Online Exclusive: The Medicare Trust Fund: Should Clinicians Be Worried?

Depending on how you calculate the effect of the Affordable Care Act, Medicare will go bankrupt in either 2024 or 2016, perhaps sooner. Really?

Medicare is paid for through two trust fund accounts held by the US Treasury. One is the Hospital Insurance (HI) Trust Fund, which pays for Medicare Part A (hospital insurance) benefits, such as inpatient hospital care, skilled nursing facility care, home healthcare, hospice care, and Medicare program administration (eg, costs for paying benefits, collecting Medicare taxes, and combating fraud and abuse). HI is funded by payroll taxes paid by most employees, employers, income taxes paid on Social Security benefits, and interest earned on the trust fund investments. The second trust fund is Supplementary Medical Insurance (SMI), which pays for Medicare Part B (medical insurance) benefits, such as doctor services, outpatient hospital care, home healthcare not covered under Part A, durable medical equipment, certain preventive services, lab tests, Medicare Part D prescription drug benefits, and Medicare program administration. SMI funds are authorized by Congress and paid for with premiums from people enrolled in Part B and/or Part D, as well as from sources such as interest earned on trust fund investments. All billing processes are handled by contractors on behalf of the government, for example, Medicare Administrative Contractors. All processes are administered through excruciatingly detailed regulations and manuals around which hospitals have built information systems and programs, operations manuals, and compliance initiatives.

The Trustees of the Medicare program recently released their annual report on the solvency of the program. Depending on how you calculate the effect of the Patient Protection and Affordable Care Act of 2010, Medicare will go bankrupt in either 2024 or 2016. In fact, according to Medicare actuary Richard Foster, the program’s bankruptcy could come even sooner than 2016 (according to comments in the 2012 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds).

So, in summary: Medicare is going bankrupt and improper payments are a significant contributor to this problem. Some estimate more than 30% of payments Medicare makes to providers are improper, but others think the percentage is even higher. Clinicians and hospital administrators who have “gammed the system” have brought increased government scrutiny down on everyone.
Congress enacted the overpayment provision in the Patient Protection and Affordable Care Act as a result of expansions to the False Claims Act (FCA) within the Fraud Enforcement and Recovery Act of 2009 (FERA). Under FERA, Congress made “retention of an overpayment” a basis for FCA liability. Prior to enacting the overpayment provision in the Patient Protection and Affordable Care Act, there was no explicit statutory obligation in the Social Security Act to return overpayments from the Medicare and Medicaid programs. The purpose of this provision is to make it a clear duty to repay whenever a provider “identified” an overpayment.