Analysis: Providers should prepare for reductions in Medicare and Medicaid spending as federal deficit swells

• The federal government spent nearly $1 trillion more than it collected in tax revenue in the fiscal year that ended Sept. 30, according to figures released [Oct. 25], as published in CQ News.
• HFMA’s Chad Mulvany says both Medicare and Medicaid spending will need to be reduced given the role both play in current and projected federal deficits.
• An Nov. 21 webinar will highlight strategies — identified in a recently published HFMA/Kaufman Hall whitepaper — used by health systems to transform their cost structures for success in the face of ever-increasing margin pressure.

The Oct. 25 “Tax cuts, spending increases swell deficit to $984 billion” article in CQ News reported, “The federal government spent nearly $1 trillion more than it collected in tax revenue in the fiscal year that ended Sept. 30, according to figures released [Oct. 25]. The final $984 billion deficit is $205 billion or 26 percent greater than the previous fiscal year, the Treasury Department and Office of Management and Budget reported. Tax receipts grew by about 4 percent, including in all major categories such as individual income and payroll taxes. Corporate tax receipts climbed 12 percent over the prior year, while customs duties surged 70 percent, thanks to President Donald Trump’s tariffs on Chinese and other goods imports. But spending grew by 8 percent overall, including in the largest categories such as Medicare, Medicaid, Social Security and defense.

“Net interest payments on the debt grew nearly 16 percent over the prior year, to $376 billion,” the CQ News piece continued. “That’s more than total outlays last year for the departments of Agriculture, Education, Housing and Urban Development and Homeland Security combined, the figures show. Total debt held by the public, which excludes Treasury securities held by federal government trust funds, hit $16.8 trillion, or 79 percent of GDP, a slight increase from the previous year. The big discrepancy is revenue loss. Overall revenue was down $427 billion over the last two fiscal years from pre-2017 tax cut projections, or nearly 6 percent. That’s more than the Joint Committee on Taxation’s estimated revenue loss for the 2017 law under conventional scoring, without taking into account faster economic growth.”

Takeaway

Is it me or is it appropriate the Treasury Department report came out the week of Halloween? Pick whichever horror movie analogy suits your tastes — Jason Vorhees, Freddy Kruger, Aliens or a nameless horde of zombies. The federal debt is lurking in the shadows, and will, at some point, negatively impact the economy and future economic growth.

Given the role Medicare and Medicaid spending plays in current and projected federal deficits, both will eventually need to be reduced (if not in absolute terms, relative terms).

If Congress and the President get out ahead of this, which is unlikely, cuts could be phased in over time. If they don’t, which is my bet, it will be jarring for providers who are unprepared.

Why?

• For Medicare it will likely mean further reductions in the base rate of payment coupled with a possible increase in the age of Medicare eligibility.
• For Medicaid, we’ll likely see some combination of a further shift to managed care for the aged/disabled population in states that have not done so coupled with a pairing of eligibility.  

While most hospitals are targeting Medicare breakeven, they need to realize this is a moving target given input costs are rising faster than per unit Medicare payments in the current environment.

Whitepaper and webinar resources for hospitals

Therefore, hospitals will need to redouble their efforts to hit this elusive target. HFMA and Kaufman Hall recently released a whitepaper that highlights the strategies, technology and tactics that drive cost transformation.

The report’s authors will discuss the findings and share case study examples during a webinar scheduled for 1:00 CT Nov. 21.  Sign up to register for the webinar.