The Medicare Trustees 2021 Report: Two Key Takeaways for Health Industry Stakeholders

Last Tuesday, the Medicare Trustees* released the 56th annual report to Congress on the fiscal status of the program that serves 62.6-million Americans and represents 20% of total federal spending–$925.8 billion in 2020.

The 273-page report, 2021 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, sounded familiar themes:

• The Hospital Insurance fund (Part A) faces increased funding shortfall—the same forecast made in the Trustees’ 2019 and 2020 reports. In essence, it predicts the hospital trust fund will have a shortfall of $578 billion over the next 10 years which would require Congressional approval for “a 27% (0.77%) increase in the payroll tax rate or a 16% spending cut to ensure solvency.”

• The Supplementary Medical Insurance (SMI) Trust Fund is OK. The Trustees predict funding for Medicare Parts B (Professional & Outpatient Care) and D (Prescription Drugs), is OK since premiums paid by enrollees and government funding (accounting for 79% of B and D spending) is reset annually and does not require a Congressional OK.

Overall, the Trustees project that gross spending on Medicare Parts A, B, and D will grow from 4.1% of GDP in 2021 to above 6% by 2040 and stay at roughly 6.5% each year from 2070 onward. And in an illustrative alternative scenario developed by the Trustees, projected costs would continue rising steadily throughout the projection period, reaching 6.5% of GDP in 2045 and 8.5% in 2095. It concludes: “the substantial differences between current-law and illustrative alternative projections demonstrate, Medicare’s actual future costs are highly uncertain for reasons apart from the inherent challenges in projecting health care cost growth over time.”

In tandem with the Medicare Trustees’ Report, the Social Security Trustees released its annual report projecting a shortfall of 3.54% of payroll– 85% higher than they projected in 2010 requiring lawmakers to enact substantial revenue and/or benefit changes. “Without reforms, Social Security will not to be able to pay full benefits to many current beneficiaries, let alone today’s workers and future generations. Action must be taken soon to avoid a 22% across-the-board cut to all beneficiaries in 13 years or less.”

MY TAKE

1. The Medicare Trustees Report Provided No Surprises
Since 2003, government actuaries have called out inadequacy in the formula used to set employer payroll taxes that fund Part A for inpatient hospital services, hospice care, skilled nursing and home health services. The fact that changes to payroll tax rates require Congressional approval vs. the formula used to update to Part B and D funding annually explain the differences in funds for the programs.

2. The Report is Misleading
The Report is credible to the extent that its actuarial assumptions can be accepted (Table II/pages 26-37 in the 273-page report). But that’s the problem: the actuaries do not address the widening impact of private equity in funding lower-cost alternative delivery and insurance options, the efficacy and cost-impact of technology-enabled self-care and the role of employers in direct contracting and benefits design. They’re primarily based on increased enrollment and higher prices for drugs, hospitals and specialty care. They include a modest cut to Medicare Advantage (0.03%) recognizing prior overpayments and the potential that alternative payment models might slow down spending. But the only major unknown they cite concern is drug prices: they note that the FDA’s approval of Aduhelm for the nation’s 6 million Alzheimer’s patients as a case in point. Biogen plans to offer the intravenous drug at $56,000 under Medicare Part B that pays physicians 103% of the drug’s Wholesale Acquisition Cost (WAC) for administering the drug in their offices. That represents a $57 billion expense to Medicare in one year if only 1 million get the drug– more than Medicare spent for all Part B drugs last year ($37 billion).

Medicare is complicated and costly. Part A covers hospitals, nursing homes, hospice care et al and is funded through payroll taxes. Part B covers physician, hospital outpatient, home health et al and is funded through premium payments by individuals ($148.50 in ’20) that cover 21% of its funding. Part C is an option to receive Part A and B Medicare services through private Medicare Advantage plans funded by payments from the government to the plan sponsors and small monthly payments by members. And Part D covers discounted/subsidized prescription drug coverage paid by enrollee premiums. Each part is unique in its funding formula, two are voluntary (C and D) and all involve annual coverage changes. And the proposed addition of dental, hearing and vision to Medicare included in the $3.5 trillion Reconciliation package at an additional cost of $35 billion per year lends to more questions about its long-term fiscal sustainability. And mounting federal debt, now at 103% of annual GDP, is a growing concern to economists and political moderates in Congress who are urging spending constraint.

Polls show the majority of voters, especially Democrats and Independents, favor changes to make the health system more accessible, affordable and easier to navigate. But there’s no consensus about how to get there and the role Medicare changes could play.

Efforts to create Medicare were thwarted in the Roosevelt, Truman and Kennedy administrations before it became law in 1965 as the centerpiece of the Johnson administration’s Great Society program. It faced opposition from the American Medical Association, Blue Cross Association and others along the way who characterized it as ‘government run healthcare’ and ‘socialism’.

Today’s rhetoric about Medicare is equally incendiary. Misinformation is the playbook for proponents of major change and defenders of the status quo.

The adequacy of funding for Part A Medicare is not the issue: it’s about modernizing Medicare as a sustainable program that syncs with future demand for health services and regulatory foresight about prices and costs. It’s about simplifying the program, allocating federal funding appropriately and determining how much enrollees should pay themselves based on shared risk arrangements with the providers they use.

What’s next? Before the Medicare Trustees issue a 57th Report, perhaps it’s time to take a fresh, honest look at Medicare. Recognition that most seniors are active and all wish to be treated as partners in their care is a start. Integration of market reality in actuarial assumptions is paramount: it’s been missing. With providers, it’s an opportunity to replace fee for service with value-based incentives around total costs of care. And it’s a chance for the for the trustees of Medicare to think forward beginning with filling the two vacant “Public” trustee slots with individuals outside DC who are impervious to pressure from key stakeholders with much to gain from only incremental changes.

That’s a start.

Paul

P.S. Last weekend, a small group of Chief Strategy Officers from leading U.S. not-for-profit health systems convened in Jackson Hole, Wyoming to discuss the future for their organizations. Among their notable observations:

• The Delta variant nor the Biden administration’s policies have required health systems to suspend/modify their strategies. Growth and diversification remain the primary focus for all.

• The direct impact of the pandemic has been in managing our workforce challenges.

• Regulatory guidance from the CDC and other government sources has been inconsistent lending to lack of clarity and confusion.

• The administration’s warnings about consolidation in healthcare, particularly hospitals, is being monitored and consolidation strategies reconsidered.

• The pursuit of value-based care will continue but alternative payment models (APMs) might not be the primary lever due to APM fatigue. Medicare Advantage may be the optimal platform.

And there’s more. The complete report of the Proceedings from this Lumeris sponsored event will be available in the coming days. Stay tuned.

RESOURCES

“2021 Annual Report of the Boards of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds” August 31, 2021; CMS

“Digital adoption in healthcare: Reaction or revolution?” 2021 Accenture Health and Life Sciences Experience Survey: U.S. Findings

“Voter Vitals: A Health Care Tracking Poll: August 2021 Edition”; August 24, 2021; Partnership for America’s Health Care Future

“FDA’s Approval of Biogen’s New Alzheimer’s Drug Has Huge Cost Implications for Medicare and Beneficiaries”; June 10, 2021; KFF

“Budgetary Effects of H.R. 3, the Elijah E. Cummings Lower Drug Costs Now Act”; December 6, 2019; Congressional Budget Office and the staff of the Joint Committee on Taxation (JCT)

CORONAVIRUS NEWS

COVID Update: As of September 3, 2021 (CDC)

• 39,894,230 total cases

• 647,361 total deaths

• 2,157,196 confirmed cases (+10%) and 19,261 (+66%) reported deaths in the last 2 weeks

• Excess deaths globally indirectly due to Covid: 9.3 to 18.2 million (The Economist September 4, 2021)

• 48 million U.S. children under 12 are not yet eligible for Covid-19 shots

• “Weekly COVID-19–associated hospitalization rates among children and adolescents rose nearly 5-fold during late June–mid-August 2021” and “hospitalization rates 10 times higher among unvaccinated than among fully vaccinated adolescents.”

Survey: Vaccine Hesitancy Decreasing

Key findings of the latest Axios-Ipsos Coronavirus Index:

• 60% believe returning to their pre-coronavirus life right now would be a large or moderate risk, the highest level since early March.

• 78% of Americans are at least somewhat concerned about the COVID-19 outbreak at this time. Just as many (80%) are concerned about the Delta variant spreading in the U.S.

• 68% of parents report they are likely to vaccinate their kids, or they already have. Opposition to vaccinating their kids has dropped to 31% of parents.

• Majorities of Americans continue to support policies requiring the use of masks in schools (70%) or public places (66%).

“The wall of vaccine opposition might be starting to crumble”; August 31, 2021; Ipsos

Study: Employer-Sponsored Coverage Decreased during Pandemic

In this cross-sectional survey study of more than 1.2 million US adults 18-64 conducted from April 23 through December 21, 2020, rates of employer-sponsored coverage declined (-0.2%) and rates of other types of coverage increased (+0.1 to +0.2%) after the pandemic began and throughout 2020. Rates of uninsurance increased (+1.4%), particularly during the spring and summer representing 2.7 newly insured.

Bundorf et al “Trends in US Health Insurance Coverage During the COVID-19 Pandemic”; September 3, 2021; JAMA Health Forum

Study: Suicide Attempts for Previously Non-Symptomatic Youth Increased during Pandemic

In this cross-sectional study, the incidence rates of suicide-related emergency department encounters among youth in 2020 were comparable with 2019 incidence rates except for a decrease in March to May 2020 vs the same period in 2019 and an increase among girls in June through December 2020 vs the same period in 2019. Youth with no previously documented mental health treatment had more visits in September to December 2020 compared with this period in 2019.

Ridout et al “Emergency Department Encounters Among Youth With Suicidal Thoughts or Behaviors During the COVID-19 Pandemic”; September 1, 2021; JAMA Psychiatry

Study: Complexity of Medicare Hospitalizations during Covid

The OIG reviewed hospital inpatient claims for all Medicare beneficiaries who were hospitalized in a from April 1 through July 31, 2020. Findings:

• Almost all of these beneficiaries were treated for acute respiratory issues i.e. viral pneumonia.

• Half were treated for acute kidney failure

• Half had acute circulatory issues

• Two-thirds were treated for significant endocrine, nutritional, or metabolic issues

• One-third had sepsis.

• 50% received intensive care or mechanical ventilation.

“Medicare Beneficiaries Hospitalized With COVID-19 Experienced a Wide Range of Serious, Complex Condition”; September 2021; HHS Office of the Inspector General

Study: Increased Healthcare-Associated Infections (HAIs) in 2020 due to Pandemic

According to the CDC report published Sept. 2, HAI increased from 2019 to 2020:

• Central line-associated bloodstream infections: +47%

• Ventilator-associated events: +44.8%

• Methicillin-resistant Staphylococcus aureus: +33.8%

• Catheter-associated urinary tract infections: +18.8%

• Rates of surgical-site infections and Clostridioides difficile either decreased/ held steady.

Weiner-Lastinger et al “The impact of coronavirus disease 2019 (COVID-19) on healthcare-associated infections in 2020: A summary of data reported to the National Healthcare Safety Network”; September 3, 2021; Infection Control & Hospital Epidemiology

INDUSTRY NEWS

Survey: 80% of Physicians Say they’re Burned Out

Per the 3rd Annual Medical Economics Physician Burnout and Wellness Survey released last week:

• 80% of physicians say they’re burnt out now

• Primary causes: too much paperwork and regulations (31%), working too many hours/poor work-life balance (24%), electronic health records (11%), and lack of autonomy/career control (10%).

• 18% say they don’t feel as though they are coping effectively with the symptoms of burnout. and 60% said they have never discussed feeling burned out with fellow physicians or colleagues.

“Physician Burnout in 2021 has reached a crisis point: Exclusive survey results”; September 1, 2021; Medical Economics

CMS: ACOs Earned $2.3B Performance Bonuses in 2020

ACOs participating in the Medicare Shared Savings Program in 2020 earned performance bonuses totaling nearly $2.3 billion and saved Medicare $1.9 billion, CMS reported August. 25.

• CMS said 345 out of 513 ACOs (67%) earned shared savings payments in 2020.

• 88% of the two-sided risk models and 55% of one-sided risk models earned the performance payment.

• Over 12.1 million Medicare fee-for-service beneficiaries receive care from a health care provider participating in a Medicare ACO.

“Affordable Care Act’s Shared Savings Program Continues to Improve Quality of Care While Saving Medicare Money During the COVID-19 Pandemic”; August 25, 2021; CMS

Survey: Large Employers Anticipate 6% Higher Health Costs in 2022

136 large employers took part in the Business Group survey in June 2021. Findings:

• 94% of employers anticipate an increase in medical services due to delayed care, while 91% remain concerned about long-term mental health issues stemming from the pandemic.

• 76% of employers accelerated telehealth and virtual health offerings since the start of the pandemic.

• Health costs: In 2020, the overall health cost trend was 0%, though some employers experienced a decrease as much as -12%. In 2021, employers expect a 6% increase and a slight decline to 5.8% in 2022.

“Health Equity, Impact of Pandemic Among Large Employers’ Top Concerns, Says 2022 Health Care Strategy and Plan Design Survey”; August 30, 2021; Healthcare Finance

Judge Approves Purdue Settlement

Last Wednesday, Purdue Pharma, the maker of painkiller OxyContin, was dissolved in a settlement approved by Bankruptcy Judge Robert Drain that absolves the Sackler family of any opioid-related liability.

In exchange for the protections, the family agreed to pay a fine of $4.5 billion over 9 years likely to be funded through their remaining investment portfolio and make public more than 30 million documents previously kept confidential including the company’s marketing strategy for Oxycontin.

My take: This settlement does not offset the loss of lives, the lifelong adverse challenges facing Opioid Use Disorder and Neonatal Abstinence Syndrome victims nor come close to the costs for treatment for those that survive. It sets up a compensation fund that will pay victims $3,500 to $48,000 each—far less than total costs born in hospitals, school systems and households. For example, last year, 44,490 NAS newborns spent 13-16 days in hospital NICUs adding to CDC’s total of 366,426 NAS babies born between 2001 and 2019. Through their 18th birthday, their costs for health will be 6-times more than healthy newborns and significantly less than the settlement provides. And sadly, it is not Purdue’s first encounter with the courts: in 2007, Purdue Pharma pled guilty to federal charges it misled regulators and others about the addiction dangers of OxyContin and agreed to pay more than $600 million in penalties. Little wonder why the public thinks drug companies put profit above all else.

Jan Hoffman “Purdue Pharma Is Dissolved and Sacklers Pay $4.5 Billion to Settle Opioid Claims”; September 1, 2021; New York Times

Study: Prescription Refills Recover to Pre-Pandemic Levels

GoodRx analyzed monthly U.S. prescription fill rate changes from July 2017 to July 2021. Highlights:

• Prescription medication fills resumed this summer as people resumed healthcare provider visits.

• Medications for acne, eyelash growth, and weight loss saw higher-than-average fill rates.

• Sertraline (Zoloft), which is used to treat anxiety and depression, and topical corticosteroid creams, which are used to treat certain skin conditions, also saw higher-than-average fill rates.

“Prescription Drugs on the Uptick This Summer, With Lifestyle and Beauty Medications High on Americans’ Pharmacy Lists”; September 2, 2021; GoodRx

REGULATORY NEWS

NCHS Early Release Data: 32 million (9.7%) Lacked Health Insurance in 2020

Estimates of health insurance coverage based on data from January through December 2020 from the National Center for Health Statistics (NCHS). Highlights:

• Overall, 38% of respondents had public coverage and 61.8% had private coverage (some individuals were covered by both public and private plans). Among children sampled for the survey, 5.1% were uninsured, 42.2% had public coverage, and 54.9% had private insurance. Adults 65 and older were most likely to be enrolled in a public health plan, at 95.9%.

• In 2020, 31.6 million persons of all ages (9.7%) were uninsured at the time of interview. This is lower than, but not significantly different from, 2019 where 33.2 million persons of all ages (10.3%) were uninsured.

• Among adults aged 18–64, 8.6 million (4.4%) were covered by private health insurance plans obtained through the Health Insurance Marketplace or state-based exchanges.

• 25.3% of adults below 100% of the federal poverty level (FPL) lacked insurance and 25.0% of adults between 100% and less than 200% FPL were uninsured. Among adults earning less than 100% FPL, 56.3% reported having public coverage compared with 38.8% of those between 100% and less than 200% of FPL.

“Health Insurance Coverage: Early Release of Estimates From the National Health Interview Survey, 2020”; August 2021; National Center for Health Statistics