In a provocative analysis of a 30-year old Medicare coverage loophole, John Schall explained the following (at the Medicare Policy Summit event):
1. Medicare covers kidney transplants for patients with end stage renal disease (ESRD). Transplant patients, of course, require life-long immunosupressive drugs to keep their bodies from rejecting the new kidney.
2. Medicare only covers immunosupressive drugs for 36 months total. These drugs are too expensive for most patients to afford out-of-pocket.
3. Many kidney transplant patients covered by Medicare are unable to continue their immunosupression regimen after 36 months, and slowly go into organ rejection.
4. Once they have rejected their transplanted kidney, they are eligible to receive a new one, fully covered by Medicare, with (you guessed it) 36 months of immunosuppresive drug coverage to follow.
Wouldn’t it just be cheaper to cover immunosuppresive drugs for the lifetime of the patient who receives an organ transplant? Yes, and that’s what lobbyists have been arguing for 30 years now, without a change in the rules.
Government-run healthcare can have its challenges… and this is only the beginning.
At the recent Medicare Policy Summit, Tim Hermes, the Senior Director of Government Affairs for Sepracor, offered an overview of Medicare’s current cost control strategy. These six strategies are part of Medicare’s policies, but are not necessarily applied evenly or consistently.
1. Functional Equivalency: if 2 drugs are deemed to be functionally equivalent, then their average sales price may be linked so they are reimbursed at the same rate.
2. Inherent Reasonableness: CMS has the right to decrease payments for treatments, that are deemed not to be inherently reasonable, by increments of 15% at a time.
3. Widely Available Manufacturing Price (WAMP): when the average sales price of a drug is higher than the WAMP, CMS has the right to reduce the drug’s price to the WAMP.
4. Coverage Restrictions: CMS can choose to restrict coverage for any drug, especially for off-label uses.
5. Judicial Bar: Only Medicare beneficiaries can sue CMS. Manufacturers may not.
6. Congress: there are several committees that have jurisdiction over Medicare, including the Senate Finance Committee, the House Ways and Means Committe, and the House Energy and Commerce committee. Congress can enact legislation to decrease the average sales price of drugs, and can influence Medicare cost control mechanisms.
Republicans do not support Barack Obama’s economic stimulus bill, nor are they too keen on the democratic approach to healthcare reform. Congressman Paul Ryan outlined an alternative approach to healthcare reform at the recent Medicare Policy Summit conference. His key points:
1. All Americans should have access to the same health benefits that federal employees have. They receive a medical savings account, with subsidies offered when they are sick, according to their need. Full support is available for low-income beneficiaries, while partial support is offered to high income beneficiaries. Ryan argues that targeting Medicare according to need will keep the program solvent (rather than offering full coverage to the very wealthy, etc.)
2. Tax credits should provide the basis for healthcare coverage so that individuals are not dependent on their employers for health insurance. Individuals would purchase their own health insurance either via their employer or on an open market that would promote competition between the plans to drive prices down. Individuals would be able to keep the remainder of their tax credit if they select a health plan that costs less than their yearly credit.
3. Americans will be allowed to purchase health insurance across state lines, allowing them further coverage options and increasing competition among the plans to decrease costs.
4. Small businesses may join a national group (Associations Health Plans) to pool risks and drive down the cost of providing health insurance to their employees.
5. States would create “high risk pools” for people with pre-existing conditions who could not afford insurance premiums. Federal funding would help to offset the cost of insuring these individuals.
Ryan explained that the Ways and Means Committee that oversees Medicare is basically “a bunch of politicians sitting in a room playing Caesar – giving either a thumb’s up or thumb’s down to healthcare reform and finance issues.” He warns that they will be doing a lot more of that if America continues on its current course of “more regulation, with the federal government dictating the practice of medicine, and rationing our healthcare.”
Ryan’s predictions are grim:
1. Within 2 years 17% of our economy will move from the private sector column to the public sector column.
2. Pete Stark will lead the charge for an Institute of Comparative Effectiveness to direct care choices in medicine. Physicians will have fewer treatment options to offer their patients.
3. Small health plans will go out of business, leaving only a few large plans, with decreased competition and fewer choices for consumers.
For more information about Ryan’s views, please check out The Roadmap For America’s Future.
One of the highlights of the Medicare Policy Summit was a panel discussion entitled “Medicare Expansion, Entitlement Reform, and National Health Coverage.” The goal of the discussion was to explore the potential role that Medicare could have in serving as a model for universal health insurance coverage in America. I’ve captured some of the key points that each panelist made:
First panelist: Grace Marie Turner, President, Galen Institute.
Grace Marie Turner has been instrumental in developing and promoting ideas for reform
that transfer power over health care decisions to doctors and patients.
She speaks and writes extensively about incentives to promote a more
competitive, patient-centered marketplace in the health sector.
Top 5 reasons why “Medicare for all” will not work:
1. The provider payment rate is not sustainable.
2. It cannot be sold as a free-standing health insurance policy. Medicare is full of gaps in coverage which must be covered with a series of supplemental plans like Medi-Gap.
3. The centralized nature of the benefit structure limits patient choices.
4. There will be political opposition by seniors to opening the flood gates to millions more beneficiaries, which would reduce their current coverage.
5. Medicare is already in debt to the tune of 38 trillion dollars.
What is a better solution to achieve universal coverage?
Private, competing plans can better provide tailored benefits to groups of uninsured. This would also increase patient choice and customization of care. Medicare Part D is run under a private sector model and is currently 40% under budget. This is evidence that the private sector, influenced by market forces, is better at cost containment.
The bottom line is that we have to decide if we want to reform healthcare with top-down directives or by aligning incentives. I believe we need to do a better job of coordinating care – it’s a financial issue.
Second panelist: Robert E. Moffit, Ph.D., Director of the Center for Health Policy, The Heritage Foundation.
Moffit has been an advocate of the free market principles of consumer choice and competition since the early 1990s, when he chastised Congress for keeping such a system of choice and competition ” exclusively for itself and federal workers while considering ways to impose vastly inferior systems on almost all [other] Americans.”
Who do you want to make key healthcare decisions for you?
1. Your employer
2. The government
3. Individuals and families
Other industrialized countries have accepted option #2, but America is a very different culture. We must enlist the states as the laboratories of democracy that they should be. The Medicare Advantage plan is revolutionary.
Third panelist: Robert Berenson, M.D., Senior Fellow, The Urban Institute
Dr. Berenson’s current research focuses on modernization of the Medicare program to improve efficiency and the quality of care provided to beneficiaries.
The consumer-directed healthcare system is not what the public wants or needs. We need supply-side solutions, not demand-side solutions. Medicare has been more successful than private plans at reducing costs.
There’s no doubt that a government-run healthcare system is not what Americans want – but I see no other alternative. The Massachusetts (state level solution) is not going to be successful because they provided universal coverage without any cost containment mechanisms in place, so costs simply sky rocketed.
Currently, 20% of Medicare beneficiaries discharged from the hospital are readmitted, and half of those are due to avoidable complications. Follow up care (after hospital discharge) is not well managed. Most patients discharged from the hospital don’t see a healthcare professional for follow up within 30 days of their discharge. We have to do better.
There is no doubt in anyone’s mind that the U.S. healthcare system, in its current form, is financially unsustainable. Many in Washington believe that 2009 will usher in more sweeping reform than we’ve seen in decades. I attended the Medicare Policy Summit (along with about 100+ industry insiders and one other physician, Dr. Nancy Nielsen) to try to read the “tea leaves” regarding Medicare’s likely reform – and how that will impact the healthcare system in general.
I took 49 pages of notes during the two-day conference, but will spare you the gory details and simply capture (in a series of blog posts) what I found to be the most interesting parts of the discussion. This post is devoted to highlights from Bruce Vavricheck’s lecture, “The President’s Budget and What It Means for Entitlements.”
Bruce Varvichek is the Assistant Director for Health and Human Resources, Congressional Budget Office.
Bruce explained that if we continue on our current healthcare spending path, over 50% of all federal spending will go towards funding Medicare, Medicaid, and Social Security entitlement programs by 2018.
What are the underlying causes for this rapid rate of growth in spending?
1. Chronic Illness. The sickest, top 5% of Medicare beneficiaries account for 43% of all Medicare spending. Cost containment should focus on identifying these 5% early, and intervening so as to prevent advancement of disease where possible. Solution: The “medical home” model may help to identify people who are likely to become sick, and engage them in preventive health programs early.
2. Obesity. Rises in obesity rates is directly related to increased heart disease, diabetes, cancer, and other chronic disease prevalence. The fastest growing segment of the population that is becoming obese is the high income bracket. Bruce concludes: “This can’t just be explained by McDonald’s.”
3. Non outcomes-based spending. Medicare beneficiaries with the same medical conditions receive widely different medical services depending on where they are in the country. More services, however, do not correlate with improved outcomes.
Solution: Comparative Effectiveness Research
What changes in Medicare benefits is the Congressional Budget Office considering?
1. Creating Medicare insurance buy-in for people ages 62-64.
2. Reduce or eliminate 24 month waiting period for disabled people to become eligible for Medicare.
3. Increase the age of eligibility of Medicare beneficiaries to 67. This encourages people to work longer since average lifespan has been steadily increasing.
CBO Strategies to improve quality and efficiency of care:
1. Bundle Medicare payments so that hospital and post-acute care are linked. This will incentivize hospitals to do a better job of follow up once patients are discharged from the hospital.
2. Reduce payments (after risk-adjustment) to hospitals with higher re-admission rates.
3. Offer physicians performance-based payments for managing and coordinating care for their patients (the medical home model).
4. Create incentives and penalties to promote adoption and use of HIT.
CBO strategies to streamline payment structure and benefits:
1. Modify the Sustainable Growth Rate (SGR) formula used to determine payments to physicians. Put a cap on total spending.
2. Change Medicare Advantage program to fee for service.
3. Replace the current beneficiary cost-sharing structure with a unified deductible and uniform cost-sharing plan. Add catastrophic limit for out-of-pocket spending.
4. Require drug manufacturers to pay a rebate to Medicare for drugs covered in Part D.
5. Fill in the “donut hole” in Part D.
Next up: Grace Marie Turner and the free market gang debate the merits of a government-run healthcare system.