Why Medicare Cuts Will Quietly Kill Seniors

The recent news that thousands of seniors with cancer are being denied treatment with expensive chemotherapy drugs as a result of sequestration-mandated budget cuts raises the question of whether other patients are being equally harmed, but less visibly.

A careful study of the impact of past federal budget cutting suggests a troubling answer. That study, in a National Bureau of Economic Research Working Paper published in 2011 and revised last year, established an eerily direct link between slashing hospital reimbursement and whether Medicare patients with a heart attack live or die.

Using data from California hospitals, researchers Vivian Y. Wu of the University of California and Yu-Chu Shen of the Naval Postgraduate School examined mortality rates for heart attack patients following the Medicare payment cuts resulting from the Balanced Budget Act (BBA) of 1997. The impact of the BBA was not as sudden or clear as the current situation, where Medicare’s two percent across-the-board cut on April 1 instantly transformed some expensive chemotherapy drugs into money losers, but it was significant and long-lasting.

The researchers examined hospitals claims data for a three-year period before the BBA, a three-year period when the BBA first took effect and, finally, a six-year period after budget cuts had either permanently changed care or failed to do so. They also tried to adjust for the severity of illness of the heart attack patients – the condition is formally known as acute myocardial infarction (AMI) – and other factors.

In the end, the researchers were able to trace a clear path from Congressional budget decisions to the patient’s bedside. Payment reductions triggered by the BBA , Wu and Shen concluded, led to “worse Medicare AMI patient outcomes, and more importantly, that the adverse effect only became measurable several years after the policy took place.”

They even quantified the effect: every thousand dollars of Medicare revenue loss from the BBA translated to a six to eight percent increase in mortality rates from heart attack. Those findings, said the researchers,  “are very consistent with prior literature that finds short-term adverse effects of Medicare payment reductions.” They’re also consistent with broader research showing that Medicare coverage, does, indeed, save lives.

Wu and Shen’s National Bureau of Economic Research Working Paper was published in 2011 and revised slightly last year. It provides disturbing parallels to the present crisis, beginning with the fact that the BBA, like sequestration, represented a deliberately drastic effort by Congress to reduce the federal deficit.

Suddenly slashing payments an organization has been counting on and assuming that they’ll simply adapt is very different than announcing a change in reimbursement rules that takes place gradually. When the BBA went into effect, some analysts predicted that hospitals would make up deep cuts by becoming more efficient. Instead, Wu and Shen found, the heart attack death rate spiked because hospitals cut back on staff to slash operating costs. Left unexamined by the researchers, but profoundly important in a policy context, is what happened as a result to Medicare patients being treated for all medical problems, not just heart attack.

Just as in the 1990s, there’s no question today that billions of dollars are wasted on inappropriate or unsafe care. But brandishing the meat cleaver of across-the-board budget cuts represents a dangerous approach when many providers already feel as if they are already under severe financial pressure. Even before the chemotherapy denial hit the news, hospitals, nursing homes and others were already warning that sudden, across-the-board Medicare cuts would force them into just the kind of reactions the Wu and Shen paper found could be deadly.

Unlike with the BBA, the sequestration is playing out is occurring at the same time that a far more fundamental change in health care reimbursement policy is already underway, with a “bundled payment” approach increasingly adopted by government and private payers that links provider payment directly to high-quality outcomes. Yet in a kind of Gresham’s Law, the “bad” solution of indiscriminate cuts threatens to overshadow and drive out the “good” solution of more careful and coordinated care.

The White House estimates the current sequester cuts will result in $11 billion less in Medicare payments. There’s little question that those crude cuts, if they continue, will quietly, and unnecessarily, cost the lives of some seniors. The only question is how long it will take us less than a decade to find out who those victims really were.

Michael L. Millenson is president of Health Quality Advisors LLC in Highland Park, IL; the Mervin Shalowitz, MD Visiting Scholar at the Kellogg School of Management; and a board member of the Society for Participatory Medicine. This post originally appeared at the Medicare News Group.

18 replies »

  1. Can you tell me about your experience in the inpatient environment, Michael? How many hospitals have you worked in? Please, regale us all with your experiences running a hospital, dealing with medical and administrative staffs, managing receivables and operations – the garden variety credentials for someone who holds themselves out as an expert in the industry.

  2. Among the presentations that a clinician friend attended at ASCO trade show this year was a study entitled “The cost per patient of deviations from evidence-based (EB) standards of oncology care” (J Clin Oncol 31, 2013, suppl; abstr 6515). The presentation caught his eye as it addressed the cost of care associated with adherence to evidence-based guidelines versus treatment plans that varied from these guidelines. Utilizing a database developed to analyze the cost of treatment, these investigators explored costs incurred when physicians used treatments that were not within the confines of the evidence-based formulae.

    A total of 2,775 consecutive patients had their treatment plans (TPS) submitted and 730 (26 percent) of these patients were described as receiving, “unjustified, non-Evidence Based Treatment Plans.” The authors then examined the costs associated with these treatments. Their phraseology for treatment that varied from guidelines was those “that did not confirm to Evidence Based standards or could not be medically justified.”

    Apparently the practice on the part of qualified, skilled oncologists of making drug choices that vary from evidence-based medicine is synonymous with “not being medically justified.” Their conclusion “conservative estimate(s) of the average per patient overspend (first order) on inappropriate treatment validates the potential for quality care to lower cost and deliver huge value to patients, physicians and payors.”

    He had a brain-fart moment: “What’s wrong with this picture?”

    First, he says, clinical oncology as it is practiced today through the available guidelines (NCCN, etc.) has failed to improve 5-year survival for advanced cancer in 50 years. Thus, this “regression to the mean” thinking, if followed, would increasingly demand that medical oncologists scrupulously adhere to largely ineffective therapy guidelines.

    The second problem is that this analysis provides no data on response, time to progression, survival or toxicity. For all we know, the 26 percent of patients who received non-evidence based treatment plans may have been the best responders with better survivals and lower toxicities.

    Finally, in keeping with a recent Forbes article that described medical oncologists are rapidly abdicating control of their cancer patients’ treatments in favor of econometric analyses, should this trend continue, patients may soon be forgoing the opinions of their MDs, in favor or the opinions of MBAs.

  3. The medicare cuts has affected the seniors greatly. When thousands of patients are denied treatment with the high cost of chemotherapy drugs it confused people whether others will be affected or not. Though the effect of the budget cut was known lately. There could be a possible solution if the costs of the drugs and chemotherapy is lessened.

  4. This must be part of that rumored “death panel” the Feds have denied…

  5. In 2000, Medicare spent $104 billion on 13.1 million hospital stays by seniors.

    In 2010, Medicare spent $182 billion on 13.8 million hospital stays by seniors.

    This is not of course due to the rate of overall inflation. It is due to manipulation of the Medicare fee schedules.

    I grant that there have probably been improvements in hospital care. Patients may in fact recover somewhat sooner and live a little longer.

    But I think that most of this extra money is just funding higher salaries and more employees.

  6. “Why Medicare Cuts Will Quietly Kill Seniors”

    The Republican plan for healthcare reform. it’s only a death panel when a Democrat thinks of it. But look at this as a double benefit – less Social Security as well.

  7. Just to put some numbers to Bob’s observation. There are 1.3 million fewer hospital admission now than there were in 1980, despite 80 million more people. Hospital census has fallen 31%. Even adjusting for outpatient activity (which was supposed to save us a ton of money), adjusted census is only about 15% higher over 30 years, but FTEs per adjusted census is up 62% (and they are more expensive FTE’s to boot- fewer clerics, coders and chart pullers, more data base managers and radiology techs and PR persons). Hospitals added staff in all but three months since the 2007 financial crisis began, despite declining admissions and flatlined outpatient growth. Hospital spending has doubled since 2000, for a product that hasn’t changed meaningfully.

    You’ll know that we’ve actually begun cutting costs, as opposed to pushing them around, when hospital FTE’s start shrinking.

  8. Cuts across are not the answer, so I am surprised that
    respondents, who obviously care enough about the issue to write
    about it, cannot see beyond the “cut-to-the-bone” (yes, it’s a pun)
    approach promulgated by the G.O.P. and promoted by the media.

    Think about this: More positive outcomes will reduce healthcare
    costs. Allowing bean counters to decide who receives care takes appropriate
    medical decisions–for example, do no harm–out of the hands of
    doctors, and revives the specter of death panels, ironically started
    by the G.O.P., which now uses it against Obama’s plan.

    Put people first and stop counting things. The result will be better
    for us all.

  9. Just to endorse what Jeff says about hospital costs —

    we have been reducing hospital utilization for over 20 years now, due to better drugs and outpatient surgeries, and kidney stones busted in one hour versus 5 dreadful days, etc etc.

    Yet hospitals have more staff and more revenue than ever.

    They have done this by learning to exploit the complex fee schedules used by all insurers, including Medicare. Almost all these schedules allow extra payments for complexity, and boy have hospitals taken advantage of that.

  10. I say “that every US citizen DESERVES as pain free as and as dignified a death that US medicine can possibly offer”

    When we all understand that we save much $ by growing up.

    Dr. Rick Lippin

  11. So don’t cut Medicare because hospital administrators are just too incompetent to cut their expenses responsibly???

  12. I have mixed feelings about this report.

    On one hand, there may be a cause and effect connection between less money and increased mortality, to put it directly. Medicare, however, is tax money and is but one part of the equation. Those who argue the merits of market contributions to good outcomes — insurance and drug companies specifically — seem to be getting a pass here. The same policy-makers who crafted BBA are as much on the take from those private-sector groups as the current groups clearly is in the matter of reducing firearms violence. And if memory serves, that same piece of legislative sausage also resulted in the perennial doc-fix which has become… heck, readers here already know about that.

    On the other hand, every time I read about old people and “saving lives” I can’t help wanting to suggest a better phrase is “prolonging lives” since immortality is still not an option. I don’t want to suggest there is any need to start down the euthanasia trail, but just as readers here don’t need to have the doc-fix explained, neither do they need to be told about the extraordinary expenses that medical providers can chalk up during the final weeks of a patient’s life before the blackboard gets taken away. I’m not talking about keeping more people in a PVS (or maybe I am) but last minute tests, expensive drug regimens and surgeries that are certain to be futile. Seems to me that is a good place to begin reining in excessive costs.

    At some point when we see headlines that speak of “killing seniors” an array of flashing lights and bells needs to go off. It means we’re about to read the printed equivalent of that famous video of an old lady in a wheelchair getting pushed over a cliff.

  13. Hey, I didn’t say what they were doing was smart or justified, Jeff. All I’m saying is that, absent evidence the hospital administrators of 2013 are better at their jobs than their 1997 counterparts, there’s reason to worry.

    And, yes, my solution is to buy more efficiently for Medicare, but, of course, the private sector has to also do its part or we end up with exactly what you predict.

    Maybe the HR managers and politicians of 2013 are also smarter than their 1997 counterparts? One can always hope.

  14. Jeez, Michael. There are a lot of “staff” hospitals could cut without the patient noticing a thing, let along being killed. What about all those layers between the floor nurse or radiology technician and the CEO- the people who spend all day in meetings? What about the public relations staff, or the attorneys, or the billing office folks whose jobs should have been fully automated away years ago.

    Granted, you cannot tell hospitals how to become more efficient, but your solution to the rising cost of hospital care in the Medicare program is, what, buy the care differently? I supposed if we paid for care more intelligently, that would reduce unnecessary utilization. But as you well know, that doesn’t save any money for anyone unless hospitals cut their variable expenses. Otherwise the cost of the newly empty ICU just get passed on to other patients,
    businesses, etc.

    Where are you going with this?

  15. Bob, you may be right on the chemotherapy drugs, but this article addresses what happens in the inpatient environment. The hospitals’ reaction there had nothing to do with the price of any particular drug, device or surgery but with how they reacted in terms of staffing.

  16. If we controlled the prices of expensive chemotherapy drugs, then I do not think that the Medicare cuts would make any difference in this area.

    The only extra “deaths” would be lower profts to the drug companies.

    The price of drugs should be reduced to the cost of actual production and distribution, plus a 20% profit.

    I suspect that most chemotherapy drugs would cost about $100 a dose and not $5000 a dose.

    Will this stop all research? I doubt it. The federal government does a lot of research already with tax dollars; it could do more.

    Last I checked, Microsoft does tons of product research while charging a few hundred dollars for its software. Price gouging is not necessary for research.

    Bob Hertz, The Health Care Crusade