While health-care reformers call for "Medicare For All," in March the Medicare Payment Advisory Commission (MedPac) warned that unless Congress makes some hard decisions about how to contain health-care spending, Medicare won't be able to sustain its current program -- let alone expand coverage to the entire nation.
The bad news is that MedPac is absolutely right. Last week, the Medicare Trust Fund released a report revealing that if Medicare continues spending at the current rate, it will hit a wall in twelve short years: At that point, the trust will be able to cover only 79 percent of Medicare's costs. The good news is that MedPac is so right that Congress is going to be forced to do something, if not this year, then next. And that could help pave the way not only for Medicare's survival but for a sustainable national health-care program -- one that could offer Medicare to all without breaking the bank.
MedPac is an independent, bipartisan commission established by the Balanced Budget Act of 1997 to advise Congress on Medicare spending. Its March report highlights a list of much-needed reforms that include: re-examining Medicare's fee-for-service payment system; reviewing specialists' fees; comparing the effectiveness of treatments that Medicare covers; and reconsidering the generous premium that Medicare now pays private insurers under "Medicare Advantage." These proposals will meet fierce resistance. But the alternative for Congress is to slash the fees that Medicare pays physicians by 10 percent next year--- and by 40 percent over the following eight years. Politically, this is of course a non-starter, but the law calls for draconian cuts in Medicare's payments to doctors -- which is why Congress will have to find other ways to rein in runaway health-care inflation.
Some background is needed here: In 1997 Congress passed legislation setting a cap on how much physicians' bills to Medicare can grow each year based on a formula tied to overall economic growth. Calling the formula "the sustainable growth rate" (SGR), legislators decreed that if total billings from the nation's physicians exceed the SGR in a given year, their fees would be cut, across the board, the next year. If physicians' bills came in under the SGR, fees would be raised.
Medicare had reason to be concerned. Billings from physicians were spiraling, largely because the volume and intensity of the services they provided were rising. This was in part because advances in technology had made more treatments available to more patients -- and in part because Medicare pays physicians fee-for-service. The more they do, the more they are paid. In other words, the financial incentives of the fee-for-service system reward quantity, not quality.
Many physicians argue that in recent years they have been forced to "do more" just to maintain their income stream. While the cost of real estate, supplies, and malpractice insurance climbs, their fees have not kept up. They must make up the difference, they say, "on volume." Few consciously over-treat patients, but many see more patients more often -- which means that those patients receive more tests and treatments, and Medicare receives more bills.
Thus, despite the SGR, from 2000 to 2006, Medicare spending for physicians' services rose by more than 9 percent annually. When Congress finally tried to enforce the SGR formula in 2002, slicing payments by 5.4 percent, the AMA howled, warning that soon, physicians might refuse to take new Medicare patients. Realizing that if the cuts continued, the threat could prove real, Congress retreated, and legislators agreed to freeze fees for two years, beginning in 2004. In 2006 Congress threatened a 5 percent cut for 2007, but once again backed down, granting physicians an 11th-hour reprieve.
At this point, all scheduled cuts had been pushed into the future -- which is why the SGR formula now calls for slicing physician payments by 10 percent next year and 40 percent over eight years. If that happens, there's no question: Doctors will begin to shun Medicare patients.
Having painted itself into a corner, Congress then asked MedPac to recommend alternatives to the SGR. When the report came out in March, MedPac suggested two possible solutions.
The first would recognize something that politicians don't like to talk about: In some parts of the country, Medicare spends twice as much per beneficiary as in other parts.
More than two decades of research done by doctors at Dartmouth College have documented staggering differences in Medicare spending. In cities like Los Angeles, Newark, and Miami, chronically ill patients receive far more aggressive, intensive, and expensive care than very similar patients in Minneapolis or Iowa City. In high-spending regions, patients undergo more tests, spend more days in the hospital, and are far more likely to see ten or more specialist during the final six months of life -- for reasons that have little to do with either medical necessity or patients' druthers.
Over the decades, Dartmouth's researchers have bent over backwards to adjust for differences in race, age, and the overall health of each community-- but still couldn't explain two-fold differences in spending. Until, that is, they looked at supply. High-cost regions boast 32 percent more hospital beds, 31 percent more physicians, 65 percent more medical specialists, 75 percent more internists, and 29 percent more surgeons. In health-care, supply drives demand: "Build the beds and they will come."
And here is the shocker: Patients who receive the most aggressive care fare no better than those who receive more conservative care. In fact, often, outcomes are worse. (For further evidence of how excess capacity drives wasteful, potentially harmful Medicare spending, go here.)
Addressing this issue, MedPac suggests that if Congress wants to keep the SGR, it should apply it geographically: "If we need savings, let's not take it out of the low-cost, high-quality states -- like Montana or Iowa -- lets take it out of the high-cost, low-quality states," MedPac chairman Glenn Hackbarth told the Senate Finance Committee. But try to imagine Senator Hillary Clinton voting to roll back physicians' fees in New York while boosting them in Iowa.
This leaves Congress with MedPac's alternative solution: Abandon "fee-for-service," and pay physicians for quality and efficiency. Those who achieve the best outcomes -- while using fewer resources -- would earn more. As a benchmark, researchers points to the Mayo Clinic, which achieves superior outcomes while doing less. Long-term, this could lay the foundation for high-quality, affordable care. But it will take time to design ways to measure efficiency and outcomes. In the meantime, MedPac points to other needed reforms.
For one, it suggest that rather than whacking physicians' payments nationwide, the government review how much Medicare pays specialists for specific procedures. Noting that recent reviews of specialists' fee schedules have recommended "substantially more increases than decreases," MedPac observes that, when adjusting fees, Medicare relies "heavily on physician specialty societies -- which tend to identify undervalued services without identifying overvalued ones."
"Some of these services are far more profitable than others," says Hackbarth. "And physicians know which ones are more profitable, so their investments are sucked into those services. The imaging area is one area where there is significant mis-pricing." As a remedy, MedPac suggests that independent experts should evaluate specialists' fees.
In the same vein, MedPac urges Medicare to take a more active role in comparing the effectiveness of various treatments, citing research showing that when industry sponsors studies they are "significantly more likely to reach conclusions favorable to the sponsor." Here, MedPac calls for Congress to create an independent entity to oversee credible comparative-effectiveness research.
Finally, MedPac casts a cold light on the fact that, under Medicare Advantage, Medicare is paying private insurers 12 percent more than it spends under the regular Medicare program -- for the same benefits. In a separate report, MedPac suggests that Medicare cannot afford such largesse.
Will Congress have the spine to act on MedPac's advice? One can only hope. National health-care reform depends on Medicare reform. If Medicare continues to overpay, universal care just won't be affordable. And any national plan will have to incorporate many of the very same cost-saving measures that MedPac is currently advocating. Reformers ought to listen.
