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How Will Obamacare Affect Reimbursement Rates for Medical Practices

November 19, 2013

Obamacare Affect Reimbursement Rates for Medical PracticesMedicare Reimbursement Rates Are Dropping

In calendar year 2014, under the Affordable Care Act (ACA ), most categories of Medicare provider reimbursement rates will be going down. Almost every type of provider will be impacted: physicians, hospitals, private insurers offering Medicare Advantage (Part C), even hospices. Over the next ten years, it’s estimated that these cuts will save Medicare about $196 billion. Physician reimbursements were especially hard hit, with a recommended 24% cut.

These cuts shouldn’t come as a surprise. The Obama administration has long been signaling its intent to improve the efficiency of the US health care system while lowering delivery costs. It achieved a major victory with the passage of the Affordable Health Care Act and is pressing forward. A careful reading of writings by Obamacare policy makers would indicate they’ve long believed US physicians’ fees to be one of the principal drivers of soaring US health care costs. Take for example an article coauthored by Sherry Glied in the September 2011 edition of the journal Health Affairs, entitled “Higher Fees Paid To US Physicians Drive Higher Spending For Physician Services Compared To Other Countries.”

Ms. Glied, former Assistant Secretary for Planning and Evaluation in the US Department of Health and Human Services. Wrote: Higher health care prices in the United States are a key reason that the nation’s health spending is so much higher than that of other countries. Our study compared physicians’ fees paid by public and private payers … in Australia, Canada, France, Germany, the United Kingdom, and the United States … We conclude that the higher fees, rather than factors such as higher practice costs, volume of services, or tuition expenses, were the main drivers of higher US spending.

The US has health care system has the distinction of being the most inefficient of any in the developed world, ranking 48th, between those of Iran and Serbia. It’s also the costliest, expending 17.6% of its GDP on health care. Given that the Obama Administration perceives physicians’ fees to be one of the main drivers of this inefficiency and expense, its little wonder they’ve gone after them as the low hanging fruit of Medicare cost reduction.

Private Physician and Hospital Reimbursement Rates Differences Addressed

The Medicare Payment Advisory Commission (MedPac), the Federal agency that monitors Medicare fees, after years of comparative inactivity on the issue, has at last moved to resolve the large differences between what hospitals and private physicians are paid for the same services.

The different payment rate schedules were a well-intentioned but misguided attempt to lower Medicare costs and improve quality by consolidating medical providers into Accountable Care Organizations (ACOs). The was to increase quality and care while reducing costs, with ACO providers sharing in the savings. The different payment rates that resulted severely disadvantaged private practitioners and saw hospitals taking advantage of their higher reimbursement rates by snapping up private practice groups to bolster income. MedPac has finally recommended that hospital Medicare service rates be adjusted to match the lower private outpatient rates for private practices, making reimbursement “site neutral.”

Whether this move helps to stem the outflow of physicians leaving private practice to work in hospitals or not remains to be seen, but its immediate effect is to lower yet another large category of Medicare reimbursement rates.

Medicaid Reimbursement Rates Go Up

Reimbursement rates for one government-funded health plan are going up: Medicaid rates are rising to match those of Medicare. Because of low reimbursement rates, many practitioners wouldn’t treat Medicaid patients. 26 states are now part of the program, with expansion to all 50 states anticipated.

We think it will be interesting to see what effects lower Medicare reimbursement rates have on US health care costs and quality of service.


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