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How Obamacare Could Save Taxpayers $17 Billion

By Todd Campbell – Oct 26, 2014 at 1:31PM

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Hospital readmissions cost Medicare $26 billion last year, but reform-driven penalties could reduce that figure over the coming years.

Source: 401kcalculator.org via Fickr.

Obamacare has its work cut out for it. Healthcare spending in the U.S. totals about $3 trillion annually, and growing expenses tied to caring for ageing baby boomers has industry watchers expecting that healthcare spending could climb toward $5 trillion by 2024.

In 2013, healthcare spending by the Centers for Medicare and Medicaid (CMS) totaled just over $1 trillion. While that's huge, it pales in comparison to the CMS forecast that spending by Medicaid and Medicare will reach a combined $2.5 trillion in 2024.

In an attempt to lower that spending, Obamacare includes a slate of provisions aimed at reducing costs. One is particularly intriguing, as it's targeted at wiping out $17 billion of Medicare spending on arguably unnecessary readmissions at hospitals around the country.

Spinning turnstiles
According to the U.S. Department of Health and Human Services, 2 million Medicare patients were readmitted less than 30 days after they were discharged in 2013, and while
 readmissions can be a planned part of patient treatment, many are due to other avoidable factors like poor care transition and problems with inpatient care.  And of $26 billion CMS spends on hospital readmissions each year, it's estimated that $17 billion may be due to these unnecessary readmissions.

Since many of the reasons behind patient readmissions can conceivably be addressed by hospitals, hospitals are being targeted.

Source: Community Health Systems

Punishments
The ACA requires hospitals
to report readmissions, and if those readmission rates don't pass muster with regulators, hospitals can face hefty penalties.

The CMS decides which hospitals will be penalized by using national readmission rates for five patient conditions (including heart failure, heart attack, and pneumonia) to create a baseline expectation. Hospitals that beat the baseline pass, while those who fail see the amount of their Medicare reimbursements get reduced the following year.

Despite the threat of these penalties, a record 2,610 hospitals (roughly 75% of those that could be fined) still failed to hit their readmission benchmark last year. The amount of the penalty varies based on each facilities performance, but 496 hospitals will face reimbursement cuts of at least 1% this coming year, according to Kaiser Health News.

Overall, lower Medicare payments tied to these penalties means that taxpayers will save a combined $428 million this coming year.

Source: Centers for Medicare and Medicaid Services.

Changing behavior
If hospitals want to make more Medicare money, they have to reduce their readmissions. And reducing the unnecessary readmissions could save taxpayers like you and me as much as $17 billion.

There are a number of ways that hospitals may be able to potentially reduce readmissions -- including providing patients with more comprehensive post-admission training than the boilerplate printed instructions commonly used in the past. Hospitals may increasingly turn to health aides to visit patients in their homes to catch problems before they result in readmissions, or they may embrace telemedicine to follow up with patients more often at a potentially lower cost. Hospitals are also embracing healthcare IT solutions made by companies like Cerner Corp to design more effective treatment plans, evaluate potential risks, and improve patient follow up. 

If these programs work to reduce readmissions everyone would benefit. Hospitals would see higher reimbursements and profits, taxpayers would spend less money, and hopefully patients would get better treatment. 

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd owns Gundalow Advisors, LLC. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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