Medicare's hospital fund is running out of money. Experts have 5 ideas on how to help

Medicare’s hospital fund is expected to run out of funds in only five years, but experts say a massive overhaul isn’t going to get passed by Congress anytime soon.

With that major caveat in mind, what is the solution?

A panel of experts convened by the Urban Institute think tank recently discussed several reforms that, taken together, can shore up the Medicare Hospital Insurance Trust Fund, which pays for inpatient hospital services under Medicare Part A.

The Medicare Trustees report, released Tuesday, said the fund will run out in 2026 if no action is taken.

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Among the potential reforms are:

Shifting who pays for home health services

Currently, Part A pays for about one-third of home health spending, but that spending could be shifted to Part B, saving nearly $6 billion a year that can go toward the trust fund.

However, several panelists noted the shift could lead to higher Part B premiums and add to the general fund revenue needed for Part B spending.

The recommendation comes as home health services have seen an explosion in use due to the COVID-19 pandemic.

Targeting record Medicare Advantage profits

Medicare Advantage (MA) plans had a banner year in 2020 due to a massive drop in healthcare use caused by the COVID-19 pandemic. In late 2020, healthcare utilization returned largely to normal, but the decline earlier in the year reduced Part A trust fund spending by $8.4 billion, according to the institute.

“MA plans continued to receive the predetermined per-beneficiary amounts, so the reduced utilization constituted an unexpected windfall,” the report said.

Some of the experts on the panel called for remanding some of the profits, possibly through the MA medical loss ratio requirements that call for plans to pay at least 85% of every premium dollar on patient care.

Changing how MA payments are calculated 

The panel also pitched changing how the MA benchmark, which determines payment amounts for plans, is calculated. Currently, the benchmark is tied to spending on traditional Medicare in a geographic area. The panel called for tying benchmarks instead to the local MA plan bids.

“For example, the benchmark might be the second-lowest-cost bid among MA plans,” the report said. “This would induce greater price competition among MA plans.”

The Congressional Budget Office, the nonpartisan scorekeeper on how legislation will impact spending, has estimated such as move could save $44 billion over 10 years.

This isn’t the first time MA has been identified as a potential source to shore up the fund.

The Medicare Payment Advisory Commission, which advises Congress on Medicare issues, called for changes to how MA plans are calculated and cut payments by 2%, adding billions each year to the fund.

Changing provider reimbursements

Several experts floated reimbursement changes to providers as a way to find funding. Chief among the recommendations were cuts to payments to post-acute care providers such as home health, long-term care and nursing home facilities.

It refers to a prior recommendation from MedPAC, which projected such cuts could generate up to $80 billion over a decade.

“This policy was identified by panelists as one that could potentially reduce excessive spending without harming Medicare beneficiaries,” the institute’s report said.

Another area of funding could be expanding site-neutral payment policies that reduce payments to hospital off-campus outpatient facilities. While the federal government has implemented some site-neutral payments, many hospital-owned practices were grandfathered in and weren’t affected by the reforms.

The experts note that expanding site-neutral payments to grandfathered practices could add $40 billion over a decade.

Controlling high-cost drugs administered in hospitals 

Most of Medicare’s drug spending is centered in Part D and Part B, which covers drugs administered in a doctor’s office such as chemotherapy. However, controlling costs of drugs administered in a hospital and reimbursed under Part A could help generate savings.

Some of the drug pricing reforms considered by Congress would increase savings for Part D and can’t be used in the hospital fund due to how Medicare is structured. But there are some reforms, such as paying doctors a fixed amount for administering Part B drugs as opposed to the current approach of getting reimbursed a percentage of the average cost, that can reduce overall Medicare spending.

Congress should act now to adopt some of the reforms—especially any that reduce spending or call for new taxes—to give more time to implement them, said Bowen Garrett, senior fellow at the Urban Institute and a lead author of a study on the panel’s findings.

“If you will cut some payments by a longer amount then can do it on a longer schedule and do it gradually,” he told Fierce Healthcare in an interview.