Medicare Reimbursement Cuts Kill

Under the Balanced Budget Amendment of 1997, different classes of hospitals received different cuts in Medicare reimbursement. The cuts reduced Medicare inpatient payment by an estimated 5 percent between 1998 and 2000. By contrast, the Affordable Care Act (ObamaCare) will reduce DRG payments by 1.1 percent per year indefinitely. A 2013 article (open preliminary version) by Yu-Chu Shen and Vivian Y. Wu examines the effect of the BBA reimbursement rate cuts on risk-adjusted mortality rates 7, 30, 90, and 365 days after hospital admission. They find that the risk of dying increases with the size of Medicare reimbursement cuts. Patients with heart attacks, congestive heart failure, stroke, pneumonia, and hip fracture were included, from 1995 to 2005.

Despite reimbursement cuts, mortality trends were similar in the first two years that the BBA took effect. After 2001, mortality rates began to diverge. For conditions with declining mortality rates, hospitals with smaller payment cuts had a sharper decline in their mortality rate than those with larger payment cuts. For stroke and hip fracture, conditions for which mortality rates increased until 2003, mortality rates increased more slowly in hospitals with smaller reimbursement cuts. Mortality a year after admission for hip fracture was apparently unaffected by reimbursement reductions. The authors note that this may reflect the fact that over 90% of hip fracture cases are discharged to postacute treatment facilities.

The graph below shows the estimated percentage increase in the 1 year mortality rate (shown on the y-axis) for five conditions given a Medicare reimbursement reduction of $1,000. For a heart attack (AMI), a $1,000 reimbursement reduction increases mortality rates by 1.36 percent. An increase of 1.4 percent is not insignificant given estimates suggesting that Medicare patients admitted to a hospital have a risk-standardized 30-day mortality rate of roughly 12 to 13 percent.

Over the entire period, the authors estimate that the BBA reimbursement cuts reduced Medicare spending by $7.26 billion at “the expense of 39,477 lives.” The cost of saving each of those lives works out to about $184,000 per life.

For those who think of lives in terms of numbers, in 2002 Kip Viscusi calculated the amount spent per life saved by a host of federal regulations. In 1990 dollars, the cost per life saved from spending on auto side-impact standards, the children’s sleepwear flammability ban, and automobile side-door supports was at least $1 million. The cost per life saved by spending to cover or move uranium mine waste byproducts was $53.6 million.

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