Bipartisan Agreement to Destroy Medicare As We Know It, But Not Quickly Enough

(A version of this Health Alert was published by Forbes.)

Last week, the Centers for Medicare & Medicare Services announced by it had beat its target of tying 30 percent of Medicare Part A and B payments to “quality of care rather than quantity of services.” That goal was initially set for the end of 2016, but was actually achieved in January.

Initially, this was a goal set only by administrative fiat, in January 2015. However, it soon picked up bipartisan legislative support in the so-called “doc fix” bill of April 2015. The Administration has a goal of tying 90 percent of payments to “quality” by 2018 and it now looks like this is a realistic target.

Another way to describe paying for “quality of care rather than quantity of service” could be “plotting to destroy Medicare as we know it,” although the politicians who brought this about would not use those words. On the contrary, Republican and Democratic politicians accuse each other of plotting to destroy “Medicare as we know it” when campaigning against each other, because they know that is the easiest way to scare granny at the voting booth.

In fact, Medicare payments as we know them have to be destroyed. The tradition payment method would make a Soviet bureaucrat blush. William Hsiao, the economist who designed the incumbent system, determined Medicare’s fees as follows:

“He put together a large team that interviewed and surveyed thousands of physicians from almost two dozen specialties. They analyzed what was involved in everything from 45 minutes of psychotherapy for a patient with panic attacks to a hysterectomy for a woman with cervical cancer. They determined that the hysterectomy takes about twice as much time as the session of psychotherapy, 3.8 times as much mental effort, 4.47 times as much technical skill and physical effort, and 4.24 times as much risk. The total calculation: 4.99 times as much work. Eventually, Hsiao and his team arrived at a relative value for every single thing doctors do.”

(Rick Mayes and Robert A. Berenson, Medicare Prospective Payment and the Shaping of U.S. Health Care, Baltimore: Johns Hopkins University Press, 2006, p. 86.)

This central planning has to be consigned to history’s dustbin. So, alternative payment mechanisms are welcome. However, they do not appear to be having much effect. Last week’s announcement noted savings of $411 million in 2015, when only 20 percent of traditional Medicare spending was in alternative payment models. It did not state the baseline spending against which to measure these savings.

However, it concludes that it has now exceeded the goal of spending 30 percent on alternative payment models by dividing an estimated $117 billion committed such models by $380 billion of total Medicare fee-for-service payments.

We can reasonable estimate that if $411 million was saved when 20 percent of spending was directed towards such models, savings from re-directing 30 percent of spending would be around two thirds to three quarters of a billion dollars.

That is not even one percent of $117 billion. So, while there may be some very small improvement at the margin, “destroying Medicare as we know it” is hardly destroying Medicare’s out-of-control spending as we know it.

Why the lack of impact? The principle of payment reform is good, because it puts providers at financial risk for achieving quality outcomes. There is a no shortage of alternative payment models:

• Medicare Shared Savings Program (MSSP)
• Pioneer Accountable Care Organizations
• Next Generation Accountable Care Organizations
• Comprehensive End Stage Renal Disease (ESRD) Care Model
• Comprehensive Primary Care Model
• Multi-Payer Advanced Primary Care Practice
• End Stage Renal Disease Prospective Payment System
• Maryland All-Payer Model
• Medicare Care Choices Model
• Bundled Payment Care Improvement

What do all these alternative payment mechanisms have in common? They are utterly opaque to the Medicare beneficiaries who are governed by them. Ask any Medicare beneficiary you know if she is in an Accountable Care Organization that is saving money. You will get a blank stare. Indeed, Medicare assigns patients to ACOs based on providers’ decisions. That is just backwards.

Patients should decide where and when they join any of these alternative payment models. More importantly, patients should share financially in any savings. That is the only way to get control of Medicare spending.

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