Medicare for all could mean a big payment cut

As the 2020 presidential race inches closer, candidates are firing up their healthcare plans, with more Democrats adopting Medicare for all policies than ever before. While general support for a universal healthcare system remains at about 50% among the public, the impact to the healthcare industry is being weighed.

Zirui Song, MD, PhD, of the Department of Health Care Policy at Harvard Medical School and the Department of Medicine at Massachusetts General Hospital, penned a viewpoint in JAMA to outline what could happen to healthcare providers under various policy adaptations of a Medicare for all system.

According to Song, Medicare for all could mean that physicians and hospitals would face Medicare prices for all the patients they serve. Given that commercial prices in network range from about 100% to more than 300% of Medicare prices, the payment difference could be huge. Out-of-network commercial prices have even higher margins above Medicare prices, according to 2016 data.

While bringing all commercial prices down to Medicare rates would substantially and immediately reduce the total cost of healthcare in the U.S., it would be through lower total revenues for physicians and hospitals, Song wrote. Those lower revenues would also likely influence a strong reaction from the healthcare industry.

One expected response to lower payments is increasing volume of services delivered. Smaller price reductions may offset some of the impact of this reaction, called the income effect.

“In some cases, physicians have substituted other higher-margin services or increased volume in higher-margin populations,” Song wrote. “For example, in 2005, when Medicare decreased prices for some outpatient chemotherapy agents by 50% to 90%, total chemotherapy use increased and less-profitable agents were replaced by more profitable alternatives.”

Beyond volume, hospitals and physicians have previously upped the intensity of their billing when faced with lower payments, upcoding to higher-priced services with larger price increases. Physicians seeking higher payments could also shift away from independent practices, which receive lower payments, to facility-based settings, which have higher reimbursement rates.

Already, trends reveal that physicians are increasingly moving away from independent practices to larger health systems and hospitals. This employment trend could be exacerbated under Medicare for all.

There could also be clinical impacts, according to Song, including cost-cutting measures that effect quality of care. Patients, who would no longer face co-pays under Medicare for all, may also be left with lower quality of care without copays that are tied to value, he wrote.

“While guaranteeing access to necessary care for all patients is an important and laudable outcome, the increased potential for overutilization, substitution toward higher-margin services, unnecessary shifts in sites of care, or demand for low-value services might introduce additional waste to the delivery system or harm to patients, such as from overdiagnosis or overtreatment,” Song wrote.

Payment options

The effects of universal healthcare with Medicare prices could have some negative consequences, but there are other policy options to ensure high quality healthcare and positive behavioral responses from physicians and hospitals.

For one, prices could simply be set at a fixed percentage above Medicare, Song proposed, which would actually lower the cost of some services and boost others. For services that are lowered too much, other rates increases in Medicare and Medicaid could help offset the negative economic impact.

“Given that physicians and hospitals vary in specialty, payer mix and share of services delivered out of network, the economic consequences of setting prices at any percentage of Medicare levels will vary across them,” Song wrote.

This less dramatic approach would alleviate the fears of physicians and hospitals, which largely have not embraced the notion of Medicare for all. Physicians may be less likely to leave their independent practices and hospitals less likely to close, according to Song. Policymakers should consider how providers are likely to react as Medicare for all discussions get further underway.

“Finding a path toward universal coverage that is palatable for physicians and hospitals would aid policymakers who champion such reforms,” Song concluded.