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MedPac on Steroids

I’ve long argued that Medicare reform will pave the way for healthcare reform, and that the Medicare Payment Advisory Commission’s (MedPac’s) recommendations could serve as a brilliant blue print for overhauling Medicare.  (Also see our Century Foundation report on Getting More Value From Medicare).

Now President Obama appears to be backing a proposal that would empower MedPac to realize its vision for reform.  Earlier this week, in a White House meeting with Senate Democrats, the president  reportedly “went out of his way” to mention a bill, introduced by Senator Jay Rockefeller ( D-W.Va)  that would move decisions about Medicare benefits away from Congress, by turning MedPAC into an independent executive agency.  Currently, MedPac is an independent panel that advises Congress. It has no formal power. But under Rockefeller’s bill it would be able to implement its recommendations and fund policy initiatives.

Wednesday afternoon, the White House announced that the President has gone a step further by releasing a letter from President Obama to Senators Max Baucus and Ted Kennedy.  The letter extends the remarks that the president made yesterday, which came close to endorsing Rockefeller’s bill. Writing to Kennedy and Baucus, the  President indicated that the administration could find another $200 to $300 billion for health care reform, linking that proposal to “giving special consideration to the recommendations of the Medicare Payment Advisory Commission” (MedPAC), “a commission,” he noted, “created by a Republican Congress . . . Under this approach,” the president continued, “MedPAC’s recommendations on cost reductions would be adopted unless opposed by a joint resolution of the Congress. This is similar to a process that has been used effectively by a commission charged with closing military bases, and could be a valuable tool to help achieve health care reform in a fiscally responsible way.”

These savings,  he added, “will come not only by adopting new technologies and addressing the vastly different costs of care [in different parts of the country], but from going after the key drivers of skyrocketing health care costs, including unmanaged chronic diseases, duplicated tests, and unnecessary hospital readmissions.”

Giving MedPac the Authority to Take the Politics Out of Fees for Doctors & Hospitals

Under Senator Rockefeller’s bill, MedPac would have the authority to set reimbursements for doctors and hospitals.  As Rockefeller explained in a recent Senate Finace Committee meeting:  “I think that [this is] the best way to take politics out of all of this is to take Congress out of the setting of reimbursements for doctors under Medicare and Medicaid and for hospitals, because there  is a group of 17  . . . completely dispassionate people,” who could do this, Rockefeller explained, referring to MedPac.

“And I think one of the [reasons] you have your $700 billion of wasted money every year,” Rockefeller added,  “is the fact that there are too many political judgments made because there’s too much lobbying and Congress can — you know, unless they’re all health care experts, can fall victim to that. So the idea of MedPAC having the power to set those fees, reimbursement fees, to me is enormously attractive, takes politics right out of it and takes Congress right out of it.”

At the hearing, White House budget director Peter Orszag indicated circumspect support for Rockefeller’s bill: “Your idea of — I think we’ve referred to it as  MedPac on steroids, or a much more powerful role for a body that is widely respected– is one approach.”

What Exactly Does MedPac Recommend?

Until now, most reform advocates have ignored MedPac. The reports that the independent advisory panel issues in March and June of each year are long.  They are dense with detail. And they are very, very smart. The commissioners  understand that health care quality could be higher if we spent less on care.

They have digested the Dartmouth research revealing that when patients in some parts of the country receive more aggressive and more expensive care, outcomes often are worse.  They realize that doctors and hospitals should be rewarded for the quality of the care they provide, not the quantity.  As HealthBeat has reported, they know that the fee schedule that Medicare now follows favors specialists while underpaying primary care physicians,  and they have suggested re-distributing Medicare’s dollars “in a budget neutral way”– hiking fees for primary care while lowering fees for some specialists’ services. They have pointed out that some very lucrative procedures appear to be done too often, in part because they pay so well. The Commission has advised targeting these procedures and comp ring them to alternative treatments—just in case a less expensive approach might turn out to be more effective (and not as risky for the patient), as pricier, more aggressive treatments.

Finally, MedPac notes that some hospitals actually make a profit on Medicare’s payments. This is because these hospitals are more efficient: patients typically spend fewer days in the hospital and see fewer specialists. There are fewer readmissions, And generally, outcomes are better. MedPac suggests that when private insurers pay hospitals more, they may simply be rewarding less efficient hospitals for lower quality care. (And of course, private insurers pass those higher payments along to their customers in the form of higher premiums.)

MedPac goes beyond looking at how we pay providers.  Investigating Medicare Advantage, it has described the care that private insurers are providing as somewhere between “disappointing” and “depressing.”  Taking a look at the boom in hospital construction, MedPac noted, in its March 2008 report that “much of the added capacity is located in suburban areas and in particular specialties, raising the possibility that health care costs will increase without significantly improving access to services in lower income areas”. (Here, I can’t help but think about the current controversy over whether Hackensack University Medical Center should be building a new for-profit facility in a nearby suburb.)

As for the drug industry, in its June 2008 report to Congress MedPac observed that “researchers have shown that bias in industry-sponsored trials is common.” Because we lack disinterested, “evidence-based” information about new products, MedPac noted “we do not know which treatments are necessary for which types of patients. Guidelines do not exist . . . to delineate how much care is typically needed . . . and when patients are unlikely to improve with additional treatment.” In the same report, MedPac cast a cold eye on just how quickly we adopt bleeding-edge medical product and procedures to treat “most common clinical conditions” without “credible, empirically based information” to tell us “whether they outperform existing treatments and to what extent.” In other words, we need unbiased comparative effectiveness research. Those who make a profit on new products and procedures should not be involved.

These are exactly the radical but truthful recommendations that would make any well-paid health care lobbyist shudder.  No wonder the Bush administration ignored MedPac’s advice for eight years.

Now, a new White House is taking MedPac’s recommendations to heart. And Congressional leaders also seem to recognize the link between Medicare reform and national healthcare reform.  In April, HealthBeat reported that Senate Finance Chairman Max Baucus had declared that Medicare would become “the big driver” behind national health reform. Now, it’s becoming clear what Baucus meant.

Maggie Mahar is an award winning journalist and author. A frequent contributor to THCB, her work has appeared in Barron’s and Institutional Investor. She is the author of “Money-Driven Medicine: The Real Reason Why Healthcare Costs So Much,” an examination of the economic forces driving the healthcare system, and the increasingly influential HealthBeat blog, one of our favorite health care reads and where this piece first appeared.

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PAWSteroid blogWendell MurrayMargalit Gur-Ariemaggiemahar Recent comment authors
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PAW
Guest
PAW

I’m looking for a citation/source which may outline the MedPac recommended cuts over time, specifically what may occur on 1/01/2011, following the prospect of a 21.3% cut from 6/10-12/31/2010.
Thanks in advance!

Steroid blog
Guest

it’s 2010 and Obama’s reforms are in full swing, doubt it will be a hit.

Wendell Murray
Guest

Just glanced through the transcript of the Senate Finance Committee hearing that Ms. Mahar cites. Before Senator Rockefeller made the comment cited on the $700 billion in valueless (aka wasted) medical services spending above he states this: “and that is, it’s always bothered me in the system of lobbying that we have in this country, and particularly on this subject — I don’t know how many thousands of health care lobbyists there are. I think there were 14,000 at the end of the Clinton effort; higher-paid, more niche-oriented now. And so you get these heads of all these huge organizations… Read more »

Nate
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Nate

being young also means I know how to internet search… “I imagine you are too young to remember this, but there was a time –before the 1980s–when for-profit insurers did not sell health insurance. They just didn’t think they could make money on it.” “Health insurance was all non-profit.” http://eh.net/encyclopedia/article/thomasson.insurance.health.us Figure 2 illustrates the growth of commercial insurance relative to Blue Cross and Blue Shield. So successful was commercial insurance that by the early 1950s, commercial plans had more subscribers than Blue Cross and Blue Shield. In 1951, 41.5 million people were enrolled in group or individual hospital insurance plans… Read more »

Nate
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Nate

Maggie, Yes, yes and yes, I think that answered all of them. I love their suggestions, please take a moment and compare your examples to HMOs in 1970 though. Ignore the fact they are directed at Medicare and not private insurance and they are proposing exactly what HMOs originally were designed to do. Nothing they have suggested is new, its common sense answers to known problems that have been around for decades. What I believe you and the left in general are ignoring is the reality of what happens when a plan goes from concept to being in place. Initially… Read more »

Margalit Gur-Arie
Guest

I just read the Gawande article. Very nice indeed. In my opinion, it reinforces the point that excellence and improved quality of care accompanied by reduction of waste, whether driven by health care organizations, (Mayo, Intermountain…) or payer lead (Grand Junction) has one thing in common – non profit.
I like MedPac’s recommendations, but I doubt we can achieve significant cost reductions and better quality of care simultaneously as long as the health care “industry” is so blatantly profit driven.

maggiemahar
Guest

Nate, tcoyote, docanon, Joe, medical innovation, Thanks much for your comments. And let me invite anyone interested in the Dartmouth Research to the NY premeiere of a 90-minute documentary that Alex Gibeny (Enron: The Smartest Guys in the Room”) has made of my book, Money Driven Medicine–thus Thursday, June 11. Admission is free. Jim WEinstein (who now heads the Dartmouth research and Don Berwick, head of IHI, are both in the film Details on premiere here http://www.healthbeatblog.com/2009/05/moneydriven-medicineny-premiere-of-film-june-11-.html . Nate– Have you read any of MedPac’s reports? Do you know who is on the commission or how they are picked? The… Read more »

tcoyote
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tcoyote

It’s obvious to someone who’s worked in all those places most of his professional life that a lot of the variation is caused by a sophisticated form of theft. Joe is exactly right. Read Atul Gawande’s marvelous New Yorker article. What’s going on in McAllen (and Miami and Los Angeles and Las Vegas and Phoenix and Baton Rouge, etc.) is an abuse of professional power, greedy physicians exploiting the moral hazard opportunities enabled by open ended fee for service payment. There are other markets where the moral hazard disease is not the main cause: the teaching hospital dominated markets like… Read more »

medinnovationblog.blogspot.com
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medinnovationblog.blogspot.com

Get real. To have MedPac dictate Medicare rates based on the Dartmouth obsession with “unwarranted practice variations” in different sections of the country borders on the insane. To say that rates ought to be the same in Manhattan versus rural Alabama or Los Angeles versus Rochester, Minnesota ignores cultural and socioeconomic differences and sickness differences and points of patient entry into the system (ERs, hospitals, urgiclinics, primary care offices or specialty offices). No Washington-based panel, no matter how neutral or how comprised of the best and the brightest, no matter how loaded with data, can possibly judge what goes on… Read more »

Joe
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Joe

Oh dear.
Patients demanding X treatment and not getting it is not the problem. Doctor ordering up X&Y, when patient only needs X ( or Doctor A ordering X, Doctor B ordering Y and Doctor C order Z) is the problem.
Anyway if we implemented most of the med-pac ideas that exist now–without giving them on-going rule making authority you still have goen a long way in terms of putting the right incentives in place regarding the right kind of practices.

Nate
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Nate

I was comparing MedPac to HMOs. Congress is proposing this additional power for MedPac so they can be the bad guy. When MedPac cuts reimbursement or says some procedure will not be covered people will blame MedPac. Congress controls them by who they appoint and how much money they give them to spend. This is the exact same reason why Congress created HMOs. No Congressman wants to vote for the bill not allowing a proecedure someone thinks will save their life. No COngressman wants to cut healthcare spending by the billions it should be. To protect themselves yet still control… Read more »

docanon
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docanon

Thanks for picking this up, Maggie! Those of us who have been privileged to see how the “sausage” of Medicare payment policy gets made have been calling for this for years. It’s time to get a less-conflicted, non-secretive body in charge of Medicare payment policy. My only worry is exactly what tcoyote mentions: MedPAC has been the lone voice of sanity in a toxic stew of greed and corruption precisely because it’s an obscure body with basically no power. Give MedPAC power, and all of a sudden you’ll have huge political fights over who’s on it, direct lobbying and harrassment… Read more »

tcoyote
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tcoyote

So the Rockefeller idea is to make MedPac into Daschle’s National Health Board. It will be interesting to see how this changes the composition of the organization. I think MedPac’s done a great job, but the “safety valve” has always been the ability of a disadvantaged interest group to simply “roll” the MedPac recommendation in Congress. You make that much more difficult, and all of a sudden, MedPac Commissioners have to change their phone numbers and hire people to start their cars for them and taste their food, etc. And you start getting demands for “representation” on MedPac from the… Read more »

Nate
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Nate

It’s interesting what history shows us when we open our eyes and are willing to look. Compare what Maggies says about this wonderful salvation MedPac; “They realize that doctors and hospitals should be rewarded for the quality of the care they provide, not the quantity.” “patients typically spend fewer days in the hospital and see fewer specialists.” MedPac will ration care but in a smart omnipresant way where no one gets hurt. Read PEGRAM et al. v. HERDRICH, Supreme Court decision http://supct.law.cornell.edu/supct/html/98-1949.ZS.html “Consideration of the consequences of Herdrich’s contrary view leave no doubt as to Congress’s intent. Recovery against for-profit… Read more »

Nate
Guest
Nate

Sounds a lot like a 2010 version of HMOs. Not so much in the nuts and bolts of how it operates but the intent behind it. Everyone knows the only way to control cost is for someone to stand up to consumers and tell them no. This has been clear since the late 60s when Medicare started the finacnial arms race of spending. The reason Ted Kennedy so staunchly supported HMOs was he and the rest of Congress saw them as a vehicle to ration care and spending at arms length. They would cut or raise funding to the HMOs… Read more »