Health Policy Schizophrenia

The Obama administration has told us how it intends to change Medicare many times and in many places.

It wants to replace fragmented decision making by independent doctors with coordinated care delivered by doctors working in teams, connected to a medical home. It wants Medicare to purchase quality, not quantity. It wants decisions to be evidence-based. It wants electronic records in order to standardize care and reduce errors.

So how does the administration plan to get all this done?  It plans to spend hundreds of millions of dollars on pilot programs to try all these ideas out and then ……

Wait a minute. Aren’t these ideas already being tried out somewhere? Yes. In Medicare, as a matter of fact. How well are they working? As a long-time critic of managed care, I admit the results look pretty good.

So if the Obama administration’s core ideas have already been tried and tested and they are well underway, why are we spending hundreds of millions of dollars reinventing the health delivery wheel? I thought you’d never ask. If you are practical and pragmatic, you wouldn’t — especially when the government is running out of money anyway. But if you are intensely ideological, there are three reasons:

  • First, the place where these ideas are being implemented and vetted is in Medicare Advantage plans; Barack Obama campaigned against these plans in his presidential bid, claiming that they were over-paid.
  • Second, the Medicare Advantage plans are run by private insurance companies; many legislators hate them because (a) they are private, (b) they are insurance, and (c) they represent “privatization” of Medicare.
  • Third, the ideas that are being tried and vetted are originating in a competitive marketplace instead of where the administration thinks that health delivery ideas are supposed to come from — a government bureaucracy.

I know. It’s so bizarre that not even J.K. Rowling could make up a story like this.

Before going further, let me clear up an important point about the organizations that are involved in Medicare Advantage.

About one in every four seniors has enrolled in a private insurance plan, offered by such entities as Aetna, United Healthcare, Humana, Cigna, etc. Medicare pays these plans a risk-adjusted premium (reflecting the expected cost of the enrollee, based on age, sex, previous medical history, comorbidities, etc.). Sometimes these plans pay for medical care the same way the conventional Medicare program pays. But for the present discussion, a more interesting arrangement is one in which the actual delivery of care is carried out by an entirely separate entity.

At the risk of overwhelming you with acronyms, these entities are variously called Independent Practice Associations (IPAs), Medical Services Organizations (MSO) or Integrated Delivery Networks (IDNs). Let’s just settle for IDN. Under a typical arrangement, the insurer will specialize in the insurance aspects of the plan (benefit design, actuarial analysis, claim adjudication, marketing, accounting, etc.) and the IDN will specialize in health care delivery. This is important to know because it is typically not the insurance company that is experimenting and innovating with new designs in how to deliver medical care. It is a group of doctors in an IDN who are doing it.

An example of an IDN that is already doing what the Obama administration wants to try out with expensive pilot programs is IntegraNet of Houston, an organization with a network of about 1,200 doctors. Every Medicare patient has a medical home. The physicians follow evidence-based practices. Care is integrated and coordinated. Electronic records are being introduced. It appears that quality is higher and costs are lower than in conventional Medicare.

So what’s not to like? If the folks at CMS had any sense, they would camp out in Houston and try to find out how all this works. Instead, they have been spending their time and your tax dollars producing a 427-page book of rules on what Accountable Care Organizations (ACOs) have to look like….

Oops, did I forget to mention: The administration is so confident of how the pilot programs are going to turn out, that it’s not waiting for the results. It’s already decided that medical care should be delivered to all Medicare patients through ACOs and it has already decided what they should look like down to the smallest detail.

Not only is the 427-page book of rules not based on real world experience, the Mayo Clinic and most of the nation’s top level health centers have announced they don’t intend to participate.

In the meantime, there is no doubt in my mind that IntegraNet doesn’t satisfy all the government’s requirements by a long shot. For one thing, it pays its doctors fee-for-service. The Obama folks are convinced fee-for-service payment is the problem, not the solution. For another, IntegraNet intentionally pays doctors more than Medicare’s standard rates. Yet the administration’s Plan B for cost control is squeezing provider payments, not increasing them.

A third problem is that it is producing a medical loss ratio (MLR) of 70% or less for its insurance company clients. As previously reported that is 10 percentage points less than the minimum MLR the Obama administration thinks insurers should have. But that extra 10 percentage point profit (shared by the IDN and the insurer) is the whole reason IntegraNet is in business. No one is going to take risks and try new things if they can only get a regulated-utility rate of return.

IntegraNet is not alone. In many other Medicare Advantage plans practitioners are already doing what the Obama administration says it wants to do with Medicare as a whole — without any prodding or nudging from the federal government. That is, many of these plans are using coordinated/integrated/managed care systems to achieve fewer admissions, fewer readmissions and fewer hospital days than conventional Medicare. (See the latest summary of the evidence by Jeff Lemieux in a comment at the Health Affairs blog.)

Of particular interest to me is the opportunity to give money back to patients who make cost-effective choices (a subject I will consider at great length in the future). A number of IDNs are way ahead of me — rebating some or all of the senior’s Part B premium if they will cooperate and choose a medical home. As Larry Wedekind, IntegraNet CEO, explains:

It is the beauty of competition in a marketplace with several competitors all bidding for additional business from seniors. The ones that we have seen in the Houston market have ranged from a full Part B premium give-back to seniors to a 20% portion of it…I’ve seen as low as $20 per month give-back to full premium give-back of $96 per month in the past. The Part B premium this year is $110.50, but no one is giving more than $50 per month back this coming year. The give-backs are often related to a Medicare Advantage Special Needs Plan such as a diabetic plan to help defray the higher costs of drugs.

The sad irony is that many of these plans, along with their innovative ideas, may be pushed out of existence by the very administration that is touting the techniques they have pioneered.

John C. Goodman, PhD, is president and CEO of the National Center for Policy Analysis. He is also the Kellye Wright Fellow in health care. His Health Policy Blog is considered among the top conservative health care blogs where health care problems are discussed by top health policy experts from all sides of the political spectrum.

21 replies »

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  2. I’ve been working in Medicare Advantage for 4 years and I’ve been saying what this article states for the past 3 years. I’m glad others get it.

  3. It is obvious for me that Obama Administration did some good things too.
    Even if little change in the end, the fact that the system was shaken around a bit at least dusted it off and removed some spider’s nests. That’s what happened in the success story described here.
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  4. to bad you don’t spend half as much time learning what your talking about instead of running your mouth.

    MA benefits are disctated just as much as Medicare plus Gap. In fact Medicare still denies far more claims per captia then MA.

    MA has consiuderably lower out of pocket then Medicare, why would you want to leave MA for Medicare if large bills came up…..someone like you would becuase they have no idea what they are doing, let me repharse, why would any logical and informed person want to switch?

    How is an MA FFS or indeminity plan like HMO, they aren’t you just don’t have any clue what your talking about.

    You might want to see who is selling your MA plan as a number of them are not for profit.

  5. Medicare Advantage is neither Medicare nor advantageous. My wife and I are two years now into our Medicare years. During the first year I had MA and on the wise advice of several sources she took one of the alphabet supplemental plans.

    For reasons that mystify me to this day, my premiums for MA were — wait for it — ZERO!. No one has ever explained to me why a plan that costs me nothing is really better than one for which I pay a premium. I have concluded that

    (1.) MA collects Medicare reimbursements (or more) directly from the Government in return for kidnapping a beneficiary
    (2.) anyone enrolled in a MA plan is owned by the private sector and will be subject to whatever that (for-profit) company pays or refuses.

    MA is the old HMO wolf in sheep’s clothing. They are all being nice in this latest incarnation while they harvest the healthiest of the population. But write this down: there are limits to what a private company can and will pay and when those limits are reached the beneficiary is gonna pay out of pocket or do without medical care.

    When I was enrolled with a MA plan my Medicare card was of no use. That point was made repeatedly in writing and on the telephone with crystal clarity. Once enrolled, the only way for anyone to get back into Medicare is to wait until the next open enrollment period. God forbid some expensive medical calamity hits before that time comes around to escape. (And if and when such a catastrophe should come, I’m confident the company would be more than happy to allow that costly sick person to return to Medicare… good-bye and good riddance.)


    To be fair, the aim of PPACA is to replicate the efficiency of several non-governmental delivery systems in the form of ACO’s (yes, yet another acronym for HMO’s, but with incentives aimed at reducing costs while getting better outcomes).

    But when I read lines like “if CMS had any sense” and “not even J.K. Rowling could make up a story like this” the dripping sarcasm gets under my skin and I know this is more a political hit piece than a serious effort to improve health care.

  6. Why does it even matter how long the document is? If it works and has lots of copy, then so be it, if it doesn’t work and has lots of copy, then it was probably a waste of time yes. Does the length of the document really make it viable or not? Probably not.

    // Libertyville Insurance Agent S. Newbern

  7. “the Obama administration believes that—in general—Medicare Advantage plans are costing too much. Given that MA plan costs are an average of 13 percent more than FFS Medicare, this seems a reasonable belief.”

    The math isn’t that simple Roger. I don’t recall the exact number but around 25% of MA enrollees would qualify for Medicaid in not covered by MA. 13% of $7000 is $910. Multiple that by 4 and the cost per Medicaid eligibile MA enrollee is $3,640.


    according to page 25 Medicaid spending per Aged eligibile enrollee is $15,678.

    The math is a little simple but a quick analysis says eliminating MA would cost 4 times as much as leaving it in place.

  8. A higher unit cost doesn’t mean higher overall cost if fewer units are paid. If we paid 10% more for legit care but also eliminated the 30% that is wasteful we would still come out much further ahead.

    It would be logical that an IPA could drive these changes. Reduction in treatments and testing as well as admissions and readmissions could easily offset increased reimbursement.

    In traditonal Medicare the IPA would not have any control over care seeked and rendered outside their network. Traditional members being treated by both IPA and non IPA providers would most likly have cost considerably higher then those only treated by the IPA

  9. John Goodman is correct when he says that the Obama administration believes that—in general—Medicare Advantage plans are costing too much. Given that MA plan costs are an average of 13 percent more than FFS Medicare, this seems a reasonable belief.

    John is also correct when he indicates that MA plans can, in some cases, be more cost-effective than FFS Medicare. HMOs like Kaiser consistently submit bids for the basic Medicare benefits below the estimates for the FFS program.

    I am puzzled, however, by John’s comments about IntegraNet. According to its website, IntegraNet is an IPA, with no hospital, and so is in no way similar to an ACO. Also according to its website, “the power of our network helps us negotiate great reimbursements…,”suggesting that its costs are higher than average. Given that the IPA physicians presumably treat both FFS Medicare and Medicare Advantage beneficiaries, it’s hard to see how IntegraNet can, as John claims, offer costs that are lower than traditional Medicare. Perhaps John could substantiate his claim with information showing that the three MA plans with which IntegraNet contracts have lower costs—at least for the basic Medicare benefits—than the FFS program.

  10. Average of what Matthew, neither John nor you clearly say. If they are delivering Medicare benefits at 70% of Medicare’s cost that is not at all surprising. If they are delivering Medicare benefits plus all of the add ons then that would be shocking. Your 115% average is obviously referring to the Medicare benefits plus all the additional benefits that are worth around 16% extra that the left always seems to fail to mention when they make that reference.

  11. Good god I almost agree with John. But sadly he cherry picks the Medicare Advantage data….and sadly given that the total average for Medicare Advantage is 115% of avg Medicare cost, those doing it for 70% of cost must be serious outliers compared to the typical Medicare advantage plan…

  12. Healthcare should be both free to anyone when they need it, like in the UK, its not the best healthcare but you won’t ever be turned down. The only ones who win are the health insurance companies and the average guy gets dealt a poor hand.

  13. “No, this is about well crafted antisocial and narcissistic intent, by people who have no clue what is needed in the health care process, nor are interested in any feedback or opinion to right the grevious wrongs now playing out.”


  14. This is not schizophrenia, so don’t insult people who develop psychotic disorders and drift into a life of misery and outcast by the masses. No, this is about well crafted antisocial and narcissistic intent, by people who have no clue what is needed in the health care process, nor are interested in any feedback or opinion to right the grevious wrongs now playing out.

    And you think that Mayo or other players who do get some federal monies really think or intend to not participate? Now that is a delusional premise!

    Again, all physicians with any interest in helping the country, let’s band together and strike and watch the politicians just freak out when their constituents realize that jailing us is not a solution, just a quick fix that screws up the country even more!!! So we can have Nancy Pelosi come in front of the cameras and spew out another rich statement that makes schizophrenics look a helluva lot more sane than these idiots their constituents keep in office for 20 or more years. Hmm, after that last sentence, maybe this is about schizophrenia after all, to have faith that politicians will help the public is as delusional and clueless as a premise comes!!!

    Explains San Francisco to me now, er, InSane Frisco!!!

  15. “Second, the Medicare Advantage plans are run by private insurance companies; many legislators hate them because (a) they are private, (b) they are insurance, and (c) they represent “privatization” of Medicare.”

    I have never seen anyone say they hate MA (Holy Strawman John), but a lot of us dislike it because it costs more than FFS Medicare at a time when, how did you put it, ahh, ” when the government is running out of money anyway.”

    “Third, the ideas that are being tried and vetted are originating in a competitive marketplace instead of where the administration thinks that health delivery ideas are supposed to come from — a government bureaucracy.”

    Could you provide us with some geographic areas where MA programs are actually in competition with each other. I had thought this was somewhere between rare and non-existent. I know that we have only one available in our area.


  16. Not that it isn’t long, but that’s double-spaced pages. I have a copy.

    Like like when people irritably cite some law they don’t like as having “906 pages!”

    Yeah. Double-spaced, with wide margins and line numbers.

  17. I’m worried about any pilot project that requires 427 pages of rules to qualify. This should be a real boost to the job security of compliance officers.