Medicare Savings We Can (Almost) Count On

I want to highlight a few ideas from yesterday’s post by Randall Brown and his Kaiser Family Foundation report upon which it is based. First of all, Medicare is going bankrupt so cost cuts are needed, and fast. Fortunately there is reason for optimism that some of the Medicare cuts and savings proposed in health reform legislation can be made and sustained. I’d be the first to admit such a thing won’t happen without a fight and considerable political will, but the evidence suggests it is at least possible provided the programs that produced that evidence are generalizable (another valid concern).

Much has been made lately about the extent to which the planned reforms will “bend the cost curve.” Some say not at all (e.g. Tyler Cowen) and others are more optimistic (Matt Yglesias and Kevin Drum cite a CBPP report to that effect; see also Ezra Klein’s interview with one of its authors). But that optimism is based on an historical analysis of congressional will to pass and uphold cost cutting reforms.

For a subset of potential reforms there is reason to be even more hopeful. That’s what we learned from Randall Brown. Empirical results from recent demonstrations and studies have shown that some types of efforts to cut costs in Medicare have actually worked. These may not be as sexy or receiving as much attention as electronic medical records, accountable care organizations, etc. (all of which hold some as of yet unproven promise for savings in the future), but they can be implemented far more quickly and have already demonstrated efficacy.

Randall cited studies and reports that have demonstrated cost savings due to payment incentives designed to encourage reductions in unnecessary hospital readmissions:

Randomized trials, the most rigorous and credible type of evidence, showed these programs reduced readmission rates by 18 to 35 percent, resulting in reductions in costs that substantially exceed the intervention costs…Furthermore, the effects on readmissions last well beyond the end of the intervention period.

He also cited work yielding evidence in reduced costs due to improved care coordination for beneficiaries with chronic illnesses:

For a subgroup of beneficiaries at high risk of near-term hospitalization—which comprises 18 percent of Medicare beneficiaries and 38 percent of Medicare expenditures …–[four] of the programs in the Medicare Coordinated Care Demonstration had significant and sizable reductions in hospitalizations over the 6-year life of the study.

To be sure, these two approaches alone will not yield all the savings some policymakers wish to wring out of Medicare. That’s why other methods are proposed, like accountable care organizations, electronic medical records, and the like. But there is no evidence to suggest that those other methods can yield cost savings quickly (if at all). Nevertheless, at least several proposed cost saving reforms have empirical support. If the approaches that provide that evidence are generalizable and if the reforms based on them are not squelched by political forces there is hope that Medicare in something like its current form can survive the crisis it faces.

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