In a recent comment thread this comment, by a regular commenter who IIRC is an emergency medicine physician, caught my attention:
@Andy- Medicare pays 20%-300% more than private insurance for equivalent procedures.
If that’s the case, why isn’t cutting reimbursement rates a viable method for reducing Medicare costs? That’s not a rhetorical question—I really would like to know the answer. Also, if private insurance and Medicare paid the same amount for 100% of procedures, why would that result in physicians rejecting Medicare patients in droves? That’s a claim that’s frequently made of cutting Medicare reimbursement rates and I’m skeptical.
This also seems as good as anywhere else to explain in a little more depth why I’m skeptical of the advisory board as a method of reducing Medicare costs. The political issures are obvious: as Peter Suderman points out even Democrats don’t favor the cuts that the board wouild require.
My understanding is that what is being discussed in the Independent Payment Advisory Board is an appointed board of experts who are tasked with restraining the growth in Medicare spending to the non-Medicare rate of medical inflation. The CMS Actuary made this remark back in April 2010:
In general, limiting cost growth to a level below medical price inflation alone would represent an exceedingly difficult challenge.
but there are more other reasons to doubt its effectiveness. First, in order for the IPAB to fulfill its mandate it must restrain the growth in Medicare costs without affecting either coverage or quality. To do that all of the following conditions must obtain:
- There must be sufficient spending for procedures that are currently covered termination of coverage for which will affect neither coverage nor quality that it accomplishes substantial reductions in Medicare spending.
- The costs of procedures that are covered that will be performed as alternative to the uncovered procedures will be less than the costs of the procedures they’re replacing.
- Providers will not perform additional covered procedures to make up for the lost billing.
The last is merely another way of saying something I’ve repeated frequently around here: the assumption is that providers will take a pay cut willingly.
I really don’t understand why cost shifting isn’t supposed to work. (not that I don’t think the Ryan plan is ridiculously inadequate). My company has been consistently upping my co-pays and deductibles and I’ve definitely been rationing my own care as a result. I fail to see how everyone doing a bit of this wouldn’t affect the medical inflation rate. I guess maybe because only people with money to lose would ration – so you’d have to trim their SS benefits or something.
My biggest complaint lately is I have no idea what my bill is going to be. I got several estimates for having a baby from insurance and from my hospital. All of them were at least 1500 less than my actual final tally. We need cost shifting AND simple, honest pricing.
Either that or we just wait until medical care consumes our entire gdp and then it can’t outgrow it.
“If that’s the case, why isn’t cutting reimbursement rates a viable method for reducing Medicare costs?”
It is part of the answer, but if all you do is cut fees docs will just do more procedures.
There is some low hanging fruit. Do not allow docs to own facilities at which they work or own imaging centers to which they can refer. Do not pay for treatments, Avastin looks like it will be a good example, that are not shown to work. If there are multiple available treatments with equivalent results, pay for just the cheapest one and let patients pay out of pocket if they want the more expensive treatment.
“The last is merely another way of saying something I’ve repeated frequently around here: the assumption is that providers will take a pay cut willingly.”
Who does? The IPAB will need to be given the power to recommend cuts w/o restrictions. The problem will remain private insurance. I just dont know if Medicare can really be cut w/o addressing the costs incurred by private insurers. You can try Ryan’s approach, but that likely leaves more and more people uninsured with a political response inevitable.
Steve
When I asked the question, I guessed that would be the answer, but that is just one way to compare costs. Also, since private insurance and medicare contain a different demographic mix, it’s not easy to make direct comparisons.
None of the efforts to control medicare spending have worked – I don’t have much confidence the IPAB will be much better. One potential solution is replace fee-for-service with an alternative payment system (ie. capitation). Personally, I think FFS has to go in order to better control costs.
If it is indeed the case that Medicare is paying substantially more than private insurance, I quite agree. That runs contrary to the statistics I have seen. McKinsey’s 2008 report shows substantially higher reimbursements for private insurance (Exhibit 13, page 32). On 2007 report (Exhibit 28, Page 46), Medicare’s payments for MRIs and Cat scans are less than a quarter that of the “Commercial payor rate (50th percentile).” And polls like this.
Can someone point me the way to some statistics where Medicare payments are 20-300% higher? Is it maybe an emergency room thing? If reimbursements are that good, why do some doctors refuse to accept Medicare?
(These are genuine questions. I’m genuinely confused.)
Trumwill,
steve can clarify, but I assumed what he wrote was a typo and that he meant to say that Medicare pays 20-300% less than private insurance, not more.
This discussion reminds me of my nieghbors, who are military and have Tricare insurance which, I believe, pays Medicare rates. Their 2 year old son developed liver cancer and got a liver transplant. He’s doing pretty well now, but it’s been a long haul. Anyway, they got the invoice for the extended hospital stay for the transplant which totaled around $200k dollars. Tricare covered almost everything, so their out-of-pocket expense was very low. Anyway, the itemized list of procedures included some in-room therapy after the surgery, which was scheduled twice a day at around $250 a pop. The thing is, half the time they came, the little boy was sleeping or otherwise unable to do the therapy – but Tricare was still billed for that “procedure” whether it actually occurred or not. That kind of stuff seems to happen pretty often and given the system and the incentives, it’s not easy to fix.
Oops. Mea gulps. Private insurance pays more. Sorry Dave. Was writing post call and mid typed.
Steve
You really threw me for a loop, there, Steve. I was wondering if there was something that I was missing. If it were the case that Medicare were paying more, then there would definitely be room to at least cut it down to private insurance rates. A good part of my discomfort with cutting Medicare reimbursements is fear that more doctors will stop accepting Medicare and those that do are the ones that feel they can “make it up in volume” (and generate enough new volume to make up for it).
I think that right now a lot of doctors (the non-mercenary ones) accept Medicare because they can afford to. Nobody wants to turn away patients. I think we should be careful before taking advantage of that sense of professional obligation. Then others do it because they can make up for the light reimbursements on volume and you run into the risk of them amping up the volume enough so that they can continue to make money or, if they can’t, moving on to something more lucrative if possible. Some may not be able to, but areas where the shortage is greatest have a lot of leeway in choosing their patients. That includes primary care physicians, which is troublesome.
Which is not to say that you can’t cut reimbursement rates. Since that’s how providers are paid, that seems very likely to be part of the equation. But as I’ve mentioned elsewhere, it has to be done very carefully or there will be negative repercussions (either greater, unnecessary volume, or Medicare patients being sent to the back of every line in a system where there is a shortage of providers in many areas). And there are other things that have to be done along with it. If you can’t do the other things, it may make things worse and not better (either in terms of health care availability, cost, or both).
Andy,
I am with you on FFS (I meant to mention this in the last conversation), though as with lowering reimbursements, I’m not sure how we get from Point A to Point B.
My concern with capitation, as I understand it, is that it doesn’t distinguish between intensive and non-intensive patients. So those that specialize in “problem cases” get shorted and providers will primarily want the healthy patients. Maybe there’s some fix for this in capitation proposals I am unfamiliar with?
But FFS is very problematic. Not only because of entrepreneurial docs, but because hospitals have a bottom line. We had hoped that by virtue of my wife being on salary that we would avoid some of this, and we have to some extent, but the end result is that she gets in hot water during long labor when there was enough of a gray area that she could have performed a C-section, saving in operational costs and resulting in a higher payment. The hospital doesn’t put it like that, but there’s a reason that C-section rates in this country are so ridiculously high.
To throw something else out there, I think our collective demand to “choose our own doctor” is part of the problem. It kneecaps insurance companies and the government during negotiations with providers. It’s harder for Blue Cross of Wherever to play hardball with doctors and threaten to take their business elsewhere when everybody knows that some of BCW’s patient base is going to want the option to go to the doc that the insurance company wants to be able to threaten to cut out of the loop.
Medicare sucks, would be hard to make a living and pay overhead with just Medicare, Medicaid and Tricare.
That is why you see a high rate of docs saying they will quit if Obamacare goes through. If burgers had to be sold at $0.33, expect burger joints to close if they can’t make money somewhere else. If all we get is gov’t rates, we are better off quitting than not meeting overhead. It isn’t being hard hearted, it is being “sustainable”.
good luck, we are all screwed.