Analysis: Ending the Medicare Two-Step

By OLGA PIERCE

It is summer in Washington and Medicare and Congress are again dancing their dangerous two-step — the formula used to calculate what physicians are paid for services dictates a potentially disastrous five percent cut.

And, like each year since 2002, Congress is likely to come through at the last minute with cash to bail out Medicare.

But the dance is not cheap. By best estimates, keeping the program afloat over a ten-year period costs $218 billion. On the other hand, if the formula is allowed to function without interference, doctor payments are projected to decrease by more than 37 percent over the same period.

No one wants to continue dancing, but a solution to the dilemma of simultaneously ensuring access to quality care for seniors and keeping Medicare affordable is not readily apparent.

We need to get out of the vicious circle of rapid growth in utilization and spending, and falling real payment rates, said Mark McClellan, administrator of the Centers for Medicare and Medicaid services, when he announced the mandatory cut earlier this week.

He went on to explain that the cuts are required to bring the program’s spending in line with the target growth rate for Medicare spending which is defined, simply speaking, in terms of the growth rate of the overall economy.

When growth in Medicare expenditures is too high, it must be made up for the next year by cutting payment rates to doctors.

But this creates an incentive for doctors to increase services with high reimbursement rates – which leads to above-target growth, beginning the cycle all over again.

In Congressional testimony last week, McClellan outlined a proposed solution to the problem: pay-for-performance. Medicare has already taken steps in this direction by launching pilot projects where providers are required to track quality data which could, in the future, be used to redesign payments systems to encourage more efficient care.

And this might not be a bad idea, said Stuart Guterman, senior program director of the Program on Medicare’s Future at the Commonwealth Fund, because it would do something the current spending system does not — actually pay for outcomes, not volume of services.

You can’t control volume by rigging the price, he told United Press International. In the end, it doesn’t give you control over price, which is what you really need to control spending.

Because of that lack of control, and the fact that deficits can roll over into the next year indefinitely each year you can get deeper into the hole, he said.

Requiring physicians to report data on quality, on the other hand, would create valuable data, and allow for the alignment of payments with services that actually produce better outcomes for patients, Guterman said. If you open that box and get information about how doctors practice, you can give them incentives to operate more efficiently.

It would also be possible to create incentives for better coordinated care, he added. As the system stands, high-cost patients have on average five or more conditions and 14 doctors and there’s nothing in the payment system to encourage (the doctors) to talk to each other.

In that way, quality data could both improve the level of care Medicare provides and its cost, he said.

Medicare “is not just about money. It’s not just a line in the budget. It provides access to essential care to people who need it.

No other country spends as much, and we don’t get better results than other countries.

In considering the dilemma, however, Congress should also take into account the fact that care is constantly getting better – and that better care is worth paying for, Cecil Wilson, board chair of the American Medical Association, told UPI.

We believe the important thing is that Medicare-age citizens have been promised medical care by the government, he said. We believe it should be the best, highest-quality care and there’s a cost associated with that.

To contribute to improving care, the doctors’ association is working with Medicare to devise meaningful quality measures and find ways to increase the coordination of care, he said.

If, on the other hand, Congress decides not to find funds for Medicare providers, it could have dire consequences, Wilson said. Doctors, unable to afford to take on patients for payments that do not cover costs, will be forced to turn Medicare beneficiaries away, and all doctors will have difficulty making long-term investments in health information technology and other kinds of innovations.

It’s a disaster in the making, he said.

To ensure that doctors are able to cover costs with what Medicare pays them, the association has proposed an alternative: tying reimbursement adjustments to the Medicare Economic Index, which is an estimate of the increase in the cost of practicing medicine.

What we’re asking for is a solution, Wilson said.

While pay-for-performance may be a good idea generally, it will probably not be enough to head off a future Medicare budget crisis, Joseph Antos, a healthcare and retirement policy scholar at the American Enterprise Institute, told UPI.

Instead, what is needed is an abandonment of the same-size-fits-all approach of traditional Medicare. It is a process which has in fact already begun in the form of premiums that are being introduced in Part B next year for outpatient services and private plans in the Part D prescription drug benefit.

Pay-for-performance doesn’t really solve the problem at all because the (cost target) formula is still there, he said. If we’re really going to really get at better incentives, we’re going to have to have the provider community and patients come to grips with the idea of saying no. These services are not free. These resources are not infinite.

If that does not happen, by 2015, aging Baby Boomers will have caused a genuine fiscal crisis and the financing simply won’t be there.

Simply asking wealthy people to pay more to subsidize the costs of the program will also not be enough because there simply are not enough rich people, Antos said.

A better approach would be to let people voluntarily pay more if they want better or more expensive services, he said. The question is, ‘Do we assign people to tiers, or let people decide how they want to spend their money?’

Whatever the solution chosen, in the next few months, Congress will have the option of putting providers under the knife, reaching into the nation’s pockets for a few more billion dollars, or creating a more forward-thinking system that will let the tired dancers take off their shoes and go home.