Paying for the Medicare Doc Fix is Easy
A similar version of this Health Alert appeared at Forbes.
Late last month, an overwhelming bipartisan majority in the House of Representatives approved the Medicare Reauthorization and CHIP Extension Act (MACRA), a fiscally irresponsible approach to increasing the amount the federal government spends on Medicare’s physicians’ services. Medicare’s Physician Fee Schedule is tied to an inflation formula that is inadequate to pay physicians enough to keep seeing Medicare patients. While Congress has had to increase this amount every year, those increases have always been funded by offsets from other federal spending.
This is the first time politicians of both parties have ignored this rule, increasing Medicare’s physicians’ payments perpetually and not paying for it. Worse, gimmicks obscure the true cost of the bill. Further, the bill would centralize federal control of the practice of medicine along the lines of Obamacare. The bill faces a lot of pressure to pass the Senate next week, especially because Medicare will have to start paying doctors according to a significantly lower fee schedule on April 15. So, the Senate needs to fix the bill very quickly before approving it.
There are three responsible approaches: A shorter “doc fix” that increases physicians’ Medicare payments by no more than two years, which can be easily offset just like 17 previous doc fixes have been; including MACRA on the “pay as you go” (PAYGO) scorecard, making its spending subject to sequestration; or finding $141 billion of offsets required to make the entire bill budget neutral.
The last choice is not as terrifying as often assumed. In 2014, the centrist Committee for a Responsible Federal Budget (CRFB) introduced the PREP Plan, which described about $250 billion of offsets to pay for reforming Medicare physician payments. The PREP plan was updated this March. CRFB has also proposed other Medicare savings outside the PREP plan. Many of these tax hikes are not acceptable to conservatives, and some are spending cuts that rely overly on central planning (like Obamacare and MACRA do) or reduce prescription drug prices by degrading innovative drug makers’ intellectual property.
MACRA includes only one of these conservative reforms: Restricting first-dollar coverage for medigap plans (also known as Medicare supplemental plans). However, even that is not worth much: less than $1 billion according to the Congressional Budget Office (CBO). The president also has this reform in his budget (via a surtax on medigap premiums), but savings from his plan are almost $4 billion. The reason for the difference is not completely clear, but appears mostly because the president’s medigap reform kicks in in 2018, while MACRA’s is delayed until 2020. Even in such a relatively small thing, the House of Representatives has underbid President Obama for budget savings!
Other savings proposed by the CRFB, some already in President Obama’s budget, are mostly ignored in MACRA. I have ranked these in (what I think is a reasonable) descending order of acceptability to conservatives:
- Equalize payments for similar services performed in different settings ($30 billion) such as hospitals or physicians’ offices.
- Modernize Medicare Part A and Part B cost-sharing rules (up to $80 billion) by reforming deductibles, coinsurance and copays.
- Restore “provider tax” threshold to reduce the incentives for states to tax hospitals in order to distribute that money right back to providers and then receive a federal match on that contribution ($10 billion to $75 billion).
- Reduce Medicare coverage of beneficiaries’ unpaid debts to hospitals by 25 percent ($35 billion) or eliminate entirely ($55 billion).
- Encourage low-cost physician-administered drugs ($10 billion) by paying a flat fee instead of a markup on drugs for injection.
- Introduce competitive bidding to determine payments to Medicare Advantage plans ($10 billion).
- Reduce excess subsidies to academic medical centers for indirect costs of Graduate Medical Education (GME) by ten percent ($10 billion) or phase out ($50 billion).
- Reduce preventable admissions and unnecessary complications ($10 billion) by increasing penalties for hospitals, which have high readmission rates.
- Expanding the use of bundled payments and ACOs in Medicare ($50 billion) that pay for episodes of care rather than individual services.
The first four alone should be enough to offset the necessary $141 billion. Of course, these expenditures are revenues to members of the Obamacare coalition that supported MACRA in the House of Representatives, which will resist losing them. Nevertheless, if Congress cannot find offsets for a permanent Medicare doc fix, it should not be trusted to make Medicare fiscally solvent down the road. After all, the cost of MACRA over the next ten years is less than two percent of the overall cost of Medicare.
Thanks for a good article, but the fourth item in your catalog is just awful in my opinion.
You suggest that Medicare stop help covering hospital bad debts.
Would you prefer that hospitals chase down everyone who owes them money?
First of all, some hospitals still charge a grotesque chargemaster rate to the uninsured. (this is moderated by law in about 5 states.)
Do you want hospitals hammering down on a $10,000 charge for an ER visit (for which Medicare or Blue Cross would have paid $1200?)
But second, I think you are a humane person. But do you have any idea how a sick person — just out of the hospital — feels when debt collectors are hounding them? Do you comprehend the moral ugliness of a helping profession doing that to patients?
A journalist named Lagnado (spelling?) exposed the hideous collection tactics of the Yale University hospital in the New York Times in about 2005. Go back and read these.
Have I missed something? This one idea in your list is a terrible way to save money in Medicare.
Thank you. You may recall that I have put forward in this blog that the only way to get price transparency from hospitals is to make them suffer the consequences of lack of price transparency.
I describe my proposal as a “common law” approach whereby if a patient had not agreed to a price before hand, the onus would be on the hospital to convince a judge what the fair price is, not just collect a debt.
Hospitals have such huge bad debt loads because of their horrific pricing and billing systems. If they were more transparent about the cost of procedures, they would collect easier.
Further to your point #2, should not premiums be means tested? The baby boomers are some of the richest seniors yet. Why should their grandchildren subsidize their healthcare when they are capable of paying.
On point 6, I believe this was tried through demonstration projects about 10 years ago. The MA (then M+C) industry rose up and killed any reform. We now have a precedent for premium support in the ACA. It uses a similar approach (second lowest bid for a set benefit plan) that was proposed in the demonstrations.
Thank you. Means testing Part B premiums is in MACRA, so it is not on this list.
Here at NCPA, Professors Saving’s and Rettenmaier’s Medicare reform proposal includes means testing.
Good morning, John:
The SGR was a gimmick when it was invented. Why not just say that the emperor has no clothes? “Paying for” a boondoggle that generated purely fictional “savings” only heightens the folly.
Now let’s get real. Without swaddling the SGR fix in phony budget justifications, let’s just declare our national policy to be the reduction of health care costs.
There are direct ways to achieve those reductions by reducing the costs of delivering care.
For example, you suggest penalizing hospitals with high re-admission rates, but say nothing about the nursing home reimbursement system that incentivizes a revolving door, or the uncoordinated patient hand-offs from doctor to doctor as patients move through the system.
This country could save billions by coordinating post-acute care and requiring an alignment of incentives and coordinated case managment. If providers were given a portion of the moneys they save, and were given relief from archaic regulations that prevent them from working together to manage cases for the best patient outcome in the most cost-effective way and, we could dramatically not only reduce hospital readmissions, but shorten nursing home stays and, most importantly, provide better care right in the patients’ homes.
This kind of model Conitnuum-of-Care Organization (COCO) is being successfully put together and, not surprisingly, it works.It relies on a common interest in sharing in the savings.
Anyone interested in gainsharing COCO’s should feel free to contact me at cb@acmsiconsulting.com. They are clearly an important part of our future becuase they are a sure way to save billions, while providing a rational way to care for the Baby Geezers.
Cheers,
Charlie Bond
The offsets from previous boosts to the SGR have been real, as my articles have shown. And there are plenty more offsets lying around.
All the things you’ve mentioned, the federal government has been trying to do for a few years now with idiosyncratic and spotty results.
I agree with removing regulations. But then you have to let the patient control the money and let the providers decide how they are going to organize themselves to serve the patient.
Regarding bad debts……..
John, your catalog of reforms implies that the govt is now helping hospitals cover $55 billion of bad debts.
That seems too high by about $20 billion, but I will check it out.
I believe that the Disproportionate Share Program in Medicare does not compensate the literal bad debts of a hospital one by one. I think it works on a formula of the number of uninsured patient served.
So I was a little wrong in going off the handle, sorry.
Still, even if hospitals were utterly transparent, some number of patients will still be uninsured, and some number will have a $6K or $10K deductible that they cannot handle.
Maybe Medicare is not the place to handle this problem. But hiring debt collection attorneys is not the way to handle it either. I stand by my belief that hospitals should be helping institutions and not debt collectors.
Thank you. The hospital bad debt item has long been featured in President Obama’s budget and the Committee for a Responsible Federal Budget’s proposal. I am relying on those sources.
I kind of screwed up on this one. I thought the issue was whether Medicare should help cover hospital debt for younger uninsureds.
Turns out that this budget debate is about Medicare covering bad debts for Medicare patients!
The numbers are all over the lot, though something like $36-$50 billion is at stake over ten years.
http://www.aha.org/content/11/110909-baddebt.pdf
http://www.daytondailynews.com/news/news/cutting-bad-debt-payment-to-hospitals-coul
I have a retrograde habit of ignoring ten year projections. They over state either spending or savings. $3-$5 billion a year is not much in total Medicare spending.
Perhaps I could have been clearer. Yes, the estimates are all over the map because this is not an “all or nothing reform.” Congress could dial back the coverage of bad debts to a percentage greater than zero but lower than it is today.