New Reports Highlight Cost Shifting Challenges as Additional Medicare Cuts Could Be Triggered in 2017

July 24, 2015

A pair of new reports this week shows it may be more difficult for employers to control future health care costs as additional Medicare provider payment cuts may be imposed in 2017, with providers shifting costs to private sector payers in response.  The Medicare trustee report noted the program's Independent Payment Advisory Board (IPAB) will likely be required to recommend provider payment cuts in 2017 when Medicare spending growth is expected to exceed the thresholds set by the ACA.  Although the amount of spending that IPAB would be required to cut in 2017 could be just 0.1 percent, additional cuts are likely to be required in later years as Medicare spending accelerates.  Separately, a new report from BSG Analytics finds that "[i]n order to offset the underfunding, hospitals must reduce operating costs and increase the revenue they receive from private payers more for the same medical services."  According to the report, cost shifting from Medicare and Medicaid underfunding added about $782 million to commercial rates in 2012, noting, for example, that "in southeastern Wisconsin, cost shifting is responsible for 35 percent of the overall commercial rates paid."  The report concludes that although the magnitude of cost-shifting has decreased over time due to changing market dynamics, it remains prevalent and will present a challenge to employers as the federal government uses its considerable market share to drive price reductions for Medicare provider payments.