Tag: Medicare

Private Medicare plans face uphill battle to prove efficiency

I have been struck by the optimism regarding private Medicare presented by health plan executives during the recent earnings season and the analysts failure to press them on just how their numbers will add-up to sustain the long-term viability of a private Medicare strategy.

The typical private Medicare health plan operates on a medical cost ratio in the mid-80s. Let’s assume 86% for medical costs and the remaining 14% for overhead, profit, and taxes.

Government-run Medicare operates on about 3% overhead. One can argue that many federal Medicare costs are paid for elsewhere but that is the number the private plans have to compete against. So private Medicare plans spend 14% on overhead and Medicare charges
itself 3% — that’s an 11% disadvantage for the private market right
out of the box.

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Medicare hospital quality reporting steps up in sophistication

Medicare is now reporting actual risk-adjusted mortality rates for pneumonia, MI, and heart failure. The topic must be important because NPR’s "Talk of the Nation" spent 30 minutes interviewing Don Berwick and me about it — on the day of Hillary’s speech nonetheless!

To listen to the show, click here. Also, here’s an article from USA Today that got the ball rolling, as well as Avery Comarow’s thoughtful blog on these new reports.

Here are a few observations about the new Centers for Medicare & Medicaid Services initiative, some of which I made on the NPR broadcast:

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Pay Doctors For the Value They Offer Patients

When Medicare first created a fee schedule, critics suggested that it was a Marxist invention. Nevertheless, the schedule, which lists what Medicare is willing to pay for some 7,000 procedures, has become the master list for physician reimbursement in our health care system: Most private insurers peg their payments to the Medicare schedule.

The notion of deciding the precise worth of some 7,000 diagnostic and therapeutic procedures is mind-boggling. How exactly does Medicare do it?

The process began in the late 1980s when officials at the Department of Health and Human Services decided that the way Medicare paid doctors should be overhauled. At the time, Medicare was reimbursing physicians  based on what was considered “customary, prevailing and reasonable” in a particular market — in other words the “market value” of the service in that region.

Instead, reformers urged Congress to begin paying doctors in a way that reflected the real cost, to the doctor, of providing the service. (This is where Marx comes in: rather than letting the local market decide what a service is worth “the system appears to be based on the Marxist ‘labor theory of value,’” sputtered Susan Mandel in a 1990 piece in the National Review.)

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Medicare Could Pave the Way for National Reform

Thanks the unbridled rise in health care prices, Medicare is going broke. As I mentioned in a recent post, four years ago the Medicare trust fund that pays for hospital stays started to run out of money. In 2004 the fund began paying out more than it takes in through payroll taxes.

Since then, the balance in the fund, combined with interest income on that balance, has kept the fund solvent. But in just 11 years, it will be exhausted,” the Medicare Payment Commission reported in its March. “Revenues from payroll taxes collected in that year will cover only 79 percent of projected benefit expenditures.” And each year after 2019, the shortfall will grow larger.

Make no mistake: this is not an example of an inefficient government program spending hand-over-fist without caring whether it is getting a bang for the taxpayer’s buck.  As I discussed in that earlier post, health care prices have been climbing—without a concomitant improvement in patient outcomes or patient satisfaction—in the private sector as well.

Medicare Reform Could Pave the Way for National Reform

Before trying to roll out national health insurance, the next administration needs to address the structural problems that undermine the laissez-faire chaos that we euphemistically refer to as our health care “system.” Otherwise, we run the risk of winding up with a larger version of the dysfunctional, unsustainable system that we have today. Ideally, the administration should make Medicare reform a demonstration project for high quality, affordable universal coverage.

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Health Systems’ Ferocious Challenges


Lately, I’ve had interesting discussions with a thoughtful exec. at a
major Western health system about the ferocious challenges facing
hospitals and health systems. Her organization’s internal conversations
at the moment are centered, in part, on what they should do to become
"reform ready," not only for policy changes that could be in the wings,
but more importantly, for emerging market dynamics that will change the
ways hospitals work. She asked me to catalog some of the trends I think
health system managers will have to deal with, along with five
recommendations for action. Here’s some of what I told her.

Hospitals face dramatic financial stresses on a range of fronts.
Over the last 25 years, health systems’ average total margins have
remained reasonably stable at around 5 percent. As you’d expect, some
organizations have performed better, and others worse. About
one-quarter of all US hospitals, many of them safety nets, have
reported negative margins, and continually teeter toward failure.

Now the pressures are ramping up considerably. Perhaps most
profoundly, the balance has eroded between more profitable
privately-covered patients, and patients with public coverage –-
Medicare, Medicaid and other governmental sources –- that may not cover

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Already counting down to the next physician fee cut

Robert Laszweski has been a fixture in Washington health policy circles for
the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. You can read more of his thoughtful analysis of healthcare industry trends at The Health Policy and Marketplace Blog.

Is the "medical home" a real solution?

Now that this year’s fight over Medicare physician fees is all but over, it is important to turn to real solutions.

The recent Senate and House vote to kill the 10.6% physician fee cut only defers the problem for 18 months.

On January 1, 2010, the Medicare physicians are slated to get an automatic 21 percent fee cut!

More importantly, the Medicare physician fee structure is grossly out of whack with primary care docs starving under the current fee system.

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Ted Kennedy Shows Up to Vote; McCain Absent

When Ted Kennedy came onto the Senate floor, his colleagues cheered.

He was there to vote on the bill that would prevent a 10.6 percent cut to physicians who treat Medicare patients.

Just before Congress broke for the July 4 holiday, the bill missed the 60 votes needed to pass by just one vote.

Today, Kennedy, who is battling a brain tumor, brought that vote to the Senate floor. “Aye,” the 76-year-old Kennedy said, grinning and making a thumbs-up gesture as he registered his vote.

Meanwhile, it appeared that Republican members of the Senate had been released to vote as they wished after it became apparent that the 60-vote threshold would be met. Pressure from seniors,  the AARP, and the AMA  had been mounting on members who voted against the bill June 26.

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The Problem with Medicare Advantage

Everyone understands why Congress was so reluctant to cut physicians’ fees. Reimbursements for primary care physicians are very low—so low that 30 percent of Medicare recipients who are looking for a new medical home can’t find one. Cut fees, and fewer doctors will take Medicare patients. The AMA, seniors and the AARP are all up-in-arms. Few politicians like to disappoint this trio.

But why are so many Congressmen willing to cut Medicare Advantage? After all, one out of five seniors is in the program: Won’t they be upset?

The truth is that, as many seniors have discovered, Medicare Advantage fee-for-service (the plan Congress has now voted to phase out by 2011) is not turning out to be an advantage for them.

Here is what David Fillman, an International Vice President of the American Federation of State, County and Municipal Employees (AFSCME), which represents some 1.4 million workers, had to say about MA’s fee-for-service insurance when he testified before Congress in January:

“Insurance companies have targeted our employers for the hard sell, including offers to pass through some of the federal subsidies to state and local governments.”

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Senate votes to reign in private Medicare

Robert Laszweski has been a fixture in Washington health policy circles for
the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. You can read more of his thoughtful analysis of healthcare industry trends at The Health Policy and Marketplace Blog.

Ted Kennedy came to the Senate floor and led Senate Democrats to an amazing victory in their first real attempt to rein-in private Medicare spending and rescind the 10.6 percent physician fee cuts.

The veto-proof margin puts President Bush’s threat to veto the Senate bill, which was approved by the House on another veto-proof 354-59 vote just before the holiday, in doubt. Why bother?

I was not surprised to see Senator Kennedy on the floor.

This vote was not about the doc cuts. It was about Medicare and its future. The doc cut was just the leverage Democrats were using to get at the private Medicare program.

Medicare is part of the Democratic legacy, and it is at the core of the Kennedy legacy.

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