• Snake Oil in Cyberspace
• The Crisis in Long Term Care
• Policy Must Address Challenges Posed by Longevity
• The GOP Approach to Medicare

The GOP Approach to Medicare

Paul Ryan’s budget has ignited the debate over the future of Medicare. CMS Director Don Berwick recently opined in the Wall Street Journal on the superiority of Obamacare in controlling Medicare costs. Dr. Berwick and Congressional Democrats believe that increasing the role of Washington, D.C. in everyday health care decisions will lower costs. On the other side, Republicans believe that giving patients a choice and encouraging competition is the best way to preserve Medicare for those on or about to be on Medicare and also strengthen the program for future generations.

All acknowledge that Medicare is unsustainable in its current form. Medicare is projected to cost $569.3 billion this year and grow at an astonishing 5.6% annual rate through 2021 - exceeding the growth of GDP. This growth will be fueled by the more than 16.5 million baby boomers entering Medicare. Since almost half of Medicare’s funding comes from general appropriations, Medicare’s growth directly contributes to the deficit. If nothing is done to change our current trajectory, the entitlements of Medicaid, Medicare, Social Security, and the interest on our debt will consume every federal tax dollar by 2025 - 14 years from now. Dr. Berwick and other apologists insist that Obamacare will save Medicare by capping expenditures by fiat. To enforce this, Obamacare created the “Independent Payment Advisory Board” (IPAB), a new government bureaucracy of un-elected officials who are supposedly empowered to address waste. However, the chief CMS actuary questions the ability of IPAB to achieve savings through decreasing Medicare payments. A report from the actuary states, “Similarly, the further reductions in Medicare growth rates mandated for 2015 through 2019 through the Independent Payment Advisory Board may be difficult to achieve in practice.”

In reality, the IPAB is severely restricted in the areas where it can address waste. It specifically cannot recommend rationing of care, raising revenues, increasing Medicare beneficiary premiums, increasing cost-sharing or restricting benefits. Since hospitals and nursing homes are not subject to cost-cutting until 2020, the IPAB will most likely attempt to save money by cutting payments to physicians, Medicare Advantage plans, and prescription drug plans. The principal effect of IPAB will be to eliminate the private sector’s role in Medicare and decrease payments to providers, thereby decreasing beneficiaries’ access to physicians.

Indeed, if the current reductions in physician reimbursements and Obamacare’s productivity updates are enacted, payments to Medicare physicians would be cut nearly in half by 2019. A recently released report from CMS shows these cuts are unrealistic and virtually certain to be overridden by Congress. Yet on the basis of cuts like these, Obamacare is touted to save money.

Dr. Berwick also states that the Accountable Care Organizations (ACOs) that Obamacare establishes will control Medicare costs. ACOs theoretically encourage coordination of care between doctors, hospitals, and other providers. However, demonstration models do not support these claims. A recent article in the New England Journal of Medicine states that seven out of the ten demonstration projects designed and funded to prove that ACOs could work actually lost money in the time period analyzed. Of note, the locations for the pilot programs were specifically chosen because they seemed likely to succeed as ACOs.

The proposed rule for ACOs defies description. Patients will not know what ACOs they belong to, and doctors and hospitals will not know if patients belong to the particular ACO for which they work. Making matters worse, doctors and hospitals will be penalized if the patients, whom they do not know for sure are in their ACO, do not follow their advice. If this seems convoluted, good luck with the rest of the rule. To imagine that this will yield savings places too much faith in the power of supercomputers to track individual doctor-patient interactions.

Dr. Berwick and others have contrasted health care with other areas of the economy where competition has led to higher quality and lower consumer costs. When consumers spend money they control and are equipped with information about quality and price to make the best decisions for their pocket books, quality increases and cost decreases. Strangely enough, Dr. Berwick does not acknowledge that there is evidence of this working in Medicare.

When Republicans enacted Medicare Part D drug coverage, the program was constructed to encourage competition and cost consciousness. Because of this, the program is 40% under initial cost estimates. In addition, direct medical costs are lower because, thanks to the prescription drug benefit, patients are able to manage their diseases at home instead of being admitted to a hospital. In order to avoid the “doughnut hole,” patients, undirected by a central planner, choose to purchase generic drugs. In response to market forces, Wal-Mart and others began to supply generic drugs at $4/prescription, generating savings for patients and Medicare.

The irony is Dr. Berwick is right: competition increases quality and lowers cost. But this is the foundation of the GOP approach to Medicare, not that of the legislation he defends.