After months of debate, Congress has finally raised the debt ceiling. However, the outlook for the nation’s fiscal health remains grim, as lawmakers have avoided addressing the expensive federal health and entitlement programs. At some point, Congress will have to confront this issue, and reducing overpayments in the Medicare program could be a solution that benefits taxpayers and seniors.
As the largest payer of medical services, Medicare has a significant influence on the rest of the healthcare system. One example of Medicare’s impact is the “site-of-service differentials” in reimbursement, where Medicare pays higher amounts for the same service based on where it was provided. For instance, seniors can receive the same service in an outpatient hospital department as in a doctor’s office, but Medicare pays an average of 222 percent more for the service provided in the hospital, even if the underlying health needs are the same.
Hospitals justify these differentials by claiming they treat sicker patients, provide more intensive services, and have more regulatory requirements than doctor’s offices. However, Medicare already provides add-on payments for intensive services and factors like rural status, so there’s no need to set higher prices for simple clinic visits or imaging services just because they’re done in a hospital.
Overpayments by Medicare hurt both taxpayers and seniors who receive care. Seniors pay co-payments that are a percentage of the Medicare payment, so higher Medicare rates translate to higher out-of-pocket costs. Some hospitals respond to this issue by buying out independent physician practices and rebranding them as off-campus hospital outpatient departments, making the same service provided by the same team of doctors and nurses much more expensive.
In 2015, Congress required Medicare to pay future off-campus hospital outpatient departments at a rate equivalent to those of physicians’ offices. A 2018 Trump-administration regulation required similar payment rates for clinic visits in off-campus departments that were exempted from that law. Leaders from both parties have proposed extending site-neutral payments to off-campus hospitals and post-acute-care facilities.
Implementing site-neutral policies could reduce federal spending and seniors’ premiums and out-of-pocket costs by hundreds of billions of dollars without changing seniors’ Medicare benefits. However, lawmakers must resist the pressure campaign from big hospital systems and other provider groups that financially benefit.
Although some politicians may be wary of changing a program that is popular among seniors, there is little choice. According to the Congressional Budget Office, deficits over the next ten years will exceed $20 trillion, and the debt-ceiling bill will reduce that by only about $185 billion over the next few years. The biggest drivers of spending in the next 30 years, along with interest payments on existing debt, are federal health programs, particularly Medicare benefits for the growing number of retirees.
Medicare spending is expected to double from roughly $830 billion to $1.67 trillion between 2023 and 2033, and its unfunded liabilities over the next 75 years exceed $50 trillion. Lawmakers have some flexibility now, but waiting too long would require increasingly severe benefit cuts or tax hikes. Reforming Medicare over the coming years will require making tough choices, and cracking down on Medicare overpayments through site neutrality would be a great place to start.
