Unrealistically strict efforts to hold down Medicare provider reimbursement rates could backfire, by reducing the number of providers who take Medicare, according to an official at the Centers for Medicare and Medicaid Services (CMS).

Richard Foster, the CMS chief actuary, talked about the possible unintended consequences of efforts to hold down health expenditures today during a hearing on the “true cost” of the Patient Protection and Affordable Care Act (PPACA) that was organized by the House Energy and Commerce Committee health subcommittee.

Rep. Joseph Pitts, R-Pa., the subcommittee chairman, recalled in his opening remarks that Gov. Tom Corbett, R-Pa., the governor of Pennsylvania, had predicted during an earlier hearing that full implementation of PPACA could lead to roughly 1 in 4 Pennsylvania residents being enrolled in Medicaid, and that another official had predicted that the share of the Pennsylvania budget devoted to Medicaid would increase to 60% in fiscal year 2019 and 2020, from about 30% today.

“This is simply not sustainable for my home state, or any other,” Pitts said, according to a written version of his remarks provided by the committee.

The Congressional Budget Office says PPACA coverage expansion spending will amount to about $1.4 trillion for fiscal years 2012 to 2021, up from $938 billion for fiscal years from 2010 to 2019, Pitts said.

PPACA supporters have been counting on freeing up $575 billion in Medicare funding, and they have been hoping to achieve some of that savings by eventually reducing the reimbursement rates paid to the physicians who care for Medicare enrollees.

PPACA provisions will require Medicare providers to match the productivity gains of the economy as a whole.

“While such payment update reductions will create a strong incentive for providers to maximize efficiency, it is doubtful that many will be able to improve their own productivity to the degree achieved by the economy at large,” Foster told the committee.

Many types of businesses may be able to benefit from the amount of labor needed and reductions in technology prices, but health care providers are labor-intensive and depend heavily on other inputs with relatively stable prices, Foster said.

CMS projections show providers’ difficulty with matching overall productivity gains could make 15% of providers unprofitable in 10 years, Foster said.

In theory, more productive providers could crowd out the unproductive providers and reduce costs for all payers. But any efforts to keep the providers in business could reduce productivity-related savings, Foster said.

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