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Rx for Medicare

Howard Rohleder

RONALD REAGAN SAID “the nine most terrifying words in the English language are ‘I’m from the government and I’m here to help’.” Government programs are put in place to address real concerns. But they often come with unintended consequences.

When created in 1965, Medicare addressed the real need of senior citizens who couldn’t afford health care, just as Social Security was established in 1935 to help seniors in poverty. Both have become pillars of American retirement, but not without cost.

At the start, Medicare copied the insurance industry’s prevailing “fee for service” model for paying physicians, while hospitals were paid on a “cost-plus” basis. “Costs” were Medicare’s portion of hospital operating costs. The “plus” was meant to provide hospitals with some margin to reinvest in their plant and equipment.

We’re all economic animals and respond quickly to financial incentives. Physicians found that providing more services, and hospitals found that spending more money, resulted in more income. Rewarded for growth, our health care system suddenly supported many more doctors, facilities, personnel, technology and drugs.

The benefits to seniors were great: improved access to health care and steadily lengthening lifespans. But so was the unintended consequence: Medicare contributed to a health care cost explosion.

Health care expenditures rose from 5% of GDP in 1960 to 8.9% by 1980. As Medicare’s costs mushroomed, regulators began a long tug of war with providers to bend down the cost curve while still delivering promised medical care. Over the next four decades, there were waves of reform attempts:

  • Studies showed more care didn’t necessarily mean better care, so some controls on utilization were added.
  • Hospital charges varied widely from one area to another, or even within the same city, so standardized payments were imposed by region.
  • Medicare found it was paying to fix medical errors, so it moved to fixed rates for care and no longer paid to rectify mistakes.
  • Even with Medicare, high premium costs were hurting seniors, so Medicare Advantage plans were added to offer a private insurance alternative.

Each reform added another layer of complexity. Medicare regulations now rival the tax code in density—and may be harder to interpret. Despite all efforts, health care expenditures grew to nearly 20% of GDP by 2020. With costs this great, you can be sure more changes lie ahead.

Like a game of whack-a-mole, regulators are determined to hit higher costs with a mallet wherever they pop up. The next reform wave appears to be the widespread adoption of accountable care organizations (ACOs). These were introduced in the Affordable Care Act for what were termed “demonstration projects.”

By the time the Affordable Care Act was formulated, health maintenance organizations had fallen into such disfavor that they needed a rebranding. ACOs are thinly veiled cousins of health maintenance organizations. The goal: Put the onus on the health care organization to control the cost of care.

As with health maintenance organizations, ACOs are paid monthly, per head, for providing care to a patient population. Cost savings from ACOs are supposed to come from greater efficiency and quality of care. Poor care could impose an economic loss on the ACO—and also damage its reputation in the marketplace.

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Because ACOs are demonstration projects, different models are available. Some are fully at risk, meaning the contractor could lose money on the monthly patient payments it receives. Other ACOs could gain what amounts to bonuses for good care but would be sheltered from actually losing money.

Not all providers jumped at the chance to be a Medicare guinea pig. After about 10 years of trials, just over half of U.S. hospitals and physicians are in an ACO. Urban hospitals, which offer a wide range of services and have many available specialty physicians, were more likely to join an ACO. Rural hospitals usually stayed out. Just 6% of hospitals in New Mexico have joined, for example, but 100% of those in Rhode Island have signed up.

No matter where you live, Medicare expects its entire insured population to be in an ACO by 2030. Of course, having a goal and achieving it are two different things. Among seniors, 63% have traditional Medicare today, often with a Medigap supplemental insurance policy. While supplemental policies can be expensive, traditional Medicare participants have a wide choice of physicians and few limits on their access to care.

Many in this group may object to being routed into an ACO plan that attempts to control the availability of care. Some members of Congress are already objecting that some private equity firms are turning health care into a profit center, and they want them kept out of ACO ownership.

Private equity firms have acquired various health care entities, including large physician staffing companies. Already, they’ve been cited as a driver behind one of the newest evils in the system: surprise medical bills. Hospital patients in no condition to ask questions are seen by out-of-network specialists. The specialists’ bills aren’t covered by insurance, even though the patient was treated at an in-network hospital. A concern: What will happen if profit-driven private equity firms own ACOs?

ACOs are the latest in a long line of attempts to bend the health care cost curve. As in the past, the government will attempt to apply the same top-down reform measures, and expect equal acceptance and success everywhere.

We don’t yet know what unintended consequences will accompany full ACO adoption, assuming that even happens. But no matter what, you can be sure some new moles will pop up—and need to be whacked.

Howard Rohleder, a former chief executive of a community hospital, retired early after more than 30 years in hospital administration. In retirement, he enjoys serving on several nonprofit boards, exploring walking paths with his wife Susan, and visiting their six grandchildren. A little-known fact: In May 1994, Howard was featured—along with five others—on the cover of Kiplinger’s Personal Finance for an article titled “Secrets of My Investment Success.” Check out his previous articles.

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Debbie Williams
Debbie Williams
5 months ago

And no comments about fixing one of the root causes of all the increased costs?? The constant threat of being sued! Every billboard claims you are owed something and could be RICH! Every stubbed toe should make you a millionaire when you sue for malpractice. Get rid of all the nuisance lawsuits, provided the licensing board yanks the license of the worst doctors. They wouldn’t discipline their own for years, and lawyers figured out they could make a fortune suing. Cap the lawsuits and can the bad doctors!

packercd
packercd
5 months ago

My wife and I are both on Medicare with a G supplement. We received a letter from our physician group about being in an ACO. We contacted Medicare through Chat and opted out of our information being shared with any ACO. We received a letter from Medicare stating “Medicare will not share your information with any ACO.”

SCao
SCao
5 months ago

Thanks for sharing your valuable perspective on health care. I worked in private sector most of my career, till about 4 months ago when I joined a very respectful health system here in East Coast. Great learning and working so far in the health care industry. However, I have to say as an industry, it is quite messy especially related to price and cost across different players in the value chain. Certainly lots of opportunties on how to make the industry better.

Buz Livingston
Buz Livingston
5 months ago

Medicare Advantage is NOT a private insurance option. It is subsidized by government revenue. Healthcare costs are double in America versus the rest of the world. There are more efficient ways to provide health coverage.

Last edited 5 months ago by Buz Livingston
Peter Blanchette
Peter Blanchette
5 months ago

The difficulty in reforming our health care system is not one of deciding which path to follow. The path to follow is one which universal health care is the underlying principle. The US pays multiple the cost per capita of most industrialized countries. The ACA is lauded as a tremendous success but which still left 10 to 15% of the population uninsured. ACOs are just another in a series of bombs that the the ACA left in its wake. The difficulty is convincing the doctors, hospitals and insurance companies that universal care is the only option. And yes insurance companies are a clear reflection of the exorbitant costs of our health care debacle. They pass on the exorbitant costs passed to the population by doctors and hospitals. Doctors and hospitals have a vested interest in keeping the system as it is because it has benefited them so tremendously. President Truman was called “un-American” by the AMA for trying to introduce universal coverage. He was accused of espousing a communistic philosophy. The difficulty is trying to walk the path of universal coverage. As recently as 2019 the AMA was still fighting the fight against universal coverage.

https://en.wikipedia.org/wiki/List_of_countries_by_total_health_expenditure_per_capita

https://www.theguardian.com/commentisfree/2019/jun/06/why-were-fighting-the-american-medical-association

Nate Allen
Nate Allen
5 months ago

Private equity firms have acquired various health care entities, including large physician staffing companies. Already, they’ve been cited as a driver behind one of the newest evils in the system: surprise medical bills. Hospital patients in no condition to ask questions are seen by out-of-network specialists. The specialists’ bills aren’t covered by insurance, even though the patient was treated at an in-network hospital. A concern: What will happen if profit-driven private equity firms own ACOs?”

How does the new national No Surprises Act (passed in 2021, went into effect in 2022) deal with this problem if at all? I was under the impression that it had fixed the issue, but I just don’t know enough about it.

Howard Rohleder
Howard Rohleder
5 months ago
Reply to  Nate Allen

The No Surprises Act was yet another bandaid to solve an issue created by cost shifting. For years, the message has been that health care needs to act like a regular business and we need to introduce competition. Unfortunately, certain aspects of care offer little opportunity for competition. Helicopters are very expensive to maintain and when they are needed, there is not a lot of time for choice

Howard Rohleder
Howard Rohleder
5 months ago
Reply to  Nate Allen

The No Surprises Act is another whack at the mole. Some providers, particularly those providing services where there is little patient choice, have opted out of participating in insurance plans or even decline participating in Medicare. Their concerns are understandable: they don’t want to be subjected to the hassles inherent in the system. They also wanted to be able to bill what they thought were fair charges (fair to them!). Because some percentage of them took this to the extreme, Congress acted to force them to accept a certain level of payment. Whether this has truly solved the problem, we will see with time. The point of including this in the article is that private equity firms were blamed for pushing for greater profits in the physician staffing organizations they owned by refusing or limiting their insurance contracts, which was part of what led to the legislation. When they own ACOs, they may pursue a similar path. That may give rise to more legislation to address whatever unanticipated consequences occur. And so the cycle continues… whack!

booch221
booch221
5 months ago

Right after reading this article I got an electronic Medicare Summary Notice for lab work. One of the procedures was a blood test, lipids (cholesterol and triglycerides) (80061-GZ). Medicare did not approve the payment. The comments section said Medicare does not pay for this item or service. 

What???

I get this test once a year and they have always paid in the past.

Last edited 5 months ago by booch221
R Quinn
R Quinn
5 months ago
Reply to  booch221

Check with your provider to see how the charges were coded and submitted.

parkslope
parkslope
5 months ago

The problems cited in this article reinforce my support for M4A. While there would be numerous problems implementing it, I think it would eventually be better than our current system, not to mention where our current system is heading.

Philip Stein
Philip Stein
5 months ago
Reply to  parkslope

Comments about other countries doing a better job of controlling health care costs seem to imply that care is better overseas. Yet, many times I’ve read that health care in other countries may not be the nirvana that some think it is.

I’ve read of cases where older people have been denied more expensive treatment because a government bureaucracy claimed that, regardless of a physician’s recommendations, the cost couldn’t be justified given the patient’s age. I’ve also read of long waits to see specialists, so long in some cases, that patients have died of their ailments before their scheduled appointment.

Let’s not jump to the conclusion that a system like Medicare For All is the best solution.

R Quinn
R Quinn
5 months ago
Reply to  parkslope

It would assure universal coverage, but not much else. As I said below. Let’s ask how Medicare will manage costs when all Americans are enrolled and let’s see how that is acceptable to everyone. To be better in terms of less costly means major changes in the expectations of Americans for how, where and how much health care they receive. That means in some way there must be oversight/intervention in the care provided to patients, restricted availability for some drugs, etc.

mytimetotravel
mytimetotravel
5 months ago
Reply to  R Quinn

Why is it that something managed in every other industrialized country is somehow too much to expect in the US. It is beyond pathetic.

R Quinn
R Quinn
5 months ago

The ACO is like many efforts to control health care costs, seriously lacking in common sense.

The CMS sight says this – if your doctor participates in an ACO, you can see any healthcare provider who accepts Medicare. Nobody—not your doctor, not your hospital—can tell you who you have to see.

So much for coordinated care. The promises for the ACO concept are similar to the HMO – which never worked and peopled disliked.

“Over time, if you see a doctor participating in an ACO, you may notice that:
■ You don’t have to fill out as many medical forms that ask for the same information;
■ The health care providers that you see all know what is going on with your health because they communicate with each other;
■ You don’t have to have the same medical tests done over and over because your results are shared among your health care team;
■ The providers participating in the ACO will become partners with you in making care decisions.”

I wrote many similar words back in the 1980s when I was promoting HMOs to employees. Interestingly, if the goal is better coordinated care (but no control over where a patient receives care), and reduction in duplicate or unnecessary testing, where is the financial incentive for health care providers?

About 45% of those of us on Medicare receive care from at least one physician in a ACO – at least one and there is the key. We are also getting care from one or more NOT in the ACO or in a different ACO. Would you as a physician put your income at risk while not having control over that risk?

The fact is, government has done nothing significant to control Medicare costs. Even the reductions or freezes on physician fees were modified or reversed over the years. Politicians don’t want to upset seniors – voters – with the hard truth about controlling health care costs.

People hear about the wild promises for M4A – no deductibles or co-pays, expanded coverage for dental, vision, hearing and even LTC in some versions.

I tell people aside from asking how it will be paid for, ask HOW COSTS WILL BE MANAGED ON AN ONGOING BASIS AFTER IMPLEMENTATION?

Last edited 5 months ago by R Quinn
Will
Will
5 months ago
Reply to  R Quinn

We don’t have to invent it. We can look at a number of countries around the world and see how it is done. We can see their costs, results, satisfaction—and implement it in the USA.

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