Medicare and Medicaid Reform: Murphy's Law

If you have been around the healthcare sector  or are “into public policy” (which is clearly less of an issue than being unusually fond of stuffed animals or something, but is still outside the norm), then you know that this is not the first time that Medicare has been in extremis.

Back in 1983, in another major downturn, where revenues from payroll taxes declined, the old Part A (Hospital Trust Fund) payment approach of paying hospitals’ Usual, Customary and Reasonable (“UCR”) rates (i.e., pay hospitals anything they wanted for whatever they did) was changed to a Diagnostic Related Groups (“DRGs”) model, a “case rate” for “bundled services.”  (Which is to say a global price for treating, for example, lung cancer, in a certain type of hospital, in a certain region of the country, no matter what the treatment actually cost.)

That shored up Part A . . . at least until 1994, when every cent of your salary was exposed to the Medicare Pay Roll Tax (unlike Social Security, which is capped at a certain [rising] amount).

This time around, however, those types of tweaks won’t work.

The recent annual Trustees’ Report indicates that the Part A Trust Fund will be insolvent by 2024, some FIVE YEARS sooner than last year’s projection  (https://www.cms.gov/ReportsTrustFunds/downloads/tr2011.pdf).  Given experience with large government organizations over the years, my assumption is that this is likely an extremely optimistic projection.

So, what can be done?

Well, you can always raise the payroll tax, but that seems likely to offend almost all of the population, that payroll tax not being capped.  You can, as has already been proposed for the Patient Protection and Affordable Care Act (“PPACA,” more familiarly “Obamacare”), have a payroll tax on investment income, which in a time of less available capital and global competition for that capital, seems like an adverse policy for growth (or even avoiding a recession).  We currently finance Part D (prescription drugs) and Part B (physician services) out of general fund revenues, so we could use general fund revenues (i.e., Federal taxes), but there seems to be neither political will nor popular support for Federal tax increases.

If we don’t increase taxes, we cut benefits.  As to Part A, hospitals (especially teaching hospitals like  Albany Medical Center) are Medicare-dependent.

As to doctors, under Part B, well, docs used to participate (the buzz word is “par”) with Medicare, even though its payment rates were lower than private, third party payors because it paid with in 45 days on a clean claim without office staff having to do the “Prompt Payment Law Dance” with the Center for medicare and Medicaid Services (“CMS” (or, in the old days, HCFA) as you had to with many private third part payors.

A lot of this has changed  (http://www.recordonline.com/apps/pbcs.dll/article?AID=/20100805/BIZ/8050333/-1/rss06).  Back in the late 1990s, part of the budget fix was to create a “sustainable growth rate” for Medicare, which in English means that docs’ reimbursement for procedures and office visits under the Medicare Fee Schedule would drop . . . a lot.  Since the early part of this century (about 8 years ago), Congress passes a bill each year that circumvents this reduction, called the “doc fix.”

The “doc fix” process makes payment slower, and Medicare a less desirable payor.  However, if the “doc fix” is not done, Medicare reimbursement for procedures and office visits drops like a stone, making Medicare a very undesirable payor.

In the late 1990s, HCFA (now CMS) let docs opt out of Medicare.  Because Medicare was cash flow, that was rare.  Now, because of the slowing payment, uncertainty and the potential to be a major money pit (less money for your most expensive-to-treat patients), more docs either close their practices to new Medicare patients or don’t par at all.

Clearly, something has to be done.  Way out in the wild west of New York 26, “Mediscare” was a big factor (along with a faux Tea Party Candidate and a Republican Party candidate who was more Junior  League / Country Club than Rust Belt, at least in affect, in a formerly industrial district that elected a former Bills QB  to Congress and actually does love pork rinds) in a Democrat taking a traditionally Republican seat.

However, if you think that means something, do the names “Harris Wofford” and “Scott Murphy” strike a familiar note?   (As they used to say on Laugh In.)  People love big social programs . . . until they know how much they cost. (See, e.g., http://content.healthaffairs.o… http://www.nytimes.com/1989/10…

If you don’t like Paul Ryan’s plan for Medicare and Medicaid reform, what are yours?  As John Lennon said:

You say you got a real solution
Well you know
We’d all love to see the plan

So far, the Democrats have not offered “a real solution” (or even a “plan”).

Now, when you get old, you start to get suspicious of anyone who talks about “a real solution,” as opposed to “some real solutions.”  Medicare is a real hard nut of a problem because it really is harder to insure people with experience-rated insurance after a certain point, which is why the program exists in the first place.

However, big, centralized, “Second Wave” (hat tip to the Tofflers) “one-size-fits-all” programs” are failing every where.  (And not just in the public sector.  As Bard College Professor Walter Russell Meade points out in his blog, IBM and Ford were as much Second Wave or, in his words. “Blue Model” artifacts as Medicare http://blogs.the-american-inte…

Given all of this, here are some thoughts.  None are brilliant or original.  None solves the problem in itself.  However, they give some things that people can talk about, rather than demagogue:

1)  You clearly need to make people more price-conscious and see themselves, as I think Rosabeth Moss Kantor of the Harvard Business School said, as consumers rather than patients.  (See, e.g., https://pnd.hseland.ie/downloa… http://www.theatlantic.com/mag…

2)  However, even in a Web-MD world, I don’t see people effectively comparison shopping for cardiac cath.

3) Still, most medical treatment is a routine, “why does this cold linger,” kind of thing.  People could shop around for that and things like Health Savings Accounts (“HSAs”) facilitate that, something that Rep. Ryan’s plan expands.

4)  You could further reduce these costs with some intelligent de-regulation.

Walk-in clinics, staffed by advanced practice nurses using treatment protocols, have out-comes data at least as good (and possibly better) than the traditional primary care practice.  Put those in a Wal-Mart or a Target and you have less expensive provider and lower overhead with at least as good quality.

This happens in many parts of the country.  It does not happen everywhere because of corporate practice and fee splitting laws, such as those we have in New York.  Loosen these restrictions, as we have recently loosened the Nursing Practice Act in the NY Education Law to give advanced practice nurses somewhat more autonomy, and you can get the lee way to find better and cheaper models of health care delivery, the kinds of things that  helped deliver cel-phones to the market that were not the size of a brick and didn’t cost several thousand dollars.  We don’t use mobile phones like Richard Diamond did anymore.  Why is primary  care still largely delivered like it was by Marcus Welby, M.D.?

5)  Another area that could stand extensive de-regulation is tele-medicine.

If we do these types of things, we may reduce the general rate of Medical inflation which is much higher than CPI inflation.  This would make Rep. Ryan’s idea of holding the rate of growth of premium support in his plan to CPI (rather than medical inflation) growth less of a potential hardship on beneficiaries.

6)  Part C (Medicare Advantage/Medicare managed care plans) and the fact that private third party payors cover Medicare-eligible workers who are still in the work force at competitive rates is a sign that many (most?) people are not commercially uninsurable at 65, as in 1965.  (If there is “cherry-picking,” this implies there are cherries to pick.)   The age of eligibility for traditional Medicare could be pushed back to when age-based uninsurability  happens for most people, at perhaps 80.  High risk pools could be used on a case by case basis for covering people with pre-existing conditions and severe illness.

7)  Given that Part C Plans can cover hospitals, physician services and prescription drug benefits, should these service lines be separated generally under Medicare into Part A, B and D?

8)  Medicare, as a very centralized program whose fee schedules and rules become a de facto “gold standard” in healthcare (most private third party payors’ fee schedules are stated as multiples of the Medicare Fee  Schedule), may be limiting the development of better local solutions.

Large, multi-specialty group practices proliferate, when they may not be the best model, in part because of compliance rules under the Federal Stark Amendment and the Anti-kickback Statute (which outlaw certain self-interested transactions under Federal health care programs like Medicare).  Reducing Medicare might cause better local solutions to emerge.  (See, e.g., http://www.newyorker.com/repor…

9)  PPACA is predicated financially on ending the “doc fix.”  There is no way a Democrat Congress can do that politically, so you will have: 1)  PPACA; 2) the “docfix; and 3) a lot of red ink.

In contrast, there is no way a Republican Congress can avoid repealing PPACA, which means there is money to do the “doc fix,” especially where we are moving under the Ryan Plan to a more sustainable system for the crest of the Baby Boom waive (Year Group 1957 being the crest).

Given this, if the Democrats push “Mediscare,” they probably lose the Senate and  lose many more House seats.

10)  Ryan’s Medicaid proposal will probably be more contentious.

Medicaid is already a State-Federal program.  Since  Medicaid pays for both: 1) routine and acute care for the poor; and 2) last resort long term (i.e., nursing home) care for both the poor and the Middle Class, I would expect more equal protection challenges to this than you saw with Welfare reform in the 1990s.

Rep. Ryan’s alternative to PPACA contained a concept called “association healthcare plans,” where small businesses could band together under the rubric of a not-for-profit entity (like the Chamber of Commerce) to buy insurance.

Possibly, this system could be used to reform Medicaid and State Child Health Plus.  If it worked there, it might prove to be a better mechanism for reform than the Exchanges proposed under Ryan’s Medicare reform plan (or under PPACA).

The old liberal nostrums have failed.  (See, e.g., http://blogs.the-american-inte… http://www.freerepublic.com/fo… http://pajamasmedia.com/instap… Big centralized programs like Medicare and Social Security represent the past.  However, financial security in old age or universal healthcare coverage are not evils.  Paul Ryan, and the Republican Party generally,  are at least thinking about how to do these things in a sustainable and, yes, more legitimate way.  If  Democrats don’t, if they rely on “Mediscare,” they risk irrelevance in 2012 and political extinction by 2016.

Call it “Murphy’s Law.”