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The Difference Between Short and Long Term Medicare Savings for Health Care Reform

Robert Blendon, Professor of Health Policy and Political Analysis at the Harvard Kennedy School of Business, speaking on funding for Health Care Reform, July 8, 2009

“Potential sources for this (health care reform) are new taxes on people or businesses, substantial short-term savings from the existing Medicare and Medicaid programs, or increasing the deficit”

After Last week’s passage of Health Care reform plans by committees in the House and Senate, attention has turned to the Senate Finance and House Commerce Committees to see how congress will pay for reform in a deficit neutral way, as mandated by President Obama.  The price tag over ten years–$1.2 Trillion–is paired with the observation that a shortage of $240 billion currently exists.  This assumes that $948 billion already has been found.

The only way to ‘find’ $948 billion without increasing the deficit is to increase taxes on businesses and the wealthy or by reimbursing less for services provided through Medicare and Medicaid.  I will leave the never-ending tax-rate argument for political pundits, and instead focus this post on short and long-term savings from Medicare and Medicaid because I believe paying less for services than it costs to provide them will negatively impact the quality of medical care in this country.

I was surprised to learn of a battle being waged between the executive and legislative branches on the issue of “long-term savings” from Medicare, as it relates to “Medicare Payment Authority”.  White House Chief of Staff, Rahm Emanuel, has called Medicare payment Authority, “the least talked about, most important issue on the table” and clarified its’ importance by stating, “Structures that fundamentally alter the long-term costs are a must for real health-care reform.”   This issue does not follow party lines with a mix of Republicans and Democrats being in opposition or support of the President, irrespective of party affiliation.

Our Congressional Representatives have the power to set Medicare Payments, outside of any pre-set rules or regulations by simply passing legislation.  The Washington Post describes this power as “one of their most valued perks….a powerful tool on the campaign trail”.  President Obama’s administration wants to either transfer payment authority to MedPac (the Medicare payment advisory commission) or create an independent Medicare Advisory Council, reporting to the executive branch so lawmakers can no longer tailor Medicare spending to address local concerns.

Before leaving office, Senator Ted Stevens secured a permanent 35 percent increase in Medicare payments for Alaskan physicians only.  The political benefits to an incumbent running for reelection need not be explained while it is easy to see the inefficiency in such a system.  At a time when politicians are admonishing those working in the Health Care Field to be more efficient, I would urge congress to take a dose of their own efficiency medicine and support the current administration in their efforts to curtail long-term spending by surrendering this power.

According to the White House, $622 of the $948 billion will come from short-term savings squeezed out of existing Medicare and Medicaid programs through one of two ways: by improving efficiency (309 billion) or enacting policy changes (313 billion).  The Medicare Fact Sheet posted on the White House website, states that one policy change will have the added benefit of encouraging efficiency:  “incorporate productivity adjustments into Medicare payment updates”.  This policy change measures the productivity of the entire U.S. economy, as measured by subtracting the hours worked from the amount of product created and extrapolates it to Health Care (a profession which does not produce “products”).  This idea justifies the withholding of 110 billion dollars from “providers” with an unexplained benefit stated in the closing sentence describing this policy, “This adjustment will encourage greater efficiency in health care provisions”.

I found it difficult to believe that anyone could suggest paying less would encourage greater efficiency in caring for the infirm and old until Boston Medical Center, a hospital serving thousands of indigent residents, sued the state of Massachusetts one week ago, charging that the state is now reimbursing only 64 cents for every dollar spent treating those covered under Medicaid or Commonwealth Care (the state subsidized insurance program for low-income residents).  This should be of great concern to us all since the House’s plan adds 11 million people to Medicaid and cuts funding while reformists tout Massachusetts as an example worth following, being the only state with universal coverage today.  Before state wide reform was enacted this hospital had operated for 5 years without a loss.  However, when the hospital showed losses over two years of 138 million dollars, state officials observed the hospital had a 190 million dollar reserve (not for long it appears) and suggested that Boston Medical could reduce costs by operating more efficiently.

The above example demonstrates the willingness of government bureaucrats, inexperienced in providing actual medical care, to give flippant advice while failing to appreciate how fiscal efficiency, doing more with less, impacts medical efficiency, caring for the ill effectively.  To be sure, something must be done to curtail run-away costs in health care and I agree with the president when he says, “The status quo is unsustainable. Reform is not a luxury, but a necessity”.  However, reform needs to focus on sustainable Short-term and Long-term savings in such a way that prevents hospitals and doctors from having to make a choice between providing sub-standard care or going out of business.  Furthermore, I would hope that Congress take an honest look in the mirror regarding long-term savings before only enacting short-term savings which could negatively impact the care available to us all.

Until next week, I remain yours in primary care,

Steve Simmons, MD


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