NCPA - National Center for Policy Analysis

The Regional Impact of the Medicare Fee-for-Service and Medicare Advantage Payment Reductions

September 18, 2012

In July, the Congressional Budget Office (CBO) released an analysis of the Medicare payment reductions as a result of the Affordable Care Act (ACA). The cuts are estimated to be $716 billion between 2013 and 2022, say Robert Book, senior research director at HSI Network, and Michael Ramlet, director of health policy at the American Action Forum.

There are several changes to payment rates and payment rules:

  • The ACA decreases annual updates to Medicare's payment rates in the Medicare Fee-for-Service program by $415 billion.
  • Furthermore, the ACA reduces payment in the Medicare Advantage program by $156 billion.
  • Additionally, the ACA reduces disproportionate share hospital payments by $31 billion and $25 billion from the Medicare program.
  • Finally, the ACA reduces Medicare spending through provisions such as the Independent Payment Advisory Board by $114 billion.

However, the impacts of the reductions range depending on the geography of the United States. Book and Ramlet took the available data from the CBO to assess the impact of spending reductions among the different regions of the United States.

First, they calculate the cuts on a state level based on the total cuts from each county in a state. Second, they assess the impact of the Fee-for-Service cuts by multiplying the CBO-projected cut for each year to obtain each county's Fee-for-Service cuts. Then the Medicare Advantage spending reductions were calculated by using data on previous Medicare Advantage benchmarks to calculate the projected benchmarks based on rules in the ACA.

Source: Robert Book and Michael Ramlet, "What is the Regional Impact of the Medicare Fee-for-Service and Medicare Advantage Payment Reductions?" University of Minnesota, Carlson School of Management, September 2012.


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