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A Policy View Of Medicare Reimbursement Cuts

Medicare reimbursement cuts have skyrocketed since Medicare's beginning in 1965, despite many different measures to control growth. Short-term legislative fixes have been buying time in order to develop long-term solutions while numerous stakeholders stand to win and lose as they deal with reimbursement cuts. Among these stakeholders are politicians, the federal government, Medicare recipients, healthcare providers, and third-party payers. There are anticipated problems in implementing reimbursement cuts, including obstacles to patient care and the financial capability of healthcare providers who rely on Medicare revenue. Continual questions over short-term Medicare cuts will be eclipsed by policy modifications related to the program's ability to sustain long-term healthcare funding and delivery systems.


Currently health care spending accounts for 16% of the gross domestic product of the United States (Getzen, 2007). Overall health care spending and high health care costs are due to new technology and higher incomes. This raises the question, how are health care expenses going to be controlled within government programs like Medicare? The development of Medicare and Medicaid by the Social Security Acts of 1965 recognized the government as a major financier in health care. Hospitals and other institutions were allowed to grow in size, capacity, and capital due to regular reimbursement through government funding.

Background and Significance

Medicare has progressed in numerous ways since its beginning in 1965. Initially, physicians were compensated by the program for services covered and were able to bill their patients for costs that were not covered. Hospital compensation plans also followed similar patterns until a modification was made in 1983 from "reasonable cost" to the prospective payment system based on groups that were diagnostically-related. In 1992 the charge-based system was replaced by the physician fee schedule. To control spending even further, the Sustainable Growth Rate (SGR) of 1998 was created. With this, the annual goals for spending are established and physician payments are reduced if spending goes over these limits.

The majority of today's Medicare costs are unlike those of the past. A large percentage of the expenses are attributable to outpatient services covered by Medicare Part B. This percentage has consistently exceeded the established formula that is specified in the SGR. Imminent adjustments that come in the form of reimbursement cuts mean major problems for any physician that receives reimbursements for services provided to their Medicare patients. These cuts will have a major impact on hospitals and physicians, and they may worsen access barriers to healthcare for Medicare recipients. New reimbursement cuts are especially troubling in light of evidence that the expansion of Medicare reimbursements to new areas of care can benefit patient health (Gross et al., 2006). Legislation and actions on Capitol Hill generally determine the types and amounts of cuts to be made.


Legislative action related to Medicare cuts is unending. A recent (February 14th, 2008) amendment was proposed in the House of Representatives to amend conversion factors in Part B of title XVIII of the Social Security Act, which increased Medicare payments for physicians' services through December 31, 2009. These modifications are temporary fixes in the challenge to produce long-term solutions, and legislative fixes are subjective to the various groups that are involved with these cuts. Congress is endlessly tweaking legislation related to reimbursement in order to slow down uncontrolled growth while acknowledging the constituencies and interest groups.

The executive branch also plays a major role in Medicare cuts. Recently, the Bush Administration proposed a measure to control the elevated growth in the program. This change was initiated by a condition of the 2003 Medicare law. When a financial alert is released by Medicare trustees, the administration is mandated to present legislation that reduces program spending or increases revenue.


The major stakeholders in this Medicare issue are the federal government, politicians, Medicare recipients, physicians, hospitals, and third-party payers. The federal government is in position to win by moderating the uncontrolled growth in the Medicare program. In recent years, the total expenses and federal reimbursement has exceeded the goals that have been set. The growing size of Medicare threatens to infringe upon other fund sources and programs. To reform Medicare and keep expenses within manageable boundaries, it is in the best interest of the federal government to take charge. Regardless of the benefits involved in implementing cuts, the types of cuts made have potential repercussions. Cuts to reimbursements are controversial within the healthcare community, so the federal government must implement responsible controls to ease harm and allow reform.

Politicians are another group that is affected by reimbursement cut policies. Their role is fairly involved as their responsibilities and functions are reflective of the interests of different groups and political parties. Reduction of expenses and reimbursement cuts affect constituents in many ways. In political decision-making, the role of Medicare reimbursement cuts depends on how these groups are affected, and the amount of healthcare lobbying that happens on Capitol Hill shows the magnitude of the interests involved.

Additionally, third-party payers are heavily influenced by Medicare reimbursement tactics. Medicare reimbursement cuts may mean reimbursement cuts by other third-party payers, thus adding to many of the problems that healthcare providers experience.

Understandably, Medicare recipients are another leading group affected by cuts because that means the reduction of programs and benefits to these recipients. Patients have been provided with a vast array of services, procedures, and pharmaceuticals due to technological advancement. If benefit and program cuts occur, these technological features will be greatly reduced. Reimbursement cuts may also play a part in preventing easy access to care. New Medicare patients may be less likely to be accepted by providers due to lower reimbursements from Medicare. In the short-term seniors will always suffer from reimbursement cuts but they may benefit in the long-run from a more efficient delivery system resulting from Medicare reform.

Physicians and hospitals will always lose in the short-term. The healthcare community does not agree with current reimbursement models and believes that any additional cuts will significantly wear down revenues. Many physician practices and hospitals will be greatly affected but they may benefit in the long-run from programs that are moderated in growth.

Implementation issues

There are many groups engaged in searching for answers to this problem, including the Medicare Payment Advisory Commission (MedPAC), the Government Accountability Office, physician and hospital organizations, economists, and other interest groups. The U.S. Senate and House of Representatives are working separately on ways to reduce the irregularities in expenses and reimbursements while trying to set up long-term solutions to these issues. One of the most significant challenges to implementation is the financial domino effect to providers relying on reimbursements (hospitals, physicians, providers). Medicare health insurance accounts for a large part of revenues to health facilities and healthcare providers. Any lessening of reimbursements for services will generate a major financial impact and the healthcare community has been very resistant to any additional cuts. Some of the noisiest groups have been health providers and interest groups affiliated with them.

Future direction

Reduction of Medicare reimbursement is a major policy issue that affects a large section of interests. Within the government it is acknowledged that more time is required to generate sustainable strategies. The ability to balance long-term objectives with the immediate effects of cuts is a sensitive matter. Policymakers must make calculated decisions when it comes to reducing healthcare spending. Some proponents believe that a greater concentration on preventive care can potentially alleviate expense trends. A large portion of current expenses in Medicare and other programs comes from long-term maintenance of chronic conditions. This tendency accounts for a large part of growth that is not controlled. These reimbursement cuts are only temporary strategies in a losing battle, but a greater concentration on preventive care can potentially extend the viability of U.S. healthcare systems.

About the Author:
Tom Carolan a leader in the insurance industry has written hundreds of articles on medical insurance issues. His articles have been featured in leading publications such as The Wall Street Journal, MarketWatch and many others. Tom Carolan is The Director of Client Services at BestHealthcareRates.com and also writes for www.InsuranceBestPrices.com

Source: http://www.articlesnatch.com/Article/A-Policy-View-Of-Medicare-Reimbursement-Cuts/805546

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