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By Mark McCarty

Regulatory Editor

The Congressional Budget Office (CBO) shone a glaring spotlight on the state of the U.S. economy with a report that predicts that the federal budget deficit will reach $1 trillion in 2020 on its way to a deficit of more than $1.5 trillion eight years later. Perhaps even more disturbing for makers of drugs and devices is that Medicare spending has resumed its robust growth rate now that the recession is over, and may double to $1.5 trillion in 2028, roughly the same number as the overall budget deficit in 2028.

In a statement accompanying the latest report, CBO director Keith Hall said that under current law, the deficit "grows substantially" for the next four to five years, after which the deficit should stabilize − albeit at a high level – while the U.S. federal government's debt may reach a level at which it would be in rough parity with the size of the economy. Hall said the projected deficits had risen substantially since the agency's previous report in 2017 due to several factors, including the overhaul of the tax code along with passage of the Bipartisan Budget Act of 2018 and the Consolidated Appropriations Act of 2018.

It will be difficult to keep Medicare spending out of the spotlight in congressional examination of the CBO report, given that the agency says Social Security and Medicare account for two-thirds of the anticipated 5.5 percent annual increase in federal outlays over the next 10 years. Total federal spending may reach $7 trillion by 2028, when Medicare spending could hit $1.5 trillion, more than double the $707 billion that will likely be spent on the program in the current fiscal year. The ratio of Medicare spending to GDP will rise from 3.7 percent in 2017 to 5.1 percent in 2028, assuming the CBO projections hold.

Hall said GDP growth should exceed last year's projections as well, due in part to legislation and to changes in CBO's analytical methodology, but at least one observer is pessimistic as to the chances that the American economy can simply grow its way out of the current predicament.

Paul Ginsburg, who chairs health policy studies at the Brookings Institute, told BioWorld MedTech that if one wants to close the deficit gap from the income side, a consumption tax "is one of the fixes." However, Ginsburg said also, "the big implication of the report is how large the deficit is going to be and how much the debt will be" in 2028, adding that along with Social Security, "Medicare is clearly the biggest target" for any fixes imposed from the spending side of the equation.

Ginsburg, who is also a member of the Medicare Payment Advisory Commission, said per-capita spending on health care nearly universally outstrips income, but enrollment into the Medicare program is also fed by the 10,000 members of the Baby Boom generation who become eligible every day. He said the cuts to Medicare spending under the Affordable Care Act, which revolve in large part on a productivity adjustment imposed on hospitals and other clinical sites, were more or less the only efforts to address the budget deficit in the first few years of the 2008 recession, but he said, "payment rates to hospitals and physicians have been squeezed" repeatedly over the past decade or so, and thus, "it's not going to be easy to have further large cuts" to Medicare payment rates.

Ginsburg said GDP growth can be expected to boost health care spending yet again, with a similar effect on overall Medicare spending, but he added, "I don't know what impact that will have on the [Medicare Part A] trust fund because the economic growth will increase the growth of revenues that are coming into the trust fund."

Site-of-service fix could trim spending

The Medicare physician fee schedule is one lever Congress can use to deal with Part B spending, but Ginsburg said, "the bigger tools in the near term are the site-of-service [reimbursement] differentials, and 340B drug discounts." He noted that drug makers are none too fond of the discounts they have to offer in connection with the 340B program, but that hospitals still use some of the drugs thus purchased for patients other than the low-income patients for whom they are intended.

Ginsburg said MedPAC has repeatedly urged the flattening of physician payment rate differentials across sites of service, but the Centers for Medicare & Medicaid Services does not always have the authority to deal with the various site-of-service disparities. "I would say a weakness of Medicare as a single payer program is that . . . the big issues have to be dealt with legislatively," he said. In another perennial issue, the relative value update committee administered by the American Medical Association is still the subject of ire among some in the health care economics business, and Ginsburg said the AMA "fiercely protects its control over that process. I think the AMA's control over the process has been a huge failure" in terms of keeping relative values aligned with relative costs, he said.

"I think revenue is going to be on the table strongly" when it comes to dealing with the overall deficit, Ginsburg predicted, although he added, "there are no politically easy ways" of adding taxes to fix the budget deficit. Still, he predicted that if the deficit grows large enough, "the difficult will be feasible."

Published  April 11, 2018

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