Medicare could save an additional $900 billion during the next decade through structural changes in the healthcare industry that decrease spending, according to a report compiled by healthcare economics consulting firm Dobson DaVanzo for the Federation of American Hospitals.
Those structural changes include the shift to value-based payments, increased patient cost-sharing, state initiatives, reductions in healthcare-associated infections and hospital readmissions and a slowdown in the diffusion of expensive technologies like prescription drugs.
The report is based on spending data and projections from the Congressional Budget Office, CMS and the Council of Economic Advisers. The CBO's 2013 long-term budget outlook report projected an average annual rate of excess cost growth of about 0.3 percent for Medicare from 2014 to 2022, only slightly faster than the potential GDP per capita. The slow growth rate stems from historically low annual payment updates, pay cuts under the Patient Protection and Affordable Care Act, sequestration and scheduled cuts for physicians under the sustainable growth rate. (However, it seems likely Congress will continue to avert SGR cuts or eliminate the SGR rate entirely, leading to higher-than-projected spending growth.)
Furthermore, in a separate report released this past August, the CBO concluded the recession didn't contribute to the recent slowdown in Medicare per-person spending growth, which dropped from 7.1 percent annually between 2000 and 2005 to 3.8 percent between 2007 and 2010. The report speculates changes in the delivery of care that resulted in less volume and intensity and lower costs could have contributed to the slower growth rate, although the CBO ultimately concluded the cause of the slowdown was uncertain.
If Medicare spending continues to grow at a slow rate from 2015 through 2024, the FAH report estimates Medicare could see billions in additional savings beyond current CBO projections, reducing the cumulative federal deficit by 12 percent.
Overall, the report recommends policymakers "should support and encourage the reform efforts already in motion and allow time for further implementation and evaluation of these efforts before considering any major new structural reforms." Additionally, hospitals will need capital reserves to invest in infrastructure to accelerate ongoing structural changes in the industry, according to the report.
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