipment $2.9 billion ($17 billion over ten years)
Reducing excessive Medicare payments to insurance companies $50 billion

* Amount shown represents the reduction in Medicare expenditures that could be achieved if the CMS goals for reducing readmissions and hospital-acquired conditions are met.
** Estimated savings for Medicare program integrity provisions in the ACA; does not include other, ongoing CMS initiatives.

“Just a year after passage, we are seeing savings in Medicare begin to materialize from provisions in the ACA,” said Donald Berwick, CMS Administrator. “This work is laying the groundwork for a larger transformation of Medicare and our health care delivery system, from simply paying for the volume of services provided to rewarding the quality of care delivered. We remain committed to achieving a health care system that pursues better care, better health, and lower cost through improvement.”

In addition to the provisions generating savings to date, the report highlights several steps CMS is taking to achieve long-term savings and reform the health care delivery system:
• Better coordinated care for Medicare and Medicaid enrollees;
• Creation of the Center for Medicare and Medicaid Innovation to test innovative payment and service delivery models;
• Promotion of accountable care organizations (although the potential effectiveness of ACOs is controversial);
• Broader value-based purchasing programs;
• Creation of the Independent Payment Advisory Board to recommend ways to best improve quality of care for Medicare beneficiaries while lowering costs;
• Expanding use of electronic health records;
• Administrative simplification;
• Medicare Advantage payment reform;
• Enhanced program integrity, fraud, waste, and abuse prevention work (Medicare recovered $4 billion in fiscal year 2010 alone); and
• Promoting prevention and wellness.

The CMS has set a goal of reducing preventable hospital-acquired conditions by 40%, preventing 1.8 million injuries and averting 60,000 deaths of hospital inpatients over the next three years. The CMS is also targeting a 20% reduction in hospital readmissions, which would result in eliminating 1.6 million unnecessary rehospitalizations. In total, achieving these targets could save up to $35 billion across the U.S. health care system over three years, including up to $10 billion for Medicare alone.

On Jan. 1, 2011, CMS implemented a competitive bidding mechanisms for durable medical equipment, such as power wheelchairs, and other supplies, including oxygen, in nine metropolitan areas. Under this new payment mechanism, Medicare is paying an average of 32% less for these items, the CMS reported.

A comprehensive analysis of the Affordable Care Act, including the full text of the law and additional information on health reform implementation, and other recent developments in employee benefits, is available here.