Controlling Costs in Medicare: What Works and What Doesn't

Source: AARP Press Center | 2008-12-09

December 9, 2008

Contact: Jordan McNerney or Jim Dau 202-434-2560 jmcnerney@aarp.org OR jdau@aarp.org  

WASHINGTON—As Congress prepares for comprehensive health care reform in the coming year, a new report from AARP’s Public Policy Institute looks at ways to control the cost of Medicare, which is projected to be more than $500 billion in 2009. The report, “Cost Containment in Medicare: A Review of What Works and What Doesn't,” examines nine approaches to reduce Medicare costs that have been tested with mixed results since the 1980s.

“There is no miracle cure to the high costs of health care in this country, but Medicare will be a central topic when Congress tackles health reform next year,” said AARP Policy Director John Rother. “It's time to implement the programs that work, like competitive bidding, and try new ideas to save money in Medicare and throughout the health care system.”

The AARP report was authored by experts at the Urban Institute and Health Policy Alternatives Inc., including former Centers for Medicare and Medicaid Services officials Robert Berenson and Michael Hash. They examine cost-saving approaches including payment systems, benefit design, chronic care management, private plan contracting and fraud reduction. The views expressed in the report are not necessarily official policies of AARP or CMS.

Among the most successful measures is the transition to payment models that reimburse hospitals and other providers for each patient admitted rather than individual services. This has encouraged providers to become more efficient and has kept Medicare’s cost growth rate lower than private health insurance. A similar payment system for home health care has reduced cost growth from nearly 30 percent to about seven percent annually. The report suggests changing Medicare's physician fee schedule to a system of predetermined payments could further lower the cost of physician care.

Pilot programs for competitive bidding on durable medical equipment (DME) have shown savings of up to 20 percent. Congress has temporarily delayed implementation of a new DME competitive bidding program, but given its promising outlook, implementation is still scheduled for 2009.

Another area of savings identified by AARP's report is in private plan contracts. Despite more than two decades of promised savings, private plans in Medicare—now called Medicare Advantage—have actually cost the program more than the traditional plan.

Rother added: “The potential for meaningful savings in Medicare depends upon action by the Congress and the Administration to bring Medicare Advantage costs down and to institute competitive bidding, among other measures. The campaign rhetoric about bringing health costs down must be matched by tough measures to do so, or we will face continuing escalating costs without increased value to consumers or taxpayers. This report shows that real savings are possible. The time for action is upon us.”

“Cost Containment in Medicare: A Review of What Works and What Doesn’t” was authored by Robert Berenson, Michael Hash, Thomas Ault, Beth Fuchs, Stephanie Maxwell, Lisa Potetz and Stephen Zuckerman. The report is available online at http://www.aarp.org/research/medicare/carefinancing/2008_18_medicare.html.

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