Obama Administration Seeks to Lower $300 Billion Medicare/Medicaid Costs

It costs more than $300 billion annually to care for the approximately nine million Americans eligible for Medicare and Medicaid, and now the Department of Health and Human Services (HHS) has announced three initiatives to try to help states improve the quality, while lowering the costs, of that care.

Those initiatives, says HHS, are a demonstration program to test two new financial models to help states improve quality and share in the lower costs that result from better coordinating care for individuals enrolled in Medicare and Medicaid; another demonstration program to help states improve the quality of care for people in nursing homes by providing these individuals with the treatment they need without having to unnecessarily go to a hospital, and a technical resource center available to all states to help them improve care for high-need high-cost beneficiaries.

For the first initiative, CMS released state guidelines for demonstrations which it says are designed to coordinate financing between the two healthcare programs to support improvements in the quality and cost of care for individuals eligible for Medicare and Medicaid through two models.


These models, says CMS, include a state, CMS, and health plan entering into a three-way contract where the managed care plan receives a prospective blended payment to provide comprehensive, coordinated care; and state and CMS entering into an agreement by which the state would be eligible to benefit from savings resulting from managed fee for service initiatives designed to  improve quality and reduce costs for both Medicare and Medicaid.

The models remain to be tested to ensure efficiency and lower costs, says CMS; eligible states will be given the option of using either or both of the two models.

Coordinated care might provide a more efficient system by improving the quality of care while lowering its costs on both federal and state government levels, says the HHS. The department says it’s been working on coordinating Medicare data on an interstate basis as part of the Obama administration’s “ongoing efforts” to provide states with more flexibility and support for caring for high-cost, high need Medicare and Medicaid enrollees.


“These models are designed to address a longstanding barrier to better meeting the needs of some of the most vulnerable Americans we serve,” said Donald M. Berwick, M.D., administrator of the Centers for Medicaid & Medicare Services (CMS).  “Providing individuals the high-quality care they need, working closely with stakeholders, doctors, and state leaders, and ensuring beneficiary protections will be a crucial part of this demonstration.”

The second initiative will have the CMS Innovation Center collaborating with the CMS Medicare-Medicaid Coordination Office to test a new demonstration focused on reducing preventable inpatient hospitalizations among residents of nursing facilities by providing these individuals with the treatment they need without having to unnecessarily go to a hospital.

HHS says two-thirds of those in nursing homes are enrolled in Medicaid, and most are also in Medicare; going to the hospital unnecessarily is often very detrimental to elders, and in 2005 a CMS-funded survey of Medicare/Medicaid eligible nursing facility residents found that nearly 40% of hospital admissions were preventable. Those admissions accounted for more than 300,000 hospitalizations that could likely have been prevented, and cost Medicare $2.6 billion.

As for the final initiative, CMS announced the establishment of a resource center that will help states deliver coordinated health care to high-need, high-cost beneficiaries, and provide technical assistances to states to improve services and quality of care, and reduce costs.

Written by Alyssa Gerace