Insurers and their stockholders howled with delight after last week's decision by the CMS to reverse Medicare Advantage cuts. But they may be in for a rude awakening. Medicare Advantage is still facing a 10-year, $156 billion reduction mandated by the Patient Protection and Affordable Care Act, which is designed to bring the program in line with traditional fee-for-service Medicare. Moreover, Advantage still faces cuts from sequestration.
“If you take (the Medicare Advantage impact) the ACA is laying out, there's going to be reductions in what (CMS) is going to pay out in longer term,” said Vishnu Lekraj, a senior healthcare analyst for Morningstar, who adds those reductions are in effect through 2022.
The CMS surprised stakeholders with its April 1 announcement increasing the 2014 reimbursement rate by 3.3% instead of the previously announced cut of 2.3%. The agency said for the first time that it would calculate rates assuming Congress would prevent the automatic 25% cut to the Medicare physician pay formula, better known as the “doc-fix,” as it has for the past decade. While the CMS' own actuaries advised against making the assumption, an agency spokesman defended the move. “This is a specific, unique circumstance, and we expect that current law will continue to be used in other instances,” he said.
Payers and providers, however, won't have much time to celebrate. Medicare cost growth has slowed to the same pace as the rest of the economy in recent years, and some analysts are now saying that may be the new normal.