Medicare Pricing Drives Costs of US Healthcare

Published Online: January 03, 2014
Katie Sullivan
January 2014 has arrived, and with that Affordable Care Act coverage begins. Over the next 12 months, the administration will thoroughly consider the ways in which it can control the rising costs of healthcare in the United States. This is especially true for the nation’s Medicare program.

“Our results suggest that Medicare’s decisions are far more influential than you may imagine,” said Joshua Gottlieb, an economist at the University of British Columbia.

Mr Gottlieb’s research found that a $1 change in the price that Medicare pays is equal to a $1.30 change in what private insurers pay. According to the Congressional Budget Office (CBO), Medicare spending is expected to increase 7% a year. Within 10 years, Medicare spending could reach as high as $903 billion.

“Medicare is a wonderful program, but behaviorally, because of the price-fixing, it’s a mess,” said Tom Scully, a partner in a private equity firm that invests in healthcare.

Medicare pricing vastly influences costs in US healthcare, and because payers save money by letting the government set prices, current payment systems require rethinking. Consider that more than 5.3 million Medicare beneficiaries will be receiving care from accountable care organizations (ACOs). Within these ACOs, the hospice industry is looking to incorporate end-of-life care in order to collaboratively improve outcomes while lowering costs. Hospice is less expensive than inpatient hospital care.

“Hospice saves on average about $2,300 in comparison to other patients who are admitted for similar illness” to other facilities like hospitals, said Donald Schumacher, president and chief executive officer of National Hospice and Palliative Care Organization (NHPCO).

ACOs and other pay-for-performance models in Medicare continue to garner support from stakeholders across the industry.

“The increasing consensus concerning these approaches to reengineering healthcare in the United States, the awareness of savings opportunities, and the threat of resumed growth in healthcare spending provide an opening for constructive, systemic reform that avoids the pain associated with healthcare rationing,” said David Blumenthal, MD, MPP, president of The Commonwealth Fund. “Regardless of whether per capita expenses resume their pre-recession rates of escalation, these opportunities are likely to stay on the private and public health care agenda for the foreseeable future.”

Around the Web

Medicare Pricing Drives High Healthcare Costs [The Washington Post]

A 2014 Hospice Ad Blitz Launches Amid Obamacare Rollout [Forbes]

Short Hospice Stays May Mean Lack Of Awareness, As NHPCO Launches First National Campaign [Life Matter Media]

Is Healthcare Spending Heading in the Right Direction? [EHRIntelligence]