Back in 1997, the Balanced Budget Amendment made some pretty big cuts to Medicare-- $40 billion over the course of four years. One-third of hospitals saw their profit streams go negative. And economists Vivian Y. Wu and Yu-Chu Shen saw a great natural experiment: They could use the BBA cuts to understand what happens to the quality of Medicare when reimbursement rates go down.
Their results, published last year, suggest that Medicare cuts to hospital payments could reduce the quality of care. It's a finding that's especially relevant right now as both campaigns are talking about Obamcare's Medicare cuts, which slow down spending in much the same way.
All Medicare hospitals experienced some kind of cut. But due to the structure of the reimbursement reductions, certain hospitals - those that taught medical students or ones seeing high numbers of low income patients - saw bigger reductions.
Wu and Shen controlled for other things like hospital size, whether it was part of a system and the type of private health insurance it tended to see. They then divided providers into "large cut" and "small cut" hospitals who saw Medicare reimbursements drop by an average of $616 and $260 per discharge, respectively.
To measure quality, they looked at mortality rates for heart attack patients one month and three months out from the payment cuts. Before the cuts, the hospitals looked pretty similar. They continued to have comparable outcomes right after the BBA passed too, even as cuts went into effect.
It's about four years out from the cuts - as you can see in these tables below - that outcomes start to diverge. Small-cut hospitals keep making improvements in mortality rates, while large-cut hospitals have results that are pretty stagnant.
"We find that Medicare [heart attack] mortality rates between large-cut and small-cut hospitals had similar trends prior to and immediately after BBA was implemented, but diverged between 2001 and 2005," Wu and Shen conclude.
Put another way: Every $1,000 in lost Medicare was associated with "6 to 8 percent increase in mortality rates...implying a 1 percent reduction in payment would translate to a 0.3 percent increase in mortality rates."
As to why large-cut hospitals had worse outcomes, Wu and Shen took a look at employment. They saw that hospitals with bigger cuts were more likely to scale back staffing, especially among nurses.
Wu and Shen did control for a lot of variables but they do note that other factors could be at play. If all the small-cut hospitals started making quality improvement programs right around the time of the BBA, for example, those could explain some of the change. It seems unlikely but, in this study, can't be ruled out.
The cuts in the Affordable Care Act, it's worth noting, are not nearly as aggressive as those in the BBA. That law actually decreased how much certain providers got paid. Obamacare, in contrast, slows the growth of certain Medicare payments but does not amount to a pay cut. That would suggest the impact may not be nearly as pronounced.