Analysis: COVID-19 could raise Medicare spending by as much as $115B over next year

The COVID-19 outbreak will potentially boost Medicare spending over the next year from $38.5 billion to $115.4 billion, a new analysis found.

The analysis released Wednesday by the National Association of Accountable Care Organizations also found that the increase in spending would lead to major losses for ACOs in models that take on financial risk. It also found a major burden on Medicare Advantage plans.

“We are just on the tip the iceberg of a global, public health pandemic that is out of ACOs’ control. We could see generated savings wiped out, massive penalties, and worst of all, ACOs dropping out of the program to avoid losses,” said Clif Gaus, NAACOS president and CEO, in a statement.

The analysis looked at the incidence rate and average cost for a 90-day hospitalization episode of care for pneumonia, NAACOS said.

“The bundle includes index hospitalization costs as well as post-discharge inpatient rehabilitation, skilled nursing, home health and ambulatory services associated with recovery from pneumonia,” the analysis said.

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It also looked at inpatient admission rates associated with COVID-19 and the potential spread of infection.

The increase in spending is a major issue for ACOs as 20% of all Medicare beneficiaries are in a Medicare Shared Savings Program or Next Generation ACO model.

In 2018, MSSP ACOs on average spent 1.6% below their benchmark target for spending and Next Gen ACOs by 1.4%, NAACOS said. ACOs must meet a benchmark spending target and if spending goes below that benchmark then they get a share of the savings or must repay Medicare if spending is too much.

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NAACOS said that even the lowest estimate of $38.5 billion would “wipe out shared savings for the current performance year and create major losses for ACOs with downside risk.”

The Centers for Medicare & Medicaid Services did announce regulatory relief for ACOs and other value-based care programs, including extending deadlines. The agency also said it will not use any quality data on services performed from Jan. 1 through June 30 in the calculations for quality reporting and value-based purchasing programs.

But provider groups have wanted CMS to waive any performance results or quality scores for the entirety of 2020.

NAACOS said their study does have some caveats. So far there isn’t a lot of useful data on healthcare utilization due to COVID-19. The association based its estimates on how other countries have dealt with the virus, including China.

The study assumes that inpatient hospitalization rates in China are applicable to the U.S. system. Rates could be higher in China than they would in the U.S.

The analysis also expects that the healthcare system could keep pace with demand for inpatient care over the next 12 to 18 months.

“However, if the incidence of COVID-19 unfolds more quickly, fewer people will likely gain access to hospitals, which will lead to lower costs but potentially higher rates of death due to the virus,” NAACOS said.