Medicare Cuts May Present an Opportunity
at the Andrew Young School of Policy Studies

Amidst the sound and fury in the months leading up to the November elections, a quiet revolution was occurring in the provision of essential healthcare services to the aging U.S. population. Major cuts in Medicare funding that were written into the national Balanced Budget Act of 1997 occurred on schedule this fall.

Medicare funding for skilled nursing care was cut 10 percent nationally on October 1, or $1.7 billion per year. Medicare funding for physician care was cut 5.4 percent on November 1. These cuts were written into the act to help control Medicare spending in an effort to save the program and ensure its financial viability. But at what cost and effect?

The Georgia Health Policy Center conducts research for the development of health care policy recommendations and implementation strategies for improving the health care delivery system in Georgia. James Cooney, senior advisor for the Health Policy Center and professor of health administration at the GSU Robinson College of Business has spent the last several years researching nursing home and other long-term care cost and quality improvements. In cooperation with the Georgia Department of Community Health, Georgia State University and the Federal Center for Medicare and Medicaid Services, the Health Policy Center’s Long Term Care Studies team is conducting a follow-up study on its earlier nursing home improvement initiative.

“Medicare and Medicaid are the major sources of patient revenue for most nursing facilities,” said Cooney, who noted that number may be as high as 90 percent. “Any reduction in reimbursement from either of these sources can seriously affect the financial stability of the facilities.” He said that after several years of actively seeking Medicare patients, these facilities are much more dependent on federal dollars today than they have been, and are, as a consequence, more vulnerable to federal shifts.

Changing demographics had already pushed Georgia’s search for long-term care alternatives to the front of the state’s growing list of human services priorities. “The rapidly growing elderly population and its large proportion of long-term chronic care needs already are significantly impacting the state, Medicaid budget lines inflating faster than the state’s general budget,” said Cooney. He warned that, “In these poor economic times, the Medicare inflation will have to be controlled by the governor and the state – serious budget reductions loom.”

Nursing facilities are the most expensive form of long term care. The current Long Term Care Study is evaluating alternative forms of services to identify effective but potentially less costly services for the state than nursing facilities. Cooney’s team is finding that less costly alternatives to nursing facilities, such as home and community-based services, will meet the needs of many patients, but that those alternatives need public policy enacted to support their development.

What some might see as a crisis may well be an opportunity. Cooney feels that current actions could be a strong incentive for change. “Historically, the U.S. health care system has had to diversify to survive as medical technology and sources of financing evolved. Today, maintaining the status quo is not a realistic management goal for any component of our care system,” he said.

“Despite the revenue problems presented to nursing facilities by the Medicare action, it does also present an opportunity to diversify. Survival of the fittest applies to organizations as well as flora and fauna. You’ve got to adapt.”

For more information on health policy, go to www.gsu.edu/~wwwghp