Policy & Regulation News

Greater Volumes, Consolidation Likely Under Medicare for All

An expert from Harvard Medical School warns policymakers about the potential behavioral changes resulting from lower reimbursement rates under Medicare for All.

Medicare for All and healthcare consolidation

Source: Thinkstock

By Jacqueline LaPointe

- Medicare for All would certainly reduce healthcare spending through lower physician revenue. But the policy could also have unintended negative consequences, such as increasing the volume of expensive services and encouraging greater consolidation, an industry expert from Harvard Medical School reported.

Research has shown that Medicare for All would significantly reduce hospital and physician revenue by lowering private payer reimbursement rates to Medicare levels. One study conducted on behalf of the American Hospital Association (AHA) estimated a $774 billion drop in hospital reimbursement over ten years under the policy.

While reducing reimbursement rates across the board will enable Medicare for All to achieve its ultimate goal of lowering healthcare spending, cutting provider payments will likely lead to behavioral changes that could counteract estimated savings, explained Zirui Song, MD, PhD.

“A simple calculation of savings, by summing the differences between commercial and Medicare prices across all services delivered today, would reliably produce a large savings estimate for national spending that could lend support to Medicare-for-all proposals. However, the assumption that physicians and hospitals would not react as their commercial prices are reduced substantially to Medicare levels is likely unrealistic,” the assistant professor of health care policy and medicine at Harvard Medical School and an internal medicine physician at Massachusetts General Hospital wrote in JAMA.

One way providers are likely to react to lower reimbursement is to increase the volume of services performed. Physicians have been known to substitute other higher-margin services or increase volume in higher-margin populations in response to reduced reimbursement.

READ MORE: High Hospital Profitability Ripe for Payment Reform, Study Finds

For example, when Medicare cut rates for some outpatient chemotherapy agents in 2005, a Health Affairs study five years later found that total chemotherapy use increased and providers replaced less profitable agents with more profitable alternatives.

Similarly, hospital outpatient volume increased among privately insured patients after Medicare decreased the rates for most common hospital outpatient services by over 20 percent on average in 2000, according to a cited Journal of Health Economics study from 2012.

“In many areas of medicine in which physicians have discretion over decision-making, patient preferences are limited by a lack of information or experience, or guidelines provide nondefinitive recommendations, it could be difficult for Medicare to predict how much savings for the single-payer system would be offset by a strong income effect due to large price reductions or to regulate its magnitude,” Song stated.

Additionally, reduced reimbursement rates may prompt greater healthcare consolidation, Song’s analysis found.

“Because services delivered in a facility setting are reimbursed more than in a physician’s independent office, physicians could respond by further consolidating with and moving into facilities or hospitals,” Song explained.

READ MORE: Value-Based Payment Reform Key to Moving Forward with Value

Healthcare consolidation has been a major issue for the industry. Hospital acquisitions of physician practices increased by 128 percent since 2012, according to a recent report. Additionally, the American Medical Association (AMA) recently found that the number of employed physicians exceeded that of self-employed physicians for the first time in the association’s history.

Industry leaders fear greater consolidation leads to higher prices and spending. In fact, the FTC reported in 2016 that hospital prices in monopoly markets were over 15 percent higher than prices in areas with four or more competitors. Hospitals with just one or two competitors also charged between five and six percent more.

Potential behavioral responses to Medicare for All should not dismiss the entire policy, but policymakers should consider them when creating healthcare reform, Song advised.

“These behavioral responses do lend some caution to policymakers who support Medicare-for-all proposals because eventual savings in the health care system could be smaller than anticipated and changes to care patterns could be larger than anticipated,” he elaborated. “These behavioral responses also motivate consideration of less draconian ways to set prices in a Medicare-for-all system, which may ease the transition and help earn physician and hospital buy-in.”

Song advocated for setting reimbursement rates at a fixed percentage above Medicare rather than at Medicare levels as proposed policies have stated.

READ MORE: Verma: Healthcare Payment Reform to Focus on Docs, Not Hospitals

Setting prices at 200 percent of Medicare levels would result in less drastic reimbursement cuts for common services. For example, providers would receive an 83 percent boost in payments for an in-network evaluation and management visit, while the rate for an in-network emergency department visit would decline by 20 percent.

Even setting prices at 125 percent of Medicare levels would enable providers to receive payment increases for three of the common services analyzed. Reimbursement would rise for psychotherapy (62 percent), office visits (14 percent), and drainage of abscesses (12 percent), while providers would receive between four to 65 percent less for other common services.

“To be successful, Medicare for all and related proposals will likely need the support of the physician and hospital communities, which have yet to broadly back these proposals in part due to the uncertainty around prices. Current proposals in Congress have not specified whether or where prices might land above Medicare levels, frequently deferring the decision to the administration. Finding a path toward universal coverage that is palatable for physicians and hospitals would aid policymakers who champion such reforms,” Song concluded.