As I read the report that the Peterson-Pew Commission on Budget Reform released yesterday, two recommendations caught my attention:
“A permanent freeze on payments to [all] Medicare physicians
“Increase Medicare retirement age to 67”
The first proposal offers a crude solution to a problem that the Affordable Care Act addresses in a far more intelligent way, giving the Secretary of Health and Human Services the discretion to raise payments for “undervalued services” and lower payments for “overvalued services.” The truth is that Medicare underpays many doctors, particularly primary care physicians, geriatricians, palliative care specialists and general surgeons. This is one reason why we have a serious shortage in these areas. At the same time, the Medicare Payment Advisory Commission has pointed out that we over-pay for certain services, and because they are so lucrative, they tend to be done too often. Past experience shows that when fees were trimmed for certain imaging services, volume leveled off.
As for lifting the Medicare retirement age to 67, does the Commission realize how many uninsured 62–year-olds are hanging on, counting the days and months until they turn 65? Gathering the votes to pass the second proposal would mean going up against every lobby that protects older Americans.
The Draft of the Co-Chair’s Proposal
Late yesterday afternoon, I saw a much more detailed document–the “Draft Co-chair’s Proposal” for addressing the deficit. The authors begin by touting the Commission’s report as a “sensible, real plan” that “requires shared sacrifice.” But as I began reading the section on healthcare, it didn’t take too long to figure out who would be making the sacrifices: sick seniors and doctors are expected to offer themselves up. The health care corporations that feed at the trough of an extravagant health care system are barely asked to contribute. Indeed, the Peterson-Pew report calls for slashing taxes for corporations from 36 percent to 25 percent.
Let me just say this upfront: one doesn’t have to be a political savant to know that the Peterson-Pew report is not going to fly. I don’t care if a committee from The New York Times editorial board calls it an “important document.” As Bloomberg News put it today “This will never happen.”
This report is, I’m afraid, another one of those grand symbolic gestures that conservatives use to stir unfounded fears, while confusing the issues. Nowhere does the report acknowledge that the Affordable Care Act already has addressed runaway Medicare spending.
No doubt you have heard or read that there are no cost savings in the reform legislation. This is simply untrue. Here are the facts: The ACA reins in Medicare by a) reducing overpayments to Medicare Advantage insurers; b) trimming subsidies for hospitals that treat a large number of uninsured patients (because there will be so many fewer uninsured, they won’t need as much help); and c) slicing annual increases in payments to hospitals, nursing homes and home health agencies by 1% with an eye to spurring greater efficiency. (The Medicare Payment Advisory Commission offers persuasive evidence that when hospitals are under financial pressure they can and do cut waste.) Those three items alone save $354 billion, without cutting benefits or reducing payments to doctors. These are not “hoped-for” savings. These are firm figures. All told, the Congressional Budget Office has estimated that after adjusting for inflation , “Medicare spending per beneficiary would increase at an average annual rate of less than 2 percent during the next two decades— about half of the roughly 4 percent annual growth rate of the past two decades.” And that estimate doesn’t include the dollars that Medicare reformers expect to save as they move away from fee-for-service, changing how we pay for care, and how it is delivered.
Looking only at the cuts that we can count on, Medicare’s Trustees have said that the reform legislation puts Medicare on the road to financial solvency –while limiting co-pays and beefing up benefits.
Presumably reform’s opponents hope that the public–and even some physicians–will confuse the Peterson-Pew Commission’s recommendations with the Affordable Care Act (ACA) and assume that the ACA calls for the same Draconian measures. But the Commission’s document, “Getting Back Into the Black” has nothing to do with health reform legislation. In fact, it largely ignores the ACA, pretending that it never happened.
Under the Peterson/Pew Agenda, Who Would Pay?
Begin by considering the changes the Commission’s Co-Chairs call for over the “medium term”:
- Pay doctors and other providers less, improve efficiency, and reward quality by speeding up payment reforms.
- Increase drug rebates. (The proposal would require rebates for brand-name drugs as a condition for participating in Part D, Medicare’s prescription drug program).
- Pay lawyers less and reduce the cost of defensive medicine by adopting comprehensive tort reform
- Expand cost-sharing in Medicare to promote informed consumer health choices and spending
- Expand successful cost containment demonstrations
- Strengthen IPAB (the Independent Payment Advisory Board)
At first glance, recommendations to negotiate with drug-makers for rebates, and reward quality and efficiency sound promising And, as a matter of general principle, many people would like to see lawyers paid less. Moreover, as regular readers know, I like the Independent Payment Advisory Board. (IPAB is charged with recommending ways to make Medicare more efficient, without cutting benefits or lifting co-pays for seniors. These savings also are not included in the CBO’s calculations. )
But flip to the chart on page 33 of the Draft to see how much will be saved in each category, and your enthusiasm may wane. The co-chairs predict that by expanding cost-sharing for Medicare seniors, capping reimbursements for catastrophic care and eliminating first dollar coverage under Medigap, the country could reap $23 billion over the next 10 years, and an eye-popping $135 billion over the decade that follows. By insisting that Medigap charge co-pays for certain essential services, the Commission hopes to reduce the number of seniors who seek those services. And on this point, the Commission is right. Research shows that higher co-pays and deductibles mean that patients defer care–including much-needed preventive services.
By contrast, rebates from drug companies are expected to save just $11 billion between now and 2020, $59 billion over the next 10 years–well less than half of what Co-Chairs expect to squeeze from Medicare beneficiaries. I guess they don’t expect the government to bargain too hard with Pharma.
Meanwhile, the Commission’s staff estimates that comprehensive tort reform will bring in only about $10 billion in the first 10 years, and $64 billion in the next decade, again less than half of what seniors will kick in by paying more out of pocket– and accepting the fact that, if catastrophe strikes, there will be a limit on how much help they can expect. (Here, it’s worth noting that median income for the average senior is just $20,000. That includes Social Security, pensions, investment income, and wages. Half earn less than that.
And when it comes to tort reform, what the report doesn’t mention is that the bulk of the saving $64 billion will come, not from malpractice lawyers, but from the victims of malpractice who will receive smaller awards. Again patients pay. The Commission recommends capping payments for non-economic damages –i.e. the anguish a patient experienced when a surgeon removed the wrong breast–which meant that she then had to go back for a second surgery to remove the other breast. The Commission also would put a lid on “punitive damages” meant to punish recklessly irresponsible physicians.
In addition, the Co-Chairs Draft would save $55 billion over 20 years by increasing cost-sharing for Military retirees under Tri-Care; while reaping $89 billion by capping federal payments for long-term care for Medicaid patients. It is not clear how the latter proposal would work. In order to qualify for Medicaid, a senior must first spend most of his savings. If we put a limit on how much Medicaid will spend on an his long-term care, what do we do when an 85-year-old suffering from Alzheimer’s maxes out? Tell him he has lived too long? Tell his wife that she must take him home and figure out how to care for him herself? His wife is dead, you say, and most of his friends have passed away? He should have made more friends. It’s a matter of individual responsibility.
As for the “sacrifice” expected from physicians, the Draft calls for freezing Medicare payments to physicians next year, and then reducing them “modestly” every year from now through 2015. After that, “the way we pay doctors would change.” Anticipated savings: $44 billion over the next ten years, $276 billion over the following ten years. In other words, physicians are expected contribute four times more than drug-makers.
Finally, nowhere does the Commission’s report discuss improving the quality of care while reducing the cost.
This may be because billionaire Pete Peterson is much more interested in slashing “entitlements” such as Social Security and Medicare than he is in getting better value for our healthcare dollars. Reducing the deficit may be only an excuse for what I can only describe as a mean-spirited goal.
I have been watching Pete Peterson for more than twenty years. The man has never seen a grandstand he doesn’t want to climb, and for decades he has been using that stage to preach about the selfishness of greedy geezers. Back in 1988, when he wrote On Borrowed Time, he made it clear that he considered entitlement programs to help older Americans “immoral.” Distorting the words of medical ethicists such as Daniel Callahan, Peterson suggested that “ 'the elderly, after all, have already accomplished and enjoyed most, if not all, of what they can reasonably expect in life.” In fact, Callahan does not suggest that we should skimp on Medicare and Social Security payments, raise Medicare payments or “cap” long-term care for the elderly. Callahan is concerned about pouring health care dollars into futile end-of-life care that “provides neither comfort nor cure.” The fact that Peterson himself is an octogenarian doesn’t seem to faze him. After all, he can pay his own way. This means that unlike middle-class 80-somethings, he is “entitled” to live as long as he likes.
Peterson also likes to set the generations against each other, arguing that the American concept of ''entitlement'' is “inherently prejudicial against the young.” What about the idea that American children are entitled to a free public education, K-12? I can remember a time when older Americans complained bitterly about the billions that this nation was lavishing on the young. Building schools for boomers cost a bundle. Generous government loans and scholarships to help college students, medical students and grad students seemed, to some, an unfair use of “their” tax dollars. Why, some asked, should childless adults have to pay property taxes that helped fund local schools? Because we are all part of one community, and it “takes a village” to care for children– or for the elderly.
Back in 2000, the U.S reported a surplus rather than a deficit–an estimated $230 billion that year alone, plus roughly 4.5 trillion worth of surpluses that the CBO projected over the next decade. Nevertheless, Peterson was still railing on about how much Social Security and Medicare would cost our children. At the time, he wanted to apply the entire surplus to the national debt. (Other wanted to use some of the money for social programs or tax cuts. Al Gore suggested reserving one-third of the surplus for a “rainy day” fund.–so that we could continue to meet our obligations in the hard times that were, in fact, right around the corner.)
That Peterson was ranting about the cost of Medicare and Social Security even when he didn’t have a deficit to gnaw on is telling. As James Ridgeway writes on The Unsilent Generation, “The granny bashers’ real agenda, of course, is to cut the social safety net programs that they have long abhorred–but they have gained far more ground with their intergenerational inequity claims than they ever would with a straight-out attack on Social Security and Medicare.”
Let me suggest that at a time when liberals and conservatives are engaged in hand-to-hand combat, stoking the fires of intergenerational conflict is a truly terrible idea. A society can withstand only so much pressure before it cracks
Won’t those corporations who get a tax rate rollback lower their room charges, professional fees, insurance markups, drug prices and device costs and thereby make healthcare less expensive?
lolololololol, sure they will ;). Absolutely none of the windfall profit will go to executive bonus and perks for doing such a good job at raising profitability! Certainly none will be spent on lobbying to get a better deal or lawyers to protect them.
I’m so done with trickle on me economics.
Thank you Maggie, for calling out the Peterson Geezer Bashers. They/Washington/Republicans/Wall Street are feeding the war machine and Halliburton crooks while they bash seniors and penalize docs. You have no idea how accurate you are when you say a society can only take so much. The backlash that is coming is likely to be very volatile and maybe ugly, but long overdue.
Maggie,
You, Paul Krugman, Kevin Drum and many others have zeroed in on the fundamental flaws of the very basics of the proposal by the cochairmen of the deficit commission. Their mission seems to be to shrink government regardless of the cost, whereas they should have been seeking stabilization though maximizing value of our taxpayer investment. Reducing government budgets by shifting more risks onto the backs of individuals is not sound policy.
What I really don’t understand is the position of the New York Times. In an editorial they stated, “… the principles behind it (the report of the cochairmen) are exactly what the president should embrace and make his own.”
How could the editors believe that all we need to do is tweak this framework when what we really need is a different framework such as you and others have implied?
The size of the federal budget is not nearly as important as the fact that it is stabilized and provides us with value.
Bravo! Everything was rigth until you blame conservatives. Who propose abolishing the antitrust exception for Healthcare insurers that are for profit and allowing competition accross state lines. By the way a doctor I know is closing the practice and going to work for a corporation.
Teobaldo:
Whether or not private insurers should have an anti trust exemption is a discussion for another time.
But it is useless to allow insurance to be sold across state lines. Even if it were permitted, policies would still have to comply to state laws that vary widely. This would make administering policies very complicated.
Also, most plans these days are PPOs. If you buy a plan in Florida, and live in North Carolina, you will find it very hard to find a provider in network.
That’s what the insurance exchanges will help to fix.
Doctors are flocking to group practices and being bought out by corporations in droves. The traditional private practice fee for service model is going away regardless of what happens with the ACA because of this. Doctors have to be in groups or work for corporations (even though they almost universally hate it) because malpractice insurance is so expensive, and because of the overhead costs for billing the jigsaw puzzles of insurance plans who do everything they can not to pay out.
The issue you cite is not a conservative vs liberal issue. It is simply the way medicine works in the current free market system.
Don, A Greezer, Teobaldo & Panacea
Don–
Thank you. And yes,what is important is that we get true value for our tax dollars.
The deficit is a serious issue, but as you say we should not try to reduce the deficit by shifting costs to the middle-class.
Bush’s tax cuts to the wealthy helped create the deficit. By terminating those cuts, we can relieve some of that financial pressure
Granted, rising Medicare costs are driving the deficit ever higher. But the way to solve that problem is not by hiking co-pays and retirement arges. There is so much waste within the system in the form of unncessary tests and treatments, preventable hospital errors, uncoordinated care, and over-priced drugs and devices. . . We need to squeeze that waste out of the system, and the ACA sets out to do just that.
The commission’s solutions are crude and its prime goal is to shrink gov’t while providing tax cuts for coporationis and wealthy individuals. The deficit is an excuse.
As to the NYT position, often the NYT looks at the world through the eyes of a wealthy tax-payer. His first concern is to preserve his wealth. Social safety nets make claims on that wealth.
Wealthy Americans live 8 years long than poor Americans–to them, raising the retirment age makes sense. Social security payments make up a small share of the theeir income when they are 66–most of their income comes from investments and/or very lucrative employement. When they’r 66 most have good health insurance.
Co-pays are not a problem. They can afford whatever supplemental insurance they might need to take care of life-time limits.
Krugman recognizes that by dividing a society–the rich vs. the middle-class,the middle-class vs.the poor, the young against the old, whites against blacks, Americans who were born here vs. immigrants– you undermine not only the society but the economy. Pushing too much wealth to the top destabilizes an economy.
A Geezer–
You are right. The wealthy and powerful have been pushing too far. The excessses of the 1990s were never corrected, the corruption never addressed.
This is why the eocnomy is mired in a recession/depressoin with real unemployment of about 17%. Corproations may be reporting climbing profits, but the nation as a whole is not beccoming wealthier.
Teobaldo & Panacea–
Because so many hospitals have consolidated they now have enormous clout in the market place and in many cases are over-charging insurers. Insurers then pass the costs on to us.
Fewer large insurers would have the power to push back and refuse to over-pay. This is why anti-trust exemptions make sense. (But, as Panacea points out, selling insurance across state lines does not make sense.)
Then, the whole system needs to be regulated–by the government.
This is what the ACA does–requiring insurers to justify any premium increases, and provide a comprehensive set of essential benefits to all cutomers–without annual or lifetime limits.
If insurers tell regulators that they must raise premiums because some hospitals are charging far more than other hospitals in the same are for the same services, states will begin pushing back.
The Maryland solution –where all hospitals are paid the same amount for the same services– (with extra paymetns for those who treat many uninsured and poor patients, as well as extra reimbursments for those that bear the cost of training med students and residents) — may well spread to other states.
Don:
If we want to maximize the value of our taxpayer investment, we need to stop the borrowing between the trust funds and the Treasury?
Are taxpayers benefits maximized when their Social Security benefits are paid out of current revenues and debt?
That’s the same way we pay for battleships. The only difference is that battleships need an appropriation, and the trust fund has an automatic draw on the Treasury, up to its balance.
If Social Security is supposed to be a self-sustaining program, with no general revenues, we’re not fulfilling that mission.
Don Levit
Give me a break. “As to the NYT position, often the NYT looks at the world through the eyes of a wealthy tax-payer.” The NYT times is so liberal. What is your problem?
Then– “His first concern is to preserve his wealth. Social safety nets make claims on that wealth.” At what is wrong with this? Answer–Nothing.
Maggie,
If the conservatives garner enough power over the next few years, I believe they will push for more pseudo market solutions such as more high ded HSAs, and maybe limited lifetime vouchers provided to all at birth. It is not what I am advocating, but it is what I believe they will propose!
NG, Peter
NG– You are right, this is what ultra-right conservatives would propose.
But everything turns on “IF they garner enough power over the next few years.”
The base of power in this country is shifting.
Women are in positions of power: Hillary Clinton, Elizabeth Warren, Kathleen Sebelius (Sec of HHS), Nancy Pelosi.
I have a hard time thinking of one truly powerful ultra-conservative woman (unless you take Sarah Palin seriously. Ultimately, I think she hurt McCain)
When I was 35 there were no women in comparable positions of power in the administration.
And behind Warren, et. al, are tens of thousands of 20-something, 30-something 40-something women and 50-something women–their daughters and grand-daughters. (The bulk of well-educated, emancipated boomer women are now 40-something and 50-something.)
In the near future there will be many, many more Elizabeth Warrens and Nancy Pelosis.
Latinos, African Americans, Asians and new (legal) immigrants also are growing in power–because they are voting.
Obama’s election signaled that their votes can matter. They pushed him over the top. If they hadn’t voted, John McCain would now be our president.
In the recent Congressional election, Latinos also “saved” liberal candidates in several Southwestern states. And they weren’t voting for other Latinos–they were voting for people like Harry Reid– politicians who they perceived as more likely to represent their needs and rights..
Finally, a fair number of 20-something and early 30-something voters who came of age (turned 18) sometime between the mid 1990s to the first decade of this century are significantly more liberal than the generations that came of age in the late 70s (the “Me Decade”) and the 80s (the “Greed Decade”).
These youngest voters also helped elect Obama.
Boomer women; African-Americans, Latinos, Asians New Immigrants, well-educated 20-somethings and 30-somethings of both sexes- this is a powerful coalition. It’s enough to turn a white-haired conservative’s hair a few shades whiter.
These demographic changes are baked into the cake. There is nothing that conservatives can do to stop them. (This is why the ultra-right is so angry and so very scared. They have seen this coming since the early 1990s. I saw this coming in the early 90s, and if I could, they certainly could.
At the time, a wealthy, older white male who I respected very much told me this about his cohort: “Watch–now they are going to get mean. They know they are going down, and can’t do anything about it.”)
In sum, this is why I very much doubt that ultra- conservatives will take over the country over the next 5 years.
But things are likely to get ugly (uglier).
Peter–
You write: “What’s so wrong with that?”
My answer: Insofar as the wealthy make preserving their wealth their top priority, without great concern for the rest of the population, they are setting themslves up to live in nation that we once would have called a “third world country”– where 10% of the nation prospers, 90% are “have-nots” and the country as a whole is extremely unstable, socially, politically and economically.
I realize that what I’m saying doesn’t make sense to you. We’ll have to agree to disagree.
That’s the same way we pay for battleships. The only difference is that battleships need an appropriation, and the trust fund has an automatic draw on the Treasury, up to its balance.
What I really don’t understand is the position of the New York Times.
Maggie – I don’t think it’s likely that a Maryland style all payer approach to hospital payments will spread to other states in the current fiscal environment. Medicare and, especially, Medicaid would have to agree to pay more so private insurers can pay less. If Medicaid pays hospitals, on average, 30% below their costs, it suggests that state reimbursement rates would have to increase by more than 40% to cover costs. Even if hospitals can lower their costs somewhat, the required payment increase would still be substantial. Good luck in getting such an approach through any state legislature anytime soon.
Instead, keep your eye on the emergence of what is called value based insurance design. This started with tiered drug formularies. Health reform pushed through zero co-pays for high value preventive services. The next step is to apply the concept to high value services including advanced imaging, cancer treatment, expensive surgeries and costly medical devices. Hospitals that charge more because of their market power but don’t offer superior quality would be in the non-preferred tier and patients would pay higher coinsurance if they insist on going to the high cost hospital. There is a good article by James Robinson in the most recent issue of Health Affairs on this topic.
Regarding the insurance anti-trust exemption, which has been in place since the mid-1940’s, I believe, the intention was to allow insurers to pool their claims data so the companies, especially the smaller competitors, could more accurately forecast their claims costs and price their insurance products appropriately to reflect those costs. Price collusion is not allowed and never has been.
Barry, Dental dam
Barry–
I think that a value-based insurance design (that you reocmmend) and the Maryland solution (which I like very much) could work together.
The Medicare Payment Advisory Commission (MedPac) offers very good evidence that most hospiitals turn a profit on almost all of their their Medicare patients most of the time. In other words, they don’t need to be “cost-shifting” and charging private insurers such high fees.
MedPac also has discovered that when hospitals are under some financial pressur most are able to turn a profit on virtually all of their Medicare patients–without diluting quality, just by improving systems, & efficiency . .
The reform legislaiton cuts annual Increases in payments to hospitals by 1% (the hospital’s reimbursemens will still be higher than they were a year earlier, but the inflaiton adjustment will be cut by 1%.) This provision is designed to put them under just enough financial pressure to spur hospital administration to pay more attention to reducing waste and preventable errors–all of which hurt patients.
Under the reform legislation, Medicaid will pay the same rates as Medicare for primary care.
Many reformers believe that, going foward, Medicaid should be paying Medicare rates for all services.
Under a Maryland solution, Medicare and Medicaid would not be paying the inflated fees that some insurers are paying to some hopsitals; all three would be paying something much closer to today’s Medicare fees–which, MedPac shows, allow hospitals to turn a profit.
The value-based insurance redesign that you speak of would help in this effort.
Dental Dam —
On the the NYT’s position, let me repeat (with some editing) what I said to someone else on this thread.
Often the NYT looks at the world through the eyes of a wealthy tax-payer. (The majority of NYT readers and editors earn wekk above median (i.e. middle-class) income which is roughly $58,000 for a household, joint income, before taxes.)
So many/some NyT editors tend to agree that an upper-income tax-payer’s first concern is to preserve his wealth–and that this makes sense.
After all,social safety nets make claims on that individual’s wealth.(taxes.)
They fail to recognize how that emphasis on “me and my family” threatens our society -and economy.
Barry–
You seem to have forgotten a key point about the Maryland solution: “Medicare and Medicaid have agreed to accept the prices that the Commission sets—As Long As Maryland’s Hospital Costs Grow Slower than Medicare Payments Nationwide.”
And they have–despite the fact that in Maryland, as in most of the Northeast, health care is more expensive than in many places (more highly-paid specialists and academic teaching centers.)
Most importantly,
deal makes sense for the government because for Medicare, the elephant in the middle of the room is health care Inflatoin.
It’s the year after year Growth in Medicare costs that has been pushing the program toward bankruptcy.
The Maryland program has put a lid on inflation. As I wrote in the post:
“What is most remarkable is how state regulation of prices has contained costs. When the program began in 1977, the state’s hospital costs were 25% higher than the national average. Today, Maryland’s hospital costs are 2% lower than the national average. Meanwhile, over the same span, Maryland boasts the nation’s second-slowest increase in hospital costs.”
See entire post here: https://healthbeatblog.com/2010/02/massachusetts-problem-and-marylands-solution-we-dont-have-to-wait-for-washington-part-2-.html
Maggie – As you say, Maryland’s all payer system began in 1977. For any other state to try to duplicate MD’s program, the key issue would be how much more would the Medicare and, especially, the Medicaid programs have to pay than they do now in order to level out payments between public and private payers. Medicaid is the much more problematic issue because all the data I keep reading suggests that hospitals are paid, on average, 30% below costs by that program. Medicare and Medicaid were only 12 year old programs in 1977 and were not nearly as costly relative to the size of federal and state budgets as they are now.
Regarding Medicare specifically, I remember Paul Levy of BIDMC in Boston posting some information from his finance people that suggested that Medicare payments are actually OK for inpatient services but woefully inadequate for outpatient care, and outpatient services are a steadily increasing share of total revenue for most hospitals. I’m going to be at a meeting with a teaching hospital CEO in another week, and I’ll try to get his take on this issue.
Barry–
First “Regulators in Massachusetts are also eying [Maryland’s] all-payer rate setting as a way to control health costs. A recent RAND study of 12 options for reducing health care spending in the state ranked traditional hospital all-payer rate setting as the second most likely tool for changing the trajectory of health care growth.” This is from Oct. 25, 2010, here.http://wonkroom.thinkprogress.org/2010/10/26/rate-setting-experts/
The Maryland idea is gaining traction.
The “data” about Medicare that you are reading probably comes from Cato, another conservative think tank, or a biased source (a for-profit hosptial corporation?)
Try reading the reports by the Medicare Payment Advisory Commission. It is non-partisan and its in-depth research is illuminating. Both Republicans and Democrats respect MedPAC.
According to MedPac , most hospitals turn a profit on most of their Medicare patients.
If hospitals are under some financial pressure (because they cannot command high payments from private insurers), reserach shows that they manage to become more efficient and make a larger profit on their Medicare patients–without hurting the quality of care.
Medicare is not, by and large, underpaying hospitals. Insures are being forced to over-pay–especially in areas where hospitals have consolidated, have marquee names, and market clout.
Finally, the IHI has demonsrated, time and time again, just how much hospitals can reduce the cost of operations–while improving quality–by redesigning processes in very basic, common-sense ways, and by focusing on patient safety (rather than construction.)
IHI has helped hospitals do just that.
Unlike other insitutions or corporations, historically hosptials have not focused on reducing their cost of operations because treaditonally, they were paid based on how much they reported that it cost them to provide the service.
Thus, inefficient hospitals with a high cost of operation (and often many preventable errors that lenghtened patient stays) were paid more.
There was no incentive to reduce cost of operation.
Paying hospitals in this way was started by Blue Cross/Blue Shield–not the government.
When the Medicare bill was poassed, hospitals demanded that they continue to be paid based on what it cost them to operate. Relucantly, Johnson agreed–he had no choice.
At the time, Johnson also knew that more and more hospitals were opening, and he believed that market competition would force hospitals to become more efficient and lower prices.
He also thought that as the number of specialtists grew, their fees would come down. Wrong again.
What Johnson didn’t realize–is that when it comes to health care, market competition doesn’t work in lower prices. In fact, we now know that in cities where there are more hospitals, hospital prices are higher. (They spend more on over-priced cutted edge equipment, and hotel-like amentiites as they compete with each other.)
P.S. In a post that her wrote for HealthBeat a couple of years ago, Pat S. quoted the American Hospital Assocation acknowledging that most hosptials make a profit on most Medicare patients.
I’ll be writing about this again in part 2 of “How the ACA Pays For Itself . .etc.”
Maggie – Even if I accepted everything you say about whether or not most hospitals make money on most Medicare payments, we still have the issue of Medicaid payments which everyone seems to agree are well below costs. States can’t afford to increase those materially, at least not right now.
Second, if you talk to hospital finance people about quantifying their costs, they will tell you two important things. First, hospitals are extremely capital intensive operations with very high fixed costs similar to hotels, cruise ships and airlines. Therefore, one of the most important factors driving whether their costs are high or low is how far they are from an efficient occupancy rate. Second, there are a lot of indirect costs that need to be allocated out to the various clinical departments. The rub for hospitals is that they all approach this issue somewhat differently which makes apples-to-apples cost comparisons difficult. In the utility industry, regulators within a state generally require all the utilities to handle this issue in the same way. There is no reason why regulators couldn’t require hospitals to do cost allocation consistently from one to another as well.
From what I hear, opposition to an all payer system would be most vocal from the teaching hospitals even though they would be paid more than community hospitals.
Finally, I remember last year when Paul Levy’s BIDMC’s revenue and operating income were running below budget, the organization went to incredible lengths to solicit cost cutting ideas from the staff in order to save $20 million out of a revenue base of $1.4 billion. Reducing preventable harm is a laudable goal but more often than not, it actually results in less revenue for the hospital. The only way I can think of to take a big chunk out of costs is to close beds and even entire wings. Of course, for hospitals, especially in places like NYC that have a lot of debt on their books, this would likely make their finances even more precarious. St. Vincent’s was able to cut a lot of costs by closing altogether! Downsizing the inpatient hospital sector is probably what it will take to lower system costs and improve efficiency by boosting the occupancy rate of the hospitals that remain.
Maggie Write: “After all,social safety nets make claims on that individual’s wealth.(taxes.) They fail to recognize how that emphasis on “me and my family” threatens our society -and economy.”
Many of these folks believe that the safety net has become a gravy train. They point to the results of decades of non-results of ever increasing growth of the entitlements without affecting basic poverty rates etc.
Can you tell me why this line of thinking is wrong? Help me to try to better answer these folks.
Joe-
The two large entitlement programs focus on seniors–Medicare and Social Security.
Poverty among seniors has dropped significantly over the past 30 years.
Programs for children and low-income workers, by contrast, have been cut. (Here I’m thinking of Aid to Dependent Children, etc.) Medicaid has been cut in many states.
Poverty among children, especially, has grown as a result. Children are now the poorest group in American. (In a country with so much wealth at the top, this is shameful.)
We need better, more generous social safety nets for children and for the working poor.
The progress that seniors have made show that “entitlement programs”
work.
Barry–
First, you are right that Medicaid underpays. But private insurers over pay by so much, that this more than balances underpayments by Medicaid.
Secondly, note that the federal government is picking up nearly all of the costs as Medicaid expands under the ACA.
We’re moving in the direction of turning Medicaid into a federal program, with Washington picking up most of the cost.
This would be fairer–poor people across the nation should get the same benefits. And many poorer states really cannot afford Medicaid. Finally, administrative costs would be much lower if Medicare and Medicaid became one program.
In terms of the fixed costs that hospitals have, and why they are not able to tighten their belts. . .
If you want honest answers to that one, don’t talk to hospitals.
Talk to the Medicare Payment Advisory Commission (read its reports.)
Yes, hospitals have debt.
Many also have huge endowments (see NYC hospitals) Most have huge debt because they have engaged in enormous,unnecessary construction projects and upgrading of amenities.
These projects are, to a fair degree “vanity projects” for the CEO and the board designed to attract well-heeled doctors with wealthy patients. They have little to do with improving hospital safety or patient outcomes.
Take a look at infection rates at some of these hospitals . .
Finally, yes, as Don Berwick points out, our hospital sector is overbuilt.
And as he puts it–“now that we’ve overbuilt it, we overuse it.”
Too many unnecessary hospitalizations.
We will need to close more hospitals and convert others to community clinics, etc.
Too many small hospitals in wealthy suburbs doing surgeries that they really shouldn’t be doing becuae they don’t do enough of them. People like to be in a hospital close to home.
But going foward, we’re going to have to educate patients on the importance of heing at a “center of excellence” where outcomes are better.
The suburban hospital may be prettier, but that’s not what counts.
(That said, some suburban hospitals are fine, but some overreach as they try to get the most lucrative business.)
Shutting down hospitals is always hard because of local politics and loss of jobs.
But the purpose of healthcare is not to create jobs.
And too many of our hospitals are too dangerous– high error rates, too many residents working without adequate supervision, not enough nurses, the infections, etc.
Finally, according to Berwick and others, the big problem in our hospitals that makes them so wasteful is poor system design.
Many dctors don’t like to take orders. They don’t like to be told that they have to collaborate with nurses. They don’t like being told that they can’t all operate in the morning. (So the hospital has 4 ORs–all busy in the morning, all empty in the afternoon.) They don’t like being told that the way they do many things is simply inefficient.
In many cases, hospital administration is more concerned with keeping “rainmakers” happpy than it is with patient outcomes and cost of operation.
As Berwick points out, hospital CEOs need to learn that their job is not to raise revenues, but to keep the cost of operations down.
Maggie wrote: “The progress that seniors make show that entitlement programs work.”
Just looking at the numbers you are correct that poverty among seniors has decreased dramatically since Social Security was formed.
Unfortunately, the original design of Roosevelt’s never materialized for Social Security. It was intended to be a self-sustaining program, with no use of general revenues.
It has become general revenue generating as the trust fund securities are redeemed.
Of course, the trust fund itself does not represent a store of wealth. Redeeminmg Treasuries is just like paying for battleships, although battleships need appropriations.
Social Security needs no annual appropriations as long as the trust fund “Balance with the Treasury” is positive.
The trust fund makes it no easier to pay benefits than if the trust fund didn’t exist.
I can provide excerpts and links from reputable governmental papers if anyone is interested.
If so, please cite the specific statement you would like me to “back up.”
Don Levit
Barry —
I am sure that you do not mean to question the facts that Maggie cites, but it bothers me when you say “even if I accepted everything you say about whether or not most hospitals make money on most Medicare payments.” The facts that Maggie cites are just that, well documented facts available from organizations that keep careful track of that data. Even the hospital organizations concede those facts. As the saying goes, “everyone is entitled to their own opinion, but not to their own facts.”
The majority of hospitals do make an overall profit on Medicare. Even in hospitals that do not make a profit overall, they do make a profit on the large majority of Medicare patients. The overwhelming majority of hospitals, faced with significant losses, are able to change their patterns of work to move back into the black. I have seen all of this first hand, as well as being aware of those facts from the sources Maggie cites.
St. Vincent’s in New York is not a good example of the toxicity of Medicare for hospitals. It is a good example of the failure of a hospital to compete with other better regarded hospitals nearby and to a significant overbuilding of hospital beds on Manhattan, at least south of 110th. St. Vincent’s died because of that failure to compete and its parent group’s unwillingness to continue to engage in a losing battle, not for any other reason. In fact, there may be more hospital failures on Manhattan in the future, as well as in other similar areas of the country, and health care will not suffer because of it. I can assure you that health care in downtown Manhatten is not on the rocks.
Your argument about Medicaid is dead right. Medicaid needs to be reformed to bring payments into line, not so much as to help hospitals and doctors but to help patients who now suffer from the unwillingness of hospitals and doctors to deal with Medicaid. Parity of payments with Medicare, at least after an effort to make Medicare’s payment patterns more rational, and federalization of Medicaid to end the unfairness of the sort that Maggie cites in her post about Texas and to bring the program under rational nationwide standards.
To All,
Yesterday my wife and I visited our urologist. He informed us as as of March of 2011 he will no longer take United who only pays in NJ 50% of Medicare rates and if the 23% cut in Medicare goes thru he will also drop Medicare. Needles to say We can’t keep our doctor. Is this the way of the future? An administrator is not going to cure you when you are sick not is it going to remove a cancerous tumor from your kidneys. All I see is the Health Insurance industry and the goverment destroying healthcare. Sorry I can be as optimistic as all of you.
Hi Maggie,
Excellent article, as usual. One exception, you write: “Back in 2000, the U.S reported a surplus rather than a deficit–an estimated $230 billion that year alone, plus roughly 4.5 trillion worth of surpluses that the CBO projected over the next decade. Nevertheless, Peterson was still railing on about how much Social Security and Medicare would cost our children….That Peterson was ranting about the cost of Medicare and Social Security even when he didn’t have a deficit to gnaw on is telling.” I admit that I was not following Pete Peterson’s career in 2000 and before, but as he pointed out in his 2004 Running on Empty, and as you know, I know, and President Obama knows, the yearly budget deficit/surplus leaves out the unfunded liabilities of SS and Medicare. So “railing” seems to me justifiable. Regarding the solution, I may well agree with you more than with Peterson, but the quote above implies that all this about budgets and unfunded liabilities is rubbish. To a pragmatist (who could also be described as a liberal, a conservative, a centrist, a moderate, and a progressive), this knock on your opposition sounds unfair and unworthy of your usual scholarship. I have probably made this comment before, and as I recall, you promised a future column with an explanation of why the unfunded liability concern was not valid. Perhaps I missed it.
I read the Bowles/Simpson proposal as soon as it came out, and based on your previous articles, it was apparent, as you point out, that they don’t have your understanding of the ACA. The main reason, I assume, is that you actually read it. I couldn’t force myself to wade through it page by page, and all the Senators and Congressmen who bemoaned the “2000+ pages” as a real argument against it (?!) didn’t either (and in fairness, neither did those who voted “aye”). So my guess is that many other members of the commission and the President will toss that section. As a starting point only, perhaps it isn’t otherwise so bad. But thanks for reading the law and being my source for what is really in there.
Pat:
I go back to Paul Levy of BIDMC posting that, according to his finance people, Medicare pays adequately for inpatient care but well below costs for outpatient care. I know that BIDMC is just one hospital and that teaching hospitals are high cost facilities for a variety of reasons including their role in educating the next generation of doctors. I also know that Medicare spends far more on hospital inpatient care than on outpatient care though the relative importance of outpatient revenue is considerably greater for the under 65 commercially insured population.
It seems to me that if CMS thought an all payer approach could slow the growth of hospital costs AND Medicare wouldn’t have to spend any more money than it does now, it should be strongly encouraging states to pursue this approach. Since Medicaid significantly underpays, however, it will probably be hard to convince the states to contribute the funds necessary to achieve level payments. I also suspect that the most vocal opposition to an all payer approach would come from the teaching hospitals.
Finally, I didn’t mean to cite St. Vincent’s as an example of anything. If there are too many hospital beds in a market, some of them should disappear including entire hospitals if necessary. As a taxpayer, I have no interest in seeing unneeded antiquated, inefficient or high cost hospitals propped up with state subsidies to preserve jobs or for any other reason.
Barry —
It is true that Medicare pays too little for some outpatient care — especially primary care. Other outpatient services are clearly profit centers for hospitals and other providers, especially including imaging, lab, and (if it is considered outpatient) outpatient surgery. The reform of Medicare payments to increase payment to primary care, financing the increases by cuts to specialists and for other highly paid services, is a priority that the administration has emphasized. Hopefully it will be continued by the new people in Washington.
Hospitals like Beth Israel are an interesting case, since they function in an environment where surpluses of services exist. That makes it harder to function, just as the St. Vincent’s case illustrates.
Several months ago, I wrote a submission on this website discussing the issue of how hospitals could function better in the Medicare environment and discussing the realities of the financial environment for hospitals. The fact that some hospitals function well in settings where their patient load is almost entirely Medicaid and Medicare patients shows that it can be done, especially if hospitals are able to avoid many of the financial pitfalls due to excessive spending on the medical arms race, advertising, and Taj Mahal building, all directed at competition, not care. In addition, hospitals need to pay closer attention to management of the small minority of patients who account for the losses of hospitals that are operating at a deficit in Medicare to make sure that their care is efficient and appropriate.
Also, it is very important to pay close attention to what spokespeople for individual institutions and for the industry are saying, since much of what they say is spin directed at trying to increase their share of the taxpayer dollars you mention, not an honest presentation of the facts. Unfortunately, in the environment we work in today in the US, spin and lobbying is often a better way to run a health care enterprise than careful attention to management.
Richard:
You are correct about the alleged surplus during the Clinton years.
Without counting the surplus in the trust funds, there would have been a deficit each year due to the “unified budget” of accounting.
In regards to unfunded liabilities, people need to be concerned, because the trust fund is utilized on a pay-as-you-go basis.
In order to redeem treasury securities, the government handles it like all other expenses, such as battleships.
They are redeemed by current revenues and debt.
The trust fund makes it no easier to pay benefits, than if there wasn’t a trust fund.
The same can be said for the federal retirees’ health plan. The trust fund does not represent a store of wealth. It is tapped into like all other expenses.
The only difference is that an appropriation is not needed as long as there is a “Fund Balance with the Treasury.”
I have reputable governmental citations to back my assertions.
If anyone is interested, please specify the assertion, and I will provide the excerpt and link.
Don Levit
Pat:
Thanks for the detailed response. It makes a lot of sense to me.
I was wondering if you think the trend toward more and more physician practices being owned by hospitals is a good or a bad thing. On the plus side, ACO’s could be easier to manage if most or all of the providers work for the same employer. For the doctors, the organization would presumably pay for electronic records systems and malpractice insurance. The medical arms race could become less of a factor if the relationship between the hospital and doctors is tighter (employer-employee vs. facility provider –entrepreneur). On the negative side, if physician compensation is driven mainly by revenue generation, it could make the overuse problem worse and there would be more services provided within the high cost hospital setting. I note that even primary care provided within a hospital campus includes a facility fee, for example.
Believe it or not, I’m not opposed to an all payer system conceptually. Since most hospitals are non-profits anyway, I don’t think they should be making high margins but payment rates need to fairly reflect the legitimate costs of an efficiently run organization. As long as it didn’t affect access to quality care, it would help commercial insurers avoid having to pay unduly high rates to hospitals with significant local or regional market power. However, as I said earlier, if it turns out that Medicare, and especially, Medicaid, would have to pay more than they do now, I just don’t think it’s doable in the current fiscal environment.
Barry —
In balance I tend to favor the consolidation of health care providers. The unification of hospitals, doctors, and so on under one entity would have many beneficial effects, including stopping the harmful trend of doctors competing with hospitals for money making services like lab, imaging, surgery centers, and so on, a trend that has only harmed health care and made it more expensive.
It would also make the creation of “responsible care organizations” more likely to actually happen. In turn, that would allow for greater efficiency and better care at lower prices, if executed well.
I have worked both as a private doctor and as a salaried physician in large health care organizations. Although I, like many doctors, liked the autonomy and the higher income (in my specialty) of private practice, I have to say that I believe the large multispecialty groups I worked in were able to provide better and more comprehensive care. Of course this was all in Minnesota. I am sure that creating consolidated health care organizations in many parts of the country would lead to a great deal of weeping, wailing, and gnashing of teeth.