Obama Administration Shows Medicare Savings

Today’s Managing Health Care Costs Indicator is $120 billion

The Obama Administration issued a report demonstrating $120 billion in Medicare savings over the next five years as a result of the Affordable Care Act.  This coincided with the annual report from the Trustees of Medicare and Social Security which stated that the Medicare hospital fund will become insolvent five years earlier than previously projected, due to lower revenue from the lackluster economy and continued increases in the cost of health care.

These savings claimed by the Obama administration look highly credible to me. The vast majority of dollars claimed are from payment decreases – which are straightforward and should yield the savings anticipated.  Health plans will object to decreased profit margins, and providers will object to decreased payment updates, but the Obama administration has all the authority necessary to implement these.  The fraud estimate looks quite low, given that the WSJ reported last week that federal prosecutors are seeking $1b from Johnson and Johnson  alonefor marketing abuses for the antipsychotic medication Respirdal. Competitive bidding for durable medical equipment is likely to save the dollars projected.

The savings from decreased readmissions and complications are harder to predict.   It’s likely that the cost pressures on health care providers will pressure them to continue to reengineer their processes. Don Berwick’s 100,000 lives campaign when he was at IHI was very successful, so I think it’s highly likely Medicare’s effort will be as well, even if his tenure as the CMS Administrator is short.

Of course, this is not nearly enough.  The ten year cost of the “doc fix,” to fund continued physician payment levels to avoid what would be a 25+% cut next year, will be $300 billion.  

But at least this is a start.