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MACRA and Medicare: Hospitals May Experience Large Payment Cuts

A study in Health Affairs’ April issue found that hospitals might experience larger-than expected Medicare payment cuts under the Medicare Access and CHIP Reauthorization Act (MACRA).


The report’s authors estimated that “MACRA will decrease Medicare spending on physician services by −$35 to −$106 billion (−2.3 percent to −7.1 percent) and change spending on hospital services by $32 to −$250 billion (0.7 percent to −5.1 percent) in 2015–30. The spending effects are critically dependent on the strength of incentives in the alternative payment models, particularly the incentives for physicians to reduce hospital spending and physician responses to MACRA payment rates.”

(“The Medicare Access And CHIP Reauthorization Act: Effects On Medicare Payment Policy And Spending, Abstract, Health Affairs, April 2017)


The authors said that while MACRA ended a contentious “cycle of deep uncertainty about Medicare payment rates for physicians under the sustainable growth rate (SGR) reimbursement formula,” it sparked a different kind of uncertainty.


A RAND Corporation senior policy researcher and co-author of the study said losses would result from physicians responding to payment models in ways that reduce the use of hospital care, such as avoiding admissions and readmissions. (“MACRA to Cut Medicare Pay to Hospitals Most: Study,” HFMA Weekly, April 8, 2017)


Basically, physicians may see their Medicare payments increasing very slowly over the next 10 years, and the only way to speed up those reimbursements is to participate in alternate payment models. One of the objectives of these models is to keep patients out of hospitals. Thus, the biggest effect from MACRA could be a decrease in hospital revenues.


What Should Hospitals Do?


To address the possibility of decreasing inpatient revenues, financial experts suggest hospitals should “re-engineer their operations to make margins on their Medicare business as well as their commercial business.” This will include increasingly moving patients to outpatient facilities that offer lower cost delivery, embracing ambulatory surgery centers and other appropriate care outside of the hospital.


Of course, the traditional steps hospitals recommended for hospitals include:


  • Reducing costs
  • Increasing outpatient revenues
  • Improving the management of the health of the populations they serve
  • Integrating quality of care measures, electronic health records and clinical improvement activities
  • Managing physician cost incentives
  • Expanding the use of physician extenders
  • Determining a MACRA strategy for employed physicians
  • Developing a multi-year strategy for building the needed infrastructure to move forward under different payment models


The future of Medicare payment related to MACRA remains an uncertainty. However, a Healthcare Financial Management Association executive noted, “the [Health Affairs] study cemented the truism that the futures and fortunes of hospitals and physicians are inextricably linked.” (“MACRA to Cut Medicare Pay to Hospitals Most: Study,” HFMA Weekly, April 8, 2017)


(Note: Next week’s blog/newsletter will feature a detailed look at MACRA by Seth Edwards, Premier, Inc.)



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