Medicare Could Save Billions by Permanently Adopting Primary Care Payment Increase, Says Study

March 28, 2012 12:40 am James Arvantes

The Medicare program could save billions of dollars by permanently extending a temporary provision in the health care reform law that provides a five-year, 10 percent Medicare payment boost for primary care services. That's the assessment of a new study( published by The Commonwealth Fund and conducted by researchers at the Center for Studying Health System Change (HSC) and Mathematica Policy Research.

[Stock photo of physician counseling patient during an office visit]

The Patient Protection and Affordable Care Act provides a temporary 10 percent increase for primary care evaluation and management (E/M) services in ambulatory settings, an increase that began in 2011 and is set to expire in 2015. In this study, researchers looked at what would happen if Medicare adopted the 10 percent increase on a permanent basis and found that doing so would "reduce total Medicare spending by nearly 2 percent per year in the long run -- mainly because of reductions in hospitalizations, outpatient services and postacute care."

"Those savings would significantly offset the extra funds allocated to primary care," the study researchers concluded.

story highlights

  • A new study says Medicare could save billions of dollars during the next several years by permanently extending a temporary payment increase for primary care services that is contained in the health care reform law.
  • The study found that permanent enactment of the pay boost would promote greater use of primary care services and generate savings in hospitalization and postacute care costs.
  • The study also addresses Medicare payment inequities among primary care and subspecialty physicians.

James Reschovsky, Ph.D., a senior fellow at HSC and lead author of the study, described the nearly 2 percent in Medicare cost savings as "modest." But, in time, those savings would add up to billions of dollars, Reschovsky said in an interview with AAFP News Now.

"Although the current political climate is not conducive to policies that appear to increase entitlement spending, our results show that Congress should consider making the 10 percent increase in fees for primary care permanent now," the study said. "Such an increase is projected to help bend the Medicare cost curve in coming years."

The 10 percent payment boost would increase primary care visits by 8.8 percent in the long term and raise the overall cost of primary care visits by 17 percent, the study noted. However, "these increases would yield more than a sixfold annual return in lower Medicare costs for other services -- mostly inpatient and postacute care -- once the full effects on treatment patterns are realized."

The researchers also reported a 3.6 percent reduction in costs for the use of skilled nursing facilities and a 3.5 percent drop in costs for the use of home health and hospice services when applying the 10 percent primary care increase.

Hospital outpatient costs, meanwhile, would "decline by about 4.6 percent relative to baseline," according to the study.

"The precise savings stemming from these effects are uncertain, as they rest on assumptions concerning future cost trends and other factors," the researchers acknowledged. "However, the impact of greater provision of E/M services by primary care providers in lowering total costs persisted when we conducted a series of sensitivity analyses."

Moreover, said Reschovsky, although the study did not look specifically at "quality outcomes," an overwhelming body of evidence shows that "having a system that is less fragmented and more primary care-oriented has beneficial effects on clinical quality."

The study results clearly reflect inequities in the Medicare payment system, as well, said the researchers.

"Over the past decade, Medicare fees and spending for (sub)specialist services -- particularly ancillary services such as diagnostic tests and procedures -- have risen far more rapidly than fees and spending for E/M services, which primary care physicians typically provide," the study said.

Those higher payments, in turn, "have contributed to faster growth in (sub)specialist services than in E/M patient visits," said the researchers.

In addition, the study noted, "commercial insurers and state Medicaid plans often build their fee schedules on Medicare's, further widening the income gap between primary care physicians and other physician (sub)specialists and contributing to the shrinking number of medical students choosing to enter primary care."

Overall, said Reschovksy, the study findings speak to "the importance of changing relative reimbursements of various services within Medicare and outside of Medicare to more accurately represent both the cost of providing the service and value of that service. That is something that does not exist in the current Medicare payment system.

"Having said that, I must admit that CMS is being more aggressive in trying to reduce payments for services that are overpaid."

In the end, he noted, that practice is likely to result in higher relative payments for primary care.