Economics

Medicare Whac-A-Mole

Why health care price controls always fail

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House Republicans, you may have heard, are trying to "end Medicare as we know it." And well they should—Medicare as we know it is the nation's biggest fiscal disaster. For years members of Congress and the executive branch have been trying, and failing, to find ways to restrain the growth of government health spending on seniors. Medicare is a $500 billion program on track to become a $1 trillion program before hitting insolvency in 2024, even under the rosiest projections. The program looms as a threat not only to itself but to the budgetary health of the nation. It is the single largest driver of long-term federal debt. 

Despite the potential campaign effectiveness of the political charge that Republicans want to gut Medicare, President Barack Obama has positioned himself as a willing butcher of his own party's sacred cow. "We have to tackle entitlements" to control the federal debt, the president said in June, and "Medicare has to bear a greater part of the burden." Over the summer, Obama signed a debt deal with Republicans that allowed for a 2 percent cut to Medicare spending should a bipartisan deficit committee fail to come up with savings. In September he endorsed $248 billion in Medicare cuts as part of his own debt reduction proposal. 

The cuts Obama proposed were not part of a fundamental Medicare overhaul, but they were cuts all the same. "Despite what some in my own party have argued," he said, "I believe that we need to make some modest adjustments to programs like Medicare to ensure that they're still around for future generations." Obama claimed he was open to reforms that would bring down the cost of Medicare, "not by shifting those costs to seniors but rather by actually reducing those costs." 

"Actually reducing" the cost of Medicare has long represented the biggest pot of gold at the end of the public policy rainbow. It is treasure that Obama has been promising to deliver since early in his presidency. "If we do nothing to slow these skyrocketing costs," he said in 2009, "we will eventually be spending more on Medicare and Medicaid than every other government program combined. Put simply, our health care problem is our deficit problem. Nothing else even comes close.…We know we must reform this system. The question is how."

So what innovative solution does Obama propose to begin fixing America's biggest fiscal problem? Simple: He would change the way providers are paid for Medicare's services. Pay less, spend less. Right? It is so obvious that one might wonder why it hasn't been tried before. The answer is that it has—many, many times. 

It is often said that you can't put a price on health. But for decades that is exactly what the federal government has attempted. Since the birth of the entitlement, a parade of legislators and bureaucrats has been playing billion- and trillion-dollar games of Whac-A-Mole with Medicare, knocking down spending with an elaborately constructed set of technocratic payment schemes in one area only to see it rise back up in some other part of the system. Obama is merely proposing to try it one more time. 

All-You-Can-Eat Health Care

When Medicare, the federally run health care financing system for Americans who are 65 or older, passed in 1965, supporters knew the program would be expensive. Its lack of cost controls was the price of passage. Wilbur Cohen, a top health bureaucrat dubbed "The Man Who Built Medicare" by Medical World News, admitted that "the sponsors of Medicare, including myself, had to concede in 1965 that there would be no real controls over hospitals and physicians. I was required to promise before the final vote in the executive session of the House Ways and Means Committee that the federal agency would exercise no control." 

Indeed, that promise was explicitly built into the legislation, which declared that "nothing in this title shall be construed to authorize any Federal officer or employee to exercise any supervision or control over the practice of medicine or the manner in which medical services are provided…or to exercise any supervision or control over the administration or operation of any such [health-care] institution, agency, or person." In other words, no rationing, no death panels. As Richmond University political scientist Rick Mayes explained in a 2007 essay for the Journal of the History of Medicine, Medicare was inaugurated with "a reimbursement system that neither imposed limits nor required outside approval." As a result, "unrestricted cost reimbursement became the modus operandi for financing American medical care."

Even then, the program's supporters grossly underestimated how expensive the program would be. The House Ways and Means Committee projected that 95 percent of the elderly would enroll in the program's doctor insurance component during 1967, its first year of operation. That estimate proved accurate. But the committee also projected that total costs for the first year would run no more than $1.3 billion. Total spending in the first year instead ran a whopping $4.6 billion. 

As the program continued, its true costs rapidly departed even further from initial expectations. The committee had projected that hospital spending would amount to just $3.1 billion in 1970. Instead it was $7.1 billion. Hospital spending in 1975, initially expected to be around $4.2 billion, was actually $15.6 billion. The estimates were off because they didn't account for the increase in demand spurred by the program's offer of essentially unlimited benefits. 

This was a new problem for America. "Prior to Medicare," explains John Goodman, president of the National Center for Policy Analysis and a frequent contributor to the health policy journal Health Affairs, "we maintained a system that took up a reasonable percentage of the national income," holding more or less steady at 5 percent of GDP. But after Medicare, he says, the country "began to have health inflation that has never quit." 

Coincidence? Not at all. Medicare was a major contributor to the problem. For beneficiaries, it transformed the health care system into a generously subsidized, all-you-can-eat buffet. For providers, it offered a steady revenue stream that they used to rapidly build out expensive new services. In 2007 MIT economist Amy Finkelstein published a paper estimating that the introduction of Medicare accounted for a 23 percent increase in total hospital expenditures between 1965 and 1970, with an even larger effect in the subsequent five years. 

Part of the problem was that the program served up its smorgasbord all at once. On July 1, 1966—Medicare's very first day of operation—19 million individuals were instantly eligible for its benefits. Not one of them had ever paid a dime to directly support the program, but they collected full benefits anyway. That situation was at odds with the way the program had been sold, which was not as an entitlement but as a government-managed savings mechanism. When President John F. Kennedy outlined his original vision of the program, he declared, "We're not asking for anybody to hand this out—we are asking for a chance for the people who will receive the benefit to earn their way." In reality, when the program began, it was pure handout.

Seniors got the medical benefits, but doctors got the money. The payment system offered doctors and hospitals essentially unrestricted payments. Providers invoiced their expenses, and the government paid. The system gave doctors and hospitals both license and incentive to spend— and spend and spend and spend. Which is exactly what they did. 

By 1970 the Senate was circulating memos examining ways to tamp down runaway Medicare spending growth. A set of 1972 amendments to Social Security included some unsophisticated attempts to cut Medicare payments, but hospital inflation continued to spiral upward, as did public concern about the issue. Hospital costs were growing at roughly twice the general inflation rate; between 1974 and 1977, total government spending on health care doubled. 

Control Payments, Control Spending? 

Medicare didn't just drive spending upward; it also made health spending a government problem. With polls showing that the rapidly rising cost of health care was one of America's top three policy concerns, elected officials took notice. And President Jimmy Carter came to believe that controlling payments was the best way to exert influence on the system.

In April 1977, Carter introduced a proposal to put strict limits on reimbursements to hospitals, which were believed to be a key driver of health care inflation. After years in which spending grew by an average of 15 percent, Carter wanted to impose a ceiling of 9 percent. Because he was responding to concerns about escalating costs across the medical sector, his plan imposed a federal cap on spending growth for both public and private payers. Rather than a single-payer system, it was a variation known as "all-payer." 

But Carter's plan faced intense opposition from the American Hospital Association (AHA). The AHA successfully killed cost-control legislation twice under Carter by convincing a group of conservative Democrats that hospitals could control costs voluntarily. But the AHA's members failed to hold up their end of the political bargain. As President Ronald Reagan took office, hospital inflation continued to balloon, growing 13 percent in 1980 and 18 percent in 1981. Voluntary restraint, it turned out, was no match for the temptation of nearly unlimited federal funds. 

In 1982 Reagan responded with the Tax Equity and Fiscal Responsibility Act (TEFRA), which, among other things, would have imposed strict new limits on Medicare payments. The law ditched Carter's "all-payer" idea and addressed public programs only. 

The idea was to encourage cost-effective treatment by paying providers on a per-patient rather than fee-for-service basis. But TEFRA was intended more as a negotiating tactic than an actual reform. As David G. Smith, currently a professor emeritus of political science at Swarthmore College, points out in his 1992 book Paying for Medicare: The Politics of Reform, TEFRA was "designed to help the hospitals perceive the desirability" of reform. It wasn't an overhaul; it was a threat.

Hospitals got the message and relented, dropping their opposition to a new payment system. In less than two months, Congress approved a system of standardized payments that paid a flat rate per case and allowed federal officials to determine hospital payment rates in advance. Reagan administration staffers convinced themselves the reform was market-based because standardized prices rewarded more efficient providers, but there was no mistaking the system's fundamental element: bureaucratic price setting. 

The only question was how the bureaucrats would decide what to charge. A robust system would need to create enough diagnostic groups to contain every possible patient and every possible diagnosis. That meant creating categories, and lots of them.

Think of a filing cabinet with hundreds of drawers, each labeled according to a particular category of medical diagnosis. These are Medicare's diagnosis-related groups (DRGs), and every hospital patient is assigned to one. After that, prices are set based on the average cost of everything in the drawer. Anything from drawer number 707 —major male pelvic procedures—gets one price. Anything from drawer number 385—inflammatory bowel disorders—gets another price. What if a treatment ends up costing far more or less than the assigned price? The theory is that it doesn't matter, since everything averages out in the end. Everything is covered; everything has a code and a category. 

Or at least it's supposed to. When the system was launched in 1983, there were 500 DRG codes. But like so many bureaucratic systems, this one grew larger and more complex over time. By 2010 there were almost 750 DRG codes. No matter how narrowly and meticulously Medicare's bureaucrats organized their files, they were always forced into an implicit admission of defeat in their quest to create an all-encompassing system. Each revision of the DRGs left a junk drawer—labeled "ungroupable"—at the very end. 

Leave the Hospital, Go to the Doctor

Did the Reagan administration's price controls restrain Medicare spending? Within hospitals, yes. But the system had an unintended consequence: Hospitals, paid according to the diagnostic drawers their patients fit in rather than according to their own rates, were given an incentive to cycle through patients much faster. As a result, hospital stay lengths dropped dramatically, and so did inpatient hospital spending. A RAND Corporation study published in 1992 found that the new payment system reduced the length of hospital stays by an average of 24 percent. 

Quicker discharges often meant sicker discharges. Where do sick patients who have been discharged from the hospital go? To doctor's offices, outpatient hospital services, or, in the case of seniors, nursing homes, none of which was covered under the new payment scheme. That's where the spending went too. Starting in 1983, outpatient hospital spending rose at three times the rate of inpatient spending. And according to a 2003 World Health Organization review of U.S. health policy, the savings generated by shorter hospital stays were offset by increased spending on nursing home and outpatient care. Throughout the 1980s, Medicare spending on physician payments grew an average of 13.7 percent—7 percent faster than all other services. By 1990 total Medicare payments to physicians had blown up to two and a half times what they were a decade earlier. 

So by the mid-1980s, policy makers were hunting for yet another payment reform. This time physician payments would be the target. Whack one mole, another one pops up. 

In 1985 Congress commissioned a review of the DRG system. But rather than stick to a retrospective, the authors of the report expanded its scope, using it as an opportunity to push for expanded physician price controls. The theory was that DRGs, focusing only on hospital payments, hadn't gone far enough. According to Smith's Medicare history, the authors of the review believed "the most viable approach…was to aim at increasingly global control of physician payments." A program passed on a promise to avoid control of the medical system was now looking to control its entire payment structure.

Who was behind this push for global control? Joseph Antos, an American Enterprise Institute health policy scholar who served as a senior economist in the Reagan administration —a role he describes as the "designated health and everything else person"—attended many senior staff meetings during which the new system was drawn up. "This was a group that consisted of high-level people, often political appointees from all sorts of different agencies," Antos tells me. "I don't think many of them were health policy experts. I know none of them were economists." 

The system they were planning would become known as the resource-based relative value scale, or RBRVS. It attempted to divide physician's services into roughly equal work units and make payments accordingly. The assorted high-level officials had a naive confidence in their ability to accurately align the amount of work that went into a procedure with the amount of payment a physician received. "They knew that there was a problem paying physicians," Antos says. "They thought they knew what the problem was. This was going to be a new system that was going to rationalize the old system."

Antos, the only economist in the group, wasn't so sure. And so he began to ask questions: "How does the government know what the relative values should be? How is this related to any market-clearing process that anybody's ever known?" One idea was to set prices by committee. Antos pointed out that "asking committees of doctors to guess how much work is involved in something is the same thing as just setting prices."

In an October 2010 essay for The American, Antos described the initial plan as being "based on academic theory with its roots in the Soviet Union." Just as the Soviets made all economic decisions—how many tanks to build, how many jackets to sew, how much food to produce—through central planning, the RBRVS system is an effort to centrally plan medical prices. But as in the Soviet Union, those prices are not informed by market-based signals, which are generated by the interaction of supply, demand, and willingness to pay. In particular, the RBRVS system ignores how much value a patient receives from a service.

Thanks at least in part to Antos's questions, 1986 came and went with no major overhaul of the physician reimbursement system. But Antos eventually left for a new post. And in 1988 researchers at Harvard University finalized a study that would bring a modified form of prospective payment to physicians. In December 1989, as part of an omnibus budget proposal, President George H.W. Bush signed the RBRVS system into law. It would take effect in January of 1992. 

Antos, who eventually transitioned to a senior position at the Health Care Financing Administration (HCFA, now the Centers for Medicare & Medicaid Services within the Department of Health and Human Services), was put in charge of implementing the system—not in spite of his skepticism but because of it. "I had a long connection to it, so I understood it," he says. "And [HCFA Administrator Gail Wilensky] didn't mind that I was against it, because she was an economist and also agreed that it wasn't going to work."

The Socialist Calculation Problem

Why would an economist be so skeptical of the system? Even from a purely technocratic perspective, it is an enormous challenge. Antos warns of the "technical difficulty of creating a prospective payment system that wouldn't totally screw everything up."

But the problem goes deeper than that. Medicare's twin payment schemes are inevitably beset by what George Mason University economist Arnold Kling calls "the socialist calculation problem." The bureaucrats in charge of setting prices have to come up with a rational basis for the prices they set. They have to be justified, somehow, which is where the complex rate-setting formulas come into play. But without price signals, the result is almost always an arbitrary formula based on a limited, imperfect set of factors. When all is said and done, says Kling, "it's just a made-up formula. It has to be." 

The other problem is that any payment system inevitably ends up being manipulated by savvy payees. "You price on the basis of one thing, but then people optimize their behavior to that thing," says Kling. In a sense this is the primary job of health care administrators: to understand payment systems and squeeze every possible dollar out of them. 

In the wake of the two payment reforms, hospitals began to manipulate the system through "upcoding"—systematically shifting patients into higher-paying DRGs. Research by economists at Dartmouth University suggests that during the early 1990s, hospital administrators figured out ways to substantially increase the number of Medicare cases they billed to higher-paying DRGs. Payment games continue today. In October the Senate Finance Committee released a report accusing several large home health care companies of abusing Medicare's payment rules by pushing employees to perform extra therapy visits, thereby qualifying for Medicare bonus payments, even when those visits weren't strictly necessary. But for many health care providers, that's the business. Hospital administrators "are people whose job it is to game the system," Kling says. "They know every little detail of the rules." 

Playing by the rules, and getting the most out of them, becomes the focus. Over time, the rules cease to guide the game and instead become the purpose of the game. Activities that are coded and paid for become the activities that providers do the most. The system encourages covered procedures, such as surgeries and child delivery, while discouraging doctors from spending time in nonpaid activities such as emailing patients or monitoring health data collected electronically at home by the patient. The provision of care bends to fit the shape, however quirky, of the payment rules. 

Which may explain why controlling physician payments failed to restrain the growth of Medicare spending. As Antos expected, the system did not work. The RBRVS system took effect in 1992. By 1997 Congress had the mole mallet out once again. 

The Unsustainable Growth Rate

The RBRVS system included a mechanism, known as the volume performance standard, aimed at preventing doctors from gaming the standardized payments by increasing the number of cases they processed. If total physician spending increased, fees went down. If total physician spending decreased, the fees went up. The problem was that the formula was based on historical trends in volume, which had been rising for years. But in the mid 1990s, that trend unexpectedly slowed, leading to substantial increases in Medicare's physician fees. 

Under President Bill Clinton, a Republican Congress tried out a new payment mechanism intended to control volume as part of the 1997 Balanced Budget Act. It tied payments to the size of the economy in the hope of controlling inflationary spending by keeping costs per patient from rising faster than GDP. If total spending on physician reimbursements stayed under the spending target, fees would go up. If reimbursements exceeded the target, fees would go down. 

For a few years, payments to providers rose as planned, and spending stayed within budgetary targets. But like previous payment reforms, the Clinton-era "sustainable growth rate" (SGR) formula put pressure on one part of the system, shifting costs elsewhere. Douglas Holtz-Eakin, a former director of the Congressional Budget Office, argues that the formula has two major flaws: First, it targets only one component of Medicare—physician spending—rather than the program as a whole. Second, despite its goal, it does not really control volume. "Congress failed to understand that physicians respond to incentives," he says. Lower reimbursements inevitably result in more services being performed. "Cut rates, they will respond." Rather quickly, the system started to break down. As the journal Health Affairs dryly noted in a recent primer on the issue, "The expectation that this payment system would control spending was not realized." 

That was not entirely the fault of SGR. Legislators in Congress did not let their own system work. The reform allowed for payment reductions in order to keep spending in line with the economy. But in the booming 1990s, when the law was passed, most policymakers never expected that payments would ever fall. As long as GDP grew and payments rose in response, the system worked mostly as planned. But in 2002 the formula called for a 5 percent reimbursement cut to keep payments in line with the flagging, post–tech bubble economy. 

Congress allowed the cut to take effect, but doctors weren't happy. The grumbling was loud enough that when the formula called for another cut in 2003, Congress overrode it and voted to institute a small reimbursement hike. Since then that pattern has held: Each year the SGR has called for a reimbursement cut, and each year—sometimes multiple times a year—Congress, ever susceptible to outside influence, has instead voted to delay the cut though a temporary patch, now known widely as "the doc fix."

The lack of congressional fortitude has created additional headaches for doctors and patients. Although doctors took a pay cut only once, the temporary nature of the extensions still means that Medicare payments are riddled with uncertainty. Almost everyone—doctors and policy makers alike—assumes the cuts will never go through. But they don't know for sure. That makes doctors wary of relying too much on Medicare payments, which already lag behind the rates paid by private insurers. As a result, some are reducing the number of new Medicare patients they see, while others are dropping out of the program entirely. A 2010 survey by the Texas Medical Association found that 100 to 200 doctors in the state were giving up on Medicare each year. The SGR's unlikely but persistent threat of dramatic fee cuts has made it harder for seniors to obtain health care.

Doctors, led by the American Medical Association, have escaped those big cuts so far. But lobbying pressure to override the programmatic cuts has exacerbated the long-term problem. When Congress replaced a scheduled reduction in 2004 and 2005 with a 1.5 percent increase, it did not bother to change the long-term spending target. Consequently, the SGR called for even bigger cuts down the road to make up for the short-term hikes. As the overrides have mounted over the years, so have the cuts called for by the formula. There is now an enormous chasm between what physicians who accept Medicare are supposed to be paid under the SGR and what they are actually paid. 

In December 2010, congressional leaders announced a tentative deal to pay for a one-year extension of the doc fix by trimming funding for the first year of ObamaCare's insurance subsidies. But time is running out. By the formula's reckoning, doctors face as much as a 29.5 percent cut at the beginning of 2012. Depending on how long Congress continues to delay the cuts, an even steeper reduction looms in the future—an estimated 40 percent if the charade continues until 2014.

Abolishing the SGR entirely, as many doctors would like, could cost up to $370 billion over a decade, according to the Congressional Budget Office (CBO). But the Obama administration, despite cutting more than $500 billion in Medicare payments to pay for the president's health care overhaul, and despite calling for another $248 billion in Medicare reductions as part of his debt reduction plan, has paid little attention to the problem. In February 2011, Health and Human Services Secretary Kathleen Sebelius told members of Congress that the administration thinks the doc fix is "very important to do." Early drafts of the health care overhaul included a doc fix. But in the end, Democrats chose to use the law's Medicare cuts to pay for expanded coverage rather than to stabilize physician payments. An administration budget proposal this year also called for the doc fix to be fully paid for. How? The administration won't say. Instead, it has offered up enough money to extend the doc fix for just two years—and then only by reducing the rate of Medicare spending growth over a full decade. This is rather like a lifelong two-pack-a-day smoker promising to quit next year, then spending the money he'll "save" on cigarettes over the course of the year at a bar that evening. 

But the SGR puts Republicans in a tough spot too. CBO projections, based on current law, assume that the SGR's scheduled cuts will take effect. Few Republicans want to be seen as advocating what the CBO will count as hundreds of billions in additional Medicare spending. But neither do GOP legislators want to be seen as advocating a nearly 30 percent reduction in physician reimbursements, which will further reduce seniors' access to doctors. 

Medicare's resident technocrats have been somewhat more forthcoming with proposals. In October, the Medicare Payment Advisory Commission, a 17-member panel of experts that advises Congress about how to structure the program's reimbursements, voted to recommend a decade-long doc fix. Its proposal, which can't go into effect without congressional approval, would cut specialist rates by 5.9 percent annually for three years while freezing primary care reimbursements. But this plan pays for only $100 billion or so of the 10-year cost; the remaining $200 to $300 billion would come from cuts in payments to hospitals, drug makers, acute care facilities, and other providers. Provider groups immediately launched an aggressive opposition campaign; given Congress's historical reluctance to let doctors take a hit, it seems unlikely that this proposal will succeed where others have failed. 

Holtz-Eakin, the former CBO director, argues that members of Congress need to recognize that the cost of recurrent SGR overrides is already built into the system. "We've already really committed to spending this money," he says. After accepting that reality, he says, Congress should move to a new system that puts the entire Medicare program on a budget and turns control of that budget over to individual seniors. "It's the first step that's killing every-one, though," he says. "No politician wants to be seen as adding $300 or $400 billion to the deficit." 

The second step won't be easy either. In April, House Republicans voted for a budget plan authored by House Budget Committee Chairman Paul Ryan (R-Wis.) that would have transformed Medicare from an essentially unlimited program, committed to endless spending, into a premium support system that would allow seniors to buy regulated plans from private insurers. Democrats spent the following months accusing House Republicans of having voted to "end Medicare as we know it," a line that many promised to repeat all the way up to the 2012 election. But according to Antos, the American Enterprise Institute health policy expert, transforming the system is the only way to escape the flaws of SGR and other price controls. "If you leave the structure of Medicare alone," he says, "you cannot solve the problem." 

ObamaCare and Medicare

Obama didn't transform the system so much as double down on its faults. Much like the introduction of Medicare, ObamaCare extends subsidized insurance coverage to millions of people, a move that is likely to spur additional demand. 

It also starts a new round of price-control Whac-A-Mole via yet another mechanism designed to rein in Medicare spending. The Independent Payment Advisory Board (IPAB), an ostensibly independent 15-member panel, is charged with reviewing Medicare spending each year and making recommendations to Congress aimed at keeping costs below a threshold based on inflation in both the health care sector and the economy as a whole. Most of the board's recommendations are likely to address reimbursement rates. Those changes will take effect unless Congress votes them down and approves an alternative savings plan. 

The board's boosters have great hopes that it will finally control the growth of Medicare. But the program's own number crunchers have less confidence. In May 2011, Medicare's actuary and its director of cost estimates warned that "it is doubtful that Medicare providers can take steps to keep their cost growth within the bounds imposed by these price limitations, year after year, indefinitely." Over time, they said, the new "price constraints would become unsustainable," noting that ObamaCare's payment updates likely would result in 15 percent of hospitals, home health agencies, and nursing facilities operating at negative margins by the end of the decade. 

The current head of the CBO, Douglas Elmendorf, also seems wary. In the summer of 2009, when IPAB was first discussed, Elmendorf wrote a letter to Congress that said "in CBO's judgment, the probability is high that no savings would be realized…but there is also a chance that substantial savings might be realized"—a polite way of signaling minimal confidence in the board's ability to cut costs. 

That suggestion was affirmed the following summer, just months after ObamaCare was enacted, when Elemendorf released the CBO's long-term budget outlook. In the alternative fiscal scenario, which is based not on current law but on the CBO's best guess as to how legislation will change and evolve, Elmendorf assumed ObamaCare would fail to achieve its intended Medicare savings. The CBO's mission does not include making policy recommendations. But it was hard to read the CBO's report as anything other than an implicit jab at the notion of relying on an independent advisory board to control costs.

And why shouldn't the CBO—or anyone else—be skeptical? Congress has not given up the game of Whac-A-Mole. It has merely assigned an independent committee to play for it. The board will face the same problems that price controllers have always faced: Without market signals, prices are inherently arbitrary. It's the socialist calculation problem all over again. There is no way for policy makers to avoid it—except, of course, by refusing to play the price-setting game at all. 

At this point, that does not seem likely. Although it was passed based on an explicit promise not to control the practice of medicine, Medicare is now defined by its many payment processes, which exert substantial influence on how doctors and hospitals treat patients. "Medicare screws up the American medical system, period," says Holtz- Eakin. It does so not by telling doctors what to do but by deciding what to pay. He who controls the price, controls the system.  

Peter Suderman is an associate editor at reason.

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  1. I hate the “as we know it”.

    1. Let me be clear.

      When I am re-elected, I will end the “as we know it” as we know it.

      1. +4 more years!

    2. Actually the “as we know it” is the best part here. It implies that they merely want to change it, not completely get rid of it, which is the accusation the Democrats’ always try to levy to make the Republicans look like extremists.

      We don’t want to end it, and if we do, we want to replace it with some other, better voucher system or something.

  2. Morning links at 9:04

  3. Jesus really must love Tebow. Rumor has it, he’s dating her.

    1. She needs lots of “Sexy Times”
      He doesn’t do “Sexy Times”.

      It won’t last

      1. I pray for her satisfaction.

  4. Until Medicare as we know it is ended, Medicare as we know it will not end.

    I’m counting on your vote in November.

  5. As someone who spent years helping to make payer software and grouper software–for hospitals and hospital chains all over the country–excellent article Suderman!

    “Since the birth of the entitlement, a parade of legislators and bureaucrats has been playing billion- and trillion-dollar games of Whac-A-Mole with Medicare, knocking down spending with an elaborately constructed set of technocratic payment schemes in one area only to see it rise back up in some other part of the system.”

    I just wish someone could persuade you to see that spiking private insurance rates are also a function of this Whack-A-Mole process.

    When we cut Medicare payments to hospitals, the cost of caring for those patients doesn’t simply disappear. Those costs show up in all the places you mentioned–and they also show up in much higher premiums for private insurance…

    Since hospitals make up for the Medicare payment shortfall by gouging private insurers. This is why PPOs so strongly discourage their members from going to hospitals with which they don’t have a contract.

    This is why when a privately insured patient is admitted through the ER in a struggling inner-city hospital, it’s all high-fives around the business office.

    I remember when they were debating ObamaCare, and our politicians first started commenting that it was less expensive for the government to put people on Medicaid than it was to give them money to buy private insurance. Of course price controls make things cost less for the people who benefit from them!

    It’s the privately insured and uninsured, those are the patients who have to make up for all those missing Medicare and Medicaid payments–they’re the ones who are left holding the bag.

    1. Yep. And the mandated benefits of the 50+ states and territories that all administer insurance differently on top of federal rules and mandates.

      Visit the headquarters of any insurance company and you will see floors and floors of corporate lawyers, analysts, accountants, actuaries, clerks, and programmers trying to keep up with the government imposed busy-work.

      1. Not to mention the data center. When I worked for a health care provider, we had a process called “the adjudicator” that ran all night, every night, to assign the share of every charge, on every bill, for every patient, to Medicare/Medicaid, a private insurer, or the patient. We’re talking at least six figures for the servers, storage, and database licenses, and then the ongoing cost of data center space, operators, cooling and electricity.

        1. “We’re talking at least six figures for the servers, storage, and database licenses, and then the ongoing cost of data center space, operators, cooling and electricity.”

          I was working support one day, and this guy calls me up from one of the hospitals running our software.

          He says, “I probably shouldn’t call you about this, but my server shut down. I don’t think it’s from your software though; I think it’s an electrical glitch. I just wanted to log this in just to let you guys know–and get it into the queue.”

          I said, “Well, why do you think it’s an electrical glitch?”

          And he says, “Well, our air conditioning system broke down about an hour ago, and we have some guys here to fix it–it probably won’t take them more than a few hours–and I figure whatever caused the air conditioning to go out probably shut off the power to the server too.”

          This guy’s running millions of dollars in hardware serving a major metropolitan university healthcare system with like 20 satellite centers–and no air conditioning?

          Okay!

          I liked working the software side a whole lot better.

          Anyway, you’re absolutely right about those data centers. The data centers our software required were huge–bigger than what you get for a lot of banks. The amount of data being generated by a major hospital on an average day is amazing. The financial transactions are incredibly complicated.

          And even what should be standard practice across Medicare, you’d think, differ according to the intermediary you’re using. And it never ends. Every quarter the Federal Register adds more things to think about–changes things from payer rates to NCCI.

          It’s a never-ending nightmare.

    2. Serious question: if Medicare/Medicaid patients are money-losers for hospitals, why don’t they just drop the programs? I’ve heard that many doctors have dropped Medicaid and some Medicare, but haven’t heard of any hospitals doing so.

      1. They are required to accept Medi patients in order to keep their license to do business. If there aren’t enough patients who can pay through private insurance or otherwise, they go bankrupt, like D.C. General in 2001.

      2. “Serious question: if Medicare/Medicaid patients are money-losers for hospitals, why don’t they just drop the programs? I’ve heard that many doctors have dropped Medicaid and some Medicare, but haven’t heard of any hospitals doing so.”

        My experience is a little dated, but this part I doubt has changed…

        I think it’s ultimately about accreditation for a lot of them. In many places, you can’t get your hospital accredited unless you have a Medicare contract.

        There’s also the thing about not being allowed to refuse service in an ER based on the inability to pay for services. So, if you’re going to have to provide services to people coming through the ER anyway, and a lot of them have Medicare and Medicaid, then you might as well get paid something, even if, like in Medicaid, it’s typically only 12.5 cents on the dollar billed.

        This is mostly just a problem for inner-city hospitals, where the local population has a relatively low percentage of privately insured patients. Using Southern California as an example, it’s not the hospitals in Irvine and the better parts of Orange County that have a problem. They have more than enough private pay patients to charge to make up for all the money they lose on Medicare and Medicaid patients.

        It’s your King Drew Medical Center and County USC, in places like what used to be called SouthCentral LA, that have these problems. Because a very low percentage of their patient census has private insurance, and they can’t make up for all the money they lose on Medicaid patients on volume!

        So, as long as you have enough private pay patients that you can generate enough money to cover the losses on the people on the government program, it doesn’t really matter what your sources and uses analysis says–you might as well get paid for the Medicare and Medicaid patients you’re serving. What matters is that your revenue sheet balances.

        Keeping Medicare and Medicaid patients out is basically the whole strategy of a PPO (when it comes down to it). But if you’re a hospital in a location with a demographic where very few of your patients have private insurance, then, cutting yourself off from 90% of your customers isn’t about to save the hospital either.

        1. Two other quick points:

          1) Doctor’s get paid pretty well for Medicare and Medicaid services, and doctor’s who generate a lot of money for a hospital need a place to do surgeries and refer their patients.

          If you’re a hospital, and you’ve got a doctor that’s generating a lot of income for your facility by referring a lot of privately insured patients to your facility, you want to keep that doctor happy!

          Telling him that he can’t make any money on his Medicare and Medicaid patients because you won’t accept them?

          Makes doctors unhappy.

          Patients will basically go to whatever facility their doctor tells them to go–and when you hear hospitals talking about marketing, they’re mostly talking about marketing to doctors.

          2) I forget the second point. It’ll come back to me.

          1. I remember!

            2) When you’re a hospital chain–particularly one that’s publicly traded. You need to grow.

            Your stock price reflects a certain p/e ratio, and that ratio represents your growth prospects. What do you do once you’ve grown nationally to the point that you’ve basically soaked up all the private pay patients you can given your efficiencies, market position, etc.?

            You have to have more growth if you want to justify your p/e.

            If your in-place costs are already being covered by premiums at your HMO, etc., then adding more money just looks like profit. In other words, like a hospital in Irvine, where they have more than enough privately insured patients to cover their losses, an HMO that’s already covering its costs with private pay money is tempted to add revenue by tapping the Medicare/Medicaid market.

            It always seems like it’s gonna work that way anyway. I’ve seen chains of hospitals break down badly after deciding to take the plunge in Medicare and Medicaid patients.

            HealthSouth, Columbia/HCA, Tenet Health…

      3. Serious question: if Medicare/Medicaid patients are money-losers for hospitals, why don’t they just drop the programs?

        As someone who works for a hospital, it comes down to a couple of things:

        (1) You can’t turn anyone away – the ER is always open to everyone. So if you are going to have to take them anyway, you might as well be in MA so you can get paid inadequately, rather than not at all.

        (2) Fixed costs. Hospitals have enormous fixed costs. Even a patient that you lose money on at the margin is helping cover your fixed costs.

  6. Of course price controls make things cost less for the people who benefit from them!

    Let me be clear.

    I’m glad you get it.

    1. “Of course price controls make things cost less for the people who benefit from them!”

      Let me be clear…

      The problem is that the overwhelming majority don’t benefit from price controls.

      It’s like…a legacy UAW worker, who gets paid $70 an hour to screw in lug nuts.

      Society would be better off if people weren’t overpaid through a union’s monopolization of access to a workforce…

      …but who would argue that the UAW worker who gets paid $70 an hour for screwing in lug nuts isn’t better off for being overpaid to screw in lug nuts? Some people are better off for being overpaid to do very little.

      Likewise, there’s no denying that some Medicare/Medicaid patients are better off in some ways because they don’t have to pay for much of their medical bills–especially the ones who don’t pay much in the way of taxes.

      The other 95% of us? Not better off because of Medicare/Medicaid.

      Hope that’s clearer.

  7. I’m a primary care physician who started in practice in 1982 in the middle of the government’s failed attempt to control spending by price controls and HMOs. Older physicians at the time waxed nostalgic for the golden (and I do mean golden) days right after 1965 when they had a blank check to do anything they wanted. A lot of fortunes were made in those days. Yes, medicine still pays quite well, but there are hurdles and hoops to jump. The basic principle, that the consumer (patient) has no say in the transaction, still causes runaway medical inflation. When you’re trapped in a hole, the best thing to do is stop digging.

    1. My wife works for a medical billing software company. She sees what a clusterfuck the gov’t has made of health insurance and is dumbfounded by the people who believe the gov’t will make things better.

  8. Gee whiz! Incentives work. The Market works. We’ve known this even before Adam Smith characterized it as “the invisible hand”. Price controls are like King Canute ordering the tide not to come in. And yet, like Kipling’s bandar-log, some people believe the world can be changed by magical words. Capitol Hill is not Hogwarts, Reid is not Dumbledore, Obama is not Harry Potter, and oh yeah, this is reality, not a bleeping movie.

  9. Medicare costs per beneficiary have risen substantially, but at a lower rate than private insurance. Its payment system is too open-ended and could use significant reform, but you can’t escape the fact that Medicare-like programs the world over are quite a bit cheaper than our semi-privatized system.

    All privatization schemes for healthcare in the US will not do anything about the actual costs (the costs of healthcare), but will only create paper savings for government.

    Universal coverage is inevitable, you might as well deal with it. The only thing standing in the way is the profit interests of private companies.

    1. In the socialized medicine system, physicians do not have crushing student loan debt and huge malpractice insurance premiums to cover.

      1. What’s your point? We should make healthcare cost prohibitive for many people in order to provide welfare for doctors?

        I’m all for subsidized higher ed too. Malpractice insurance costs are not significant in the big picture.

        1. “I’m all for subsidized higher ed too. ”

          Which, shithead, will mean even more expensive higher ed.
          Go back to your commix; they’re something you might understand.

          1. How? Government subsidized healthcare insurance is universally cheaper than private insurance, which is why most of the civilized world has gone that route.

            1. There is no private insurance, not when gov’t mandates what it must cover and what it can charge customers.

              1. No evidence means you don’t get to make any claims.

                Libertarianism can’t sustain itself on assertions that if only the world were perfectly libertarian everything would be great.

                1. He never said that, he just pointed out that your universal claim that “free market” insurance is more expensive, by pointing out that it is the farthest thing from free market

                  And all this avoids the fact, that while you’re right in terms of per-customer costs, Tony, medicare is LIKELY TO BANKRUPT US

                  Maybe we could switch to a means-tested voucher instead?

            2. Having lived and worked under several “government subsidized” medical systems, I have a couple of comments on their “low cost:”

              (1) Personnel are often quite restricted in what they can earn. While that may sound “fair,” keep in mind it also often leads to less qualified personnel delivering health care services.

              (2) Service is invariably slower. I have had two friends die waiting for prostrate cancer treatment — treatment they would have gotten early enough for a cure in the U.S. The extra demand one would expect for a “free” service evaporates as people give up trying to get care or go to a country where they can get care quicker. The travel costs usually are not covered by the national insurance plan.

    2. Do you even READ the other posts before you comment? Yes Medicare costs have risen at a lower rate than private insurance – BECAUSE THE MEDICARE COSTS ARE FORCED ON THE PRIVATE INSURANCE PATIENTS, as pointed out above.
      “Universal coverage is inevitable, you might as well deal with it.” Death is inevitable, but I still spend 6 – 10 hours a week working out to at least delay it.
      Once again I say – it’s almost impossible to tell a spoof “Tony” from the real Tony. You have become a caracture of yourself.

      1. Most economists who have published on this subject don’t think cost shifting is a significant factor, if it exists at all. There’s little or no empirical data that it occurs, and it may not make sense conceptually. (If private providers had the ability to increase revenues through price hikes, they would have done so regardless.)

        1. Most economists who have published on this subject don’t think cost shifting is a significant factor, if it exists at all.

          The studies I have seen looked at cost-shifting from uninsured patients, which is a relatively small problem (thus undercutting the argument for universal health care).

          Cost-shifting from the larger number of insured patients who you lose money on at the margin? Not insignificant.

          1. But think about it conceptually… I’m constantly amazed by market worshipers putting so little stock in supply and demand. Same with taxation: It’s not supply and demand that determine prices, I’m told, it’s how much government is taxing employers, who apparently have are at liberty to ignore supply and demand and charge whatever they want.

            1. Tony|12.13.11 @ 12:13PM|#
              “I’m constantly amazed by market worshipers putting so little stock in supply and demand.”
              No, you’re simply an ignoramus who doesn’t have a clue.

              “Same with taxation: It’s not supply and demand that determine prices, I’m told, it’s how much government is taxing employers, who apparently have are at liberty to ignore supply and demand and charge whatever they want.”
              And this collection of bullshit proves it.
              Did you imagine there was a coherant thought buried in there, shithead?

            2. “But think about it conceptually… I’m constantly amazed by market worshipers putting so little stock in supply and demand.”

              Looks like some semantics here, Tony.

              When you say “supply and demand”, what are you talking about exactly?

              Are you talking about voters? Because voters aren’t the same things as supply and demand. Voters are sometimes people trying to override supply and demand. The politicians voters vote for are sometimes trying to override supply and demand.

              1. I’m saying if providers could increase revenues by raising rates for private payers, they would have done so as much as possible prior to reductions in payments by public programs. That’s assuming maximizing profit is the main motivator–as it generally is in a market–though nonprofit hospitals do complicate the picture (not enough to say cost shifting exists substantially).

                Generally prices are determined by supply and demand, no? That’s true even if government subsidizes demand (thereby lowering prices for individuals). I’m constantly asked to believe that this econ 101 reality is shoved aside by a modest increase in income tax rates or the like, because prices apparently are determined by the supplier only and customers are at their mercy and have no say in the matter.

                1. The problem is that the program you’re championing isn’t insulated from the private pay side. That’s what I don’t think you understand.

                  The price of private insurance–and the price of heart surgeries, for instance, to private pay patients in hospitals–is a direct function of the un-reimbursed costs of Medicare and Medicaid patients.

                  Just because Medicare and Medicaid patients don’t have to pay much for the services they get under Medicare and Medicaid–doesn’t mean that the government pays for those costs either! Those costs go un-reimbursed!

                  When you’re cutting payments to Medicare and Medicaid, you ARE necessarily raising them for private pay patients. When you flood Medicaid with more patients–which ObamaCare is doing–you ARE necessarily raising the cost of insurance and care for private pay patients.

                  Some of those people can’t afford that care anymore. That’s the way it happens with supply and demand too! Nobody said that supply and demand means that everyone will get what they want at a price they like.

                  Supply and demand means that sometimes there isn’t enough supply to go around at the price everyone can afford–and some people have to go without! That’s one thing if the commodity in question is a result of crop failure or a lack of production for some reason or some other real cause.

                  But when the reason healthcare costs so much is because the government is artificially pumping the price of healthcare up–by effectively forcing insured and uninsured patients to cover most of the costs of people on government programs? Government programs which allegedly exist to keep healthcare accessible to people who can’t afford it?

                  Then you’re not talking about people being excluded because of supply and demand–you’re talking about people being excluded because of government interference in the market for healthcare.

                  1. You’re just saying that there is cost shifting when I said there is scant empirical data to support it and it makes little sense conceptually. So provide a cite or we’re just making competing assertions.

                    Healthcare costs so much in this country because it is a business–the system prefers that people are unhealthy rather than healthy. If your primary goal is increasing the quality and access to healthcare (and it should be), then healthcare as a private business just doesn’t work.

                    1. Nonprofit hospitals, including facilities owned by state and local governments, account for about 80 percent of acute-care hospitals in the U.S., according to the Wall Street Journal.

                      —-Right Wing Huffington Post August 10, 2011

                      And if profit seeking is the problem, why have so many non-profit hospitals under so much pressure, Tony?

                      With more and more nonprofit hospitals feeling financial pressure, an increasing number are merging with larger outfits or selling themselves to for-profit companies, the Journal reports. There were 72 deals of this kind last year, the most since 2001, and already there have been another 55 transactions in 2011.

                      The hospitals Medicare and Medicaid hurt the worst? Are the ones serving the poorest communities in our country, who are most dependent Medicare and Medicaid patients!

                      The only solution they can find is to merge with a for-profit hospital. If it weren’t for for-profit hospitals, there would be a lot fewer hospitals with emergency rooms for poor people to go to, that’s for sure…

                      I know your intentions are good, but you need to stop. The way you–and a lot of people like you–are thinking is hurting a lot of people.

                    2. If forgot to past the link.

                      http://www.huffingtonpost.com/…..23364.html

                    3. My thinking is that healthcare should be a right, and I don’t care all that much how that becomes a reality.

                    4. You don’t care about how many people suffer?

                      You don’t care if more people would get more and better care at lower cost by way of capitalism?

                      If I thought my ideology was causing people to suffer, I’d change it.

                    5. If you means-tested Medicare and Medicaid, and then stopped requiring private hospitals to treat Medicare and Medicaid patients–unless they came through the ER…

                      Just that would make it better for poorer people–it would make it better for just about everybody!

                      There needs to be a private option–and right now there isn’t one.

                    6. Tony-
                      As a Doc, I am continually amazed at how laypersons such as yourself think the EVIL Doctors and Health Care Providers only care about keeping people unhealthy. The sad fact my friend is that most people KEEP THEMSELVES unhealthy. Primarily because they don’t pay for their own healthcare. No cabal exists between docs and BIG PHAMRA. We don’t sit around contemplating how to keep people unhealthy. You and your ilk are simpletons. Have you ever heard of risk factor modification? Smoking cessation? Vaccines? People age. When they age, they get sicker. Americans exercises little and eat lots. hence we are fat and unhealthy. Do you get it yet TROLL?

    3. Concerned Citizen: “She sees what a clusterfuck the gov’t has made of health insurance and is dumbfounded by the people who believe the gov’t will make things better.”

      Dan: “When you’re trapped in a hole, the best thing to do is stop digging.

      Followed by shithead: “Universal coverage is inevitable, you might as well deal with it.”
      Yep, that’s some shovel you got there, shithead.

    4. Costs are going up because the waste of the socialized part of the market is being shifted to the privatized.

      Once this process is 100% complete there will be no more de facto subsidy, at that point the shoddy state of socialized medicine will become even worse. Just like in Canada and the UK.

      The result will be more needless deaths. Not just for the U.S. People in Canada will no longer have the easy option of driving down to the states to get care to avoid dying on a waiting list.

      The solution is to reduce the share of the inefficient sector, and free up the more efficient sector.

  10. lol, the rich get richer and everyone else jsut gets stepped on.

    http://www.AnonSurfing.tk

  11. I am not an economist, so I appreciated the rundown of the bad history of Medicare, BUT nowhere in any of this did I see a solution. I do have some questions that maybe someone could answer.
    1. Government is hugely inefficient; how much of Medicare(taxes from workers)go to pay for its’ involvement in the health care system? Wouldn’t it be cheaper to direct those dollars to either direct pay, or private insurers?
    2. Are medical co-ops a viable solution for any kind of coverage?
    3. Quite awhile ago I had a procedure, the tests for which cost over $17,000. The price for that is probably double now. Everyone knows that there is unnecessary testing going on (ostensibly to keep medical practitioners from being sued). If it was possible to rein in the frivolous aspects of some medical lawsuits, how much could be saved?
    4. I personally know 3 people that have suffered from hospital infections from surgeries. None in the same hospital some not even in the same state. Wouldn’t public knowledge of these occurrences cause patients to leave said practitioners and force the hospitals to review or change their dirty habits? Then market forces would demand change wouldn’t they?
    4. What is at the core of making just the costs of providing medical care more realistic? An office visit (without complicated diagnoses)for an uninsured person used to be about $25. Now it’s almost $200. It can’t be inflation can it? We’re told by our so honest government that inflation is under control. What makes medical care so expensive?

    1. Government is hugely inefficient; how much of Medicare(taxes from workers)go to pay for its’ involvement in the health care system? Wouldn’t it be cheaper to direct those dollars to either direct pay, or private insurers?

      No, as your assumption is wrong. Government is not all that inefficient, and has demonstrated in every single advanced economy that centralized systems of universal coverage cost about half what the US’s more privatized system does per capita. It’s always going to be cheaper because administrative costs are not multiplied and there is no profit factor.

      What makes medical care so expensive?

      The short answer is because of the incentives that exist in a private system. Providers, insurance companies, and drug makers are there to make a profit, not make people healthy.

      1. Providers, insurance companies, and drug makers are there to make a profit, not make people healthy.

        Just like distributors, grocery stores, and farmers are to make a profit, not make people full. This is why food is unaffordable.

        1. Apples and oranges. I should say, apples and CT scans.

      2. Government is not all that inefficient

        The former Soviet bloc salutes you, comrade.

      3. Government is inefficient at every thing. ‘Costs’ are lower in socialized systems per person because of the level of care provided per person, if at all. You do not want to have cancer in the UK or Canada.

        In the US the socialized part is shifted to the privatized.

        Profit is what makes business sensitive to consumer needs. Profit is what makes business efficient.

        The reason government is not efficient is because profit is not systematized. Everyone in the public sector of course wants to profit but the profit is allocated not for efficiency and consumer satisfaction, it is allocated according to relationships in the organization and systemic failures are rewarded by increased budgets.

        The problem in the private sector is because it is barely free. Provider supply is artificially constricted. Pharmaceutical monopolies are protected. In state insurance cartels are protected. Well constrained subsidies are provided that drive up demand. Insane regulation that mandates all sorts of procedures be covered at the behest of every special interest group drives up demand. We have a tax policy that shifts resources to health care that must be spent or lost, driving up demand.

        What we have is a bleeding and scabbed husk of a market that can barely breath much less adapt.

        1. The problem with our health care system is that it costs too much for what we get. Americans pay about twice as much as the average for the rest of the developed world. Are we that more unhealthy than people in other countries? Or is it that because of the cost of American health care, we no longer can afford it?

        2. Bullshit! Look, as a physician in Canada I always have to laugh when I see crap like this about cancer. And which country has the better outcomes? The problem with Canada is that for elective procedures there is a queue. However, when the system has to move, somehow it does. Yes, you can always point to one or two failures, but I can easily point to many more where the US system has failed the individual.

          Here’s a truth for you: in both systems, care is rationed. In Canada, you might be in a queue. In the US, if you don’t have good insurance, you’re at the mercy of the system. I’ve worked in both systems, and neither is ideal. But I’ve never turned anyone away from my specialty practice in Canada, because I pretty much always get paid by the government run insurance scheme.

          And one more thing. It isn’t “socialized medicine” in Canada. I am not on a salary. I bill fee-for-service. Therefore, the harder I work, the more I make. And I like to make, so the patients get seen…..

  12. Nicole has enchanted us here at Hegre-Art with her sultry beauty. We are sure she will do the same for you.

    Her striking good looks and breast-length brunette hair are only the start. Nicole has a degree in psychology. She has a wisdom and an understanding of the human heart not often found in a woman of only 22 years. Perhaps that is why she has that haunting smile. A touch of mystery mingling with sensuality.

    But in front of the camera there are no secrets. Everything is laid bare.

    Those famous Ukrainian looks and figure come to perfection in Nicole. From her amazing long legs to her raven hair – and everywhere in between – she excels.

  13. Medicare payments are counted as Consumer Spending! So money I would have saved is taken and given to a doctor/hospital and counted as a sale! What is the multiplier of this transfer payment? See if the gov wouldn’t have taken that money from me I would save it and then it would be invested to grow productivity. Instead it is sent to Sick Care for the Obese. No Multiplier there!

  14. We would have done better by simply repealing prescription laws. Allow people to purchase medicine for their own personal use outside the USA if they wished. Check out Canadian prices sometimes. Less than what we pay. We have “free trade” in most everything but medicine. Ask why is this?

  15. We should ask why do Americans have to pay twice as much for their health care than do the people on the average in the rest of the developed world pay? In most of these countries they also live longer! So it isn’t “inferior care”.

  16. Overall, a good article. The claim that physicians took a paycut only once under SGR is however, laughable. This may be true nominally, however I recently reviewed my payments for bronchoscopy with transbronchial lung biopsy as a pulmonologist. I started practice in 1992, and my first year billed approximately $714 per procedure of which Medicare paid approx $650. I just finished training to perform electromagnetic navigation bronchoscopy, a new technique to accomplish the same result (on much smaller lesions not previously amenable to biopsy with this technique) at the cost of an additional 20 to 30 minutes of my time and just checked the CPT code for the procedure which tells me CMS will pay me the princely sum of $102. This is an inflation adjusted 89% reduction. Meanwhile I just paid my plumber $99 to unstop my toilet (although he can do at least 2 toilets in the time required to do my 1 bronchoscopy) and the vet just made $213 (cash at the door- no cost to bill) by having his assistant stick her finger up my Black Lab’s ass.

    Maybe this is why I spent 5 years before I could successfully recruit anyone to come and join in the fun as a physician associate. Maybe this is why I finally gave up private practice last year for a salaried position. Maybe this is why there is now a 2 month wait to be able to see me, given the fact I have little motivation to increase my work hours.

    There is a solution to this. However, it involves telling the truth that there is no free lunch and this is a degree of honesty of which the average politician is incapable. Therefore I suspect it will be solved with a combination of covert and overt rationing of care as we wait for the baby boomers to drop dead and all the while everything that was good about American Medicine withers and rots away from within.

  17. The system is a mess and the devil is in the detail. The complexity of health administration and health provision makes cost-containment efforts fraught with risks of NOT getting the details right. We should all expect to spend a great deal of $$ for medical care in either taxes, health insurance or direct payments to providers. Everyone should have healthcare in the U.S. Unfortunately, I think the baby-boomer funded employer-based private health insurance system lulled people into feeling medical services should be free to the individual. Now that the baby boomers are on the edge of collecting, we are facing the deferred cost and no one feels obligated to pay the price for care. I’m not sure government is the right entity to solve these complex issues, and it seems to me that the CMS quagmire adds a cost burden onto the healthcare system. Unfortunately, it’s too late – the government is already in this waste deep. Sad truth is American disregard for the connection between obesity/fast food/sitting and future medical expenses is going to break us. 2/3rds of Americans are overweight? Blindness, amputations, kidney disease, heart disease – all EXPENSIVE complications of (preventable) type 2 diabetes. Who’s going to pay the chronic-health bills when people’s bodies break down from obesity and sedentary lifestyles? I certainly don’t think the cost should fall on the backs of providers. Our priorities are upside down – we should be introducing kindergartners to super-healthy school lunches instead of supporting the long-term business gooals fat-sugar-salt-MSG fast food industry. My daughter was served chocolate milk twice every day in kindergarten! Did someone convince city government that kids won’t drink regular milk if that is all that’s served? And, we wonder why we’re headed for a health care train wreck in this country.

  18. Of course when Day 1 of Medicare began, no one paid into the system as of yet, so of course, it was a new benefit (handout?) from Uncle Sam. Personal funding thru payroll deduction began immediately the following year. Now, look at the MILLIONS of people who paid into the system for over 4 DECADES (along with their employer)and then DIED before collecting a penny in benefits. Guess who kept all that money? That’s right. Uncle Sam. 10,000 people a day are turning 65 which means new fresh funding money coming into the system via Part B premiums. This new group of “seniors” (boomers) are in much better helath than their predecessors and run tio the doctor alot less. They are fit, active and healthy but still pay their premiums.
    Focus on FRAUD. Focus on pork plans like Medicare Advantage. Consider raising the eligibility age to 66 or 67 & the system will be fine.

  19. As several other people have commented, the central thesis of the article, that pricing mechanisms run by bureaucrats are inherently unable to control costs, and are less efficient to boot, is wrong. Maryland has a panel of bureaus which set prices for all hospital services in the state, and those costs have increased more slowly than the same costs in other states. I have not read about that program causing increased outpatient costs in the state. Japan has a panel of physicians which controls physician reimbursement. Each German state has global negotiations for hospital and physician budgets. Those non-market systems have been more effective at controlling costs than those in the US healthcare system in general. Many commenters have discussed shortfalls in non-US healthcare systems. A balanced review of quality metrics and measures of access does not show large advantages for the US system, despite its exceptionally high costs.

    Markets are not a panacea, by any means. Markets haven’t worked in controlling Medicare Advantage costs- per member costs are higher than those in the Medicare fee-for-service program, despite the fact that Medicare Advantage uses privately-run insurers with managed care systems. The most dysfunctional part of the US health insurance market is the individual and small-group market, where prices are significantly higher and risk selection runs rampant. That sector of the market, I would argue, is also the most market-oriented, allowing individuals the most freedom select insurers and coverage levels, if they can meet rigorous qualification standards and can afford coverage. How many people would really like to see the US healthcare system look more like its individual market?

    It seems to me that the general population in America is confused by exactly what they want. Medicare,and to a lesser extent Medicaid, are popular (although you might not know it reading these comments). Yet there is a strong movement to limit the government’s involvement in healthcare. I’ve done a fair amount of reading on the subject, and I can’t find an example of a system that has less government control than America’s. Even Singapore’s system, I would argue, has greater government involvement than the American system (i.e. individual manate, guaranteed issue, government control of pricing through its sizable position as an insurer). I would like to see a real-world healthcare-specific example of what conservatives, libertarians, or free-market advocates would like to use as a template for health reform in the US.

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  28. Until Medicare as we know it is ended, Medicare as we know it will not end.

    I’m counting on your vote in November.

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