Wednesday, December 1, 2010

“Cowardice”—or bravery--on health care costs?

In assessing the “best and worst” of the recommendations from the National Commission on Fiscal Responsibility, Washington Post blogger Ezra Klein accuses the Commission of “cowardice” in addressing health care spending:

“The plan's health-care savings largely consist of hoping the cost controls . . . and various demonstration projects in the new health-care law work and expanding their power and reach. . . In the event that more savings are needed, they throw out a grab bag of liberal and conservative policies . . . but don't really put their weight behind any. . .[their] decision to hide from the big questions here is quite disappointing . . . ”

Pretty harsh words, considering that in other respects Klein gives the Commission high marks. But I think there is a lot more to the Commission’s recommendations on health spending than meet’s (Klein’s) eyes, even though I have my own doubts about the advisability and political acceptability of many of them:

Medicare SGR cuts: Give the Commission credit for acknowledging the truth: the Medicare SGR cuts to doctors are “phantom savings . . . from . . . cuts that will never materialize.” The Commission proposes to eliminate the SGR and its deep scheduled cuts; instead, payments to physicians would be frozen at the current (2010) level through 2013 and cut by one percent in 2014.

I don’t think physicians will welcome a multi-year freeze followed by a “small” cut that will result in Medicare payments not keeping pace with their costs. Non-primary care physicians in particular are likely to balk. Although not mentioned by the Commission, most primary care physicians would implicitly be protected from having their Medicare payments fall below overhead costs because of the Primary Care Incentive Program created by the Affordable Care Act (ACA). Under this program, most primary care physicians will see their Medicare payments for office visits and other designated visits increased by 10%, starting in 2011, and continuing each year for the next five years--through 2015.

New physician payment system: The Commission would require that CMS “develop an improved physician payment formula that encourages care coordination across multiple providers and settings and pays doctors based on quality instead of quantity of services.” The proposal “would reinstate the SGR formula in 2015 . . . until CMS develops a revised physician payment system” that would cost less than spending under the SGR. In other words, fee-for-service would be replaced with payment for quality and care coordination, or the SGR (and its deep cuts) would come back.

Expanded pilot-programs: The basis for the new payment system would likely come out of accelerated adoption of pilots created by the ACA “to test delivery system reforms which have the potential to reduce costs without harming quality of care” like accountable care organizations, patient-centered medical homes, and bundled payments. Medicare would be directed to “implement any pilot projects that have shown success in controlling costs without harming the quality of care by 2015.”

Cuts to teaching hospitals: The federal government would save $60 billion over the next ten years by bringing GME and IME payments “in line with the costs of medical education by limiting hospitals’ direct GME payments to 120 percent of the national average salary paid to residents in 2010 and updated annually thereafter by chained CPI and by reducing the IME adjustment from 5.5 percent to 2.2 percent.” I find it interesting that the Commission not only doesn’t allow for any increased funding for residency programs facing shortages (like general internal medicine) but would cut spending across-the-board.

Medical liability: The Commission recommends adoption of reforms to reduce the costs of defensive medicine, including creation of “specialized ‘health courts’ for medical malpractice lawsuits, an approach that ACP believes has promise. It stops short of recommending caps on awards; instead calling on Congress to “consider” and “evaluate” caps.

Other cost controls: The Commission would limit the amount of an employer’s contribution to health insurance that is treated as tax free-income, establish a “global” health care budget that would limit spending increases to the GDP plus one percent with an automatic enforcement mechanism if spending exceeds the budget (starting in 2020 and subsequent years); cut hundreds of billions out of “discretionary spending” including health programs funded out of appropriations; give more power to the Independent Payment Advisory Board established by the ACA; and pilot-test converting Medicare to a premium support program.

Whether you agree with the Commission’s recommendations or not, I think they are a serious—and bold—effort to put on the table ideas to reduce health care spending. The likelihood is that the Commission’s report won’t go anywhere—for now. It may not even get the required of 14 out of 18 members for Congress to take it up. I expect, though, that many of its ideas may get serious attention later, because the U.S. will have no choice but to tackle the challenge of rising deficits and debt, with health care spending being the single largest threat to fiscal solvency.

Today’s question: What is your reaction to the Commission’s recommendations on health care spending?


w said...

Tinkering around the edges of central planning cannot fix the fatal conceit of central planning.

The Soviets could not adequately produce the right number or right kind of shoes for feet. How, by central-planning, will we ever make the delivery of something infinitely more complex – health care services – better and more efficient? (Are we smarter? Is that the answer?) For every new proposal there are – by unavoidable logical necessity – a myriad of unintended consequences.

To begin, how do you even start to answer questions such as “What is the correct amount of total medical service expenditures for a diverse country of 300+million people?” “How should that be broken down?” “Who decides, and based on what?” Who does the work, and how?” “What should an MRI cost?” “When should we do an MRI?” “What should a urinalysis cost?” “What’s the price for removing ear wax that seems most fair in all markets at all times and what percent should that be of the fee for an emergent appendectomy?”


But most critically, as technology progresses, people age, we become wealthier or poorer, how do we change our answers?

The point is it is simply an impossible task.

In economics it is widely recognized that with price setting/controls you get the following two market distortions: scarcity and degradation of quality.

Whither General Medicine?

Will organized medicine and the ACP ever lobby to allow for transparent pricing coupled with the removal of price controls?


w said...

To be clear, I should have stated explicitly that the price controls I'm referring to are in Medicare, and I am primarily referring to Medicare; although the Medicare rules flow indirectly, if only partially, to the insurance market, as well, as we all know.

It should be noted that with price competition, many prices actually fall, particularly for technology-intensive products! Might MRI's cost less today if there was price competition? We'll never know.


Steve Lucas said...

W makes an important point: This will not be solved with a global solution.

Other doctors have made the equally important point that any real cost control will need to take place where the ink pen meets the prescription pad.

This point was driven home to me a few years ago when my youngest brother was admitted to the hospital with liver failure, alcoholic. With no family the doctor sat down with my parents and explained the options: Heroic efforts that will prolong his life, but will not change the outcome, or continued care allowing nature to take its course.

Continued care was chosen and my brother was kept comfortable and allowed to die with dignity.

The important point for this discussion is that the doctor took the time, and the leadership role, to explain the options and gave a real life assessment of outcomes. This doctor was not driven by rules on one side, nor profit motive on the other side. His concern was for the patient and family.

In this instance the course of action was the less expensive one, but the right one for my brother. Today my sister still blames us. Collectively, for killing her brother since he had insurance, Medicaid, and we should have gone with the heroic course of action.

This is the dilemma faced by modern medicine where insurance makes all things possible, and may even add a financial incentive, vs. the true needs of the patient. This is the difficult role we ask physicians to play, and to add a knowing and caring voice at a difficult time on our lives.

Rules will not solve these problems, it takes time and compassion, and that only comes with experience and knowledge.

Steve Lucas

Jay Larson MD said...

"Although not mentioned by the Commission, most primary care physicians would implicitly be protected from having their Medicare payments fall below overhead costs because of the Primary Care Incentive Program created by the Affordable Care Act (ACA)"

Ha! For many primary care physicians, Medicare payments+10% will still be below overhead costs. Remember, for over a decade Medicare payments for primary care physicians have not kept up pace with the cost of running a practice, especially with all the extra tasks piled on them.

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