• Memo to the Super Committee

    To: Super Committee
    Re: Medicare Savings

     

    I know you haven’t been established yet. Neither you, nor I, know who you really are. Still, it’s possible you’ll be pretty important between now and Thanksgiving so I thought I’d drop you this note.

    I heard through the grapevine (OK, it was the internet) that you’ll be looking for some savings from Medicare. First of all, good idea! The program needs to reduce its rate of spending growth as it is a key driver of increasing deficits. I trust you basically know this. If not, ask the CBO for details. (I will spare you the paragraph on the fact that revenue plays a large roll in deficits too.)

    I’m certain you’ll have access to the nation’s leading experts on Medicare and how to trim its budget. I know from experience sometimes those experts are busy. Sometimes they don’t think of everything right away. We’re all human. Anyway, I’ve got access to some experts too, the readership of a blog I write for. I know, “blog” sounds kind of lame, but it isn’t! The readers are great. Collectively, they scour pretty much everything there is to consume on health policy. They’re a genuinely useful resource. I’m rambling. Sorry. I just really appreciate my readers and the blog, and you should too. Subscribe here (shameless plug!!!).

    Anyway, I’m asking my readers to put together a list of possible ways to save money in Medicare. This is a service to you. I hope you find it helpful. To get started, here’s my (incomplete) list. In time, I think/hope you’ll find more in the comments below.

    1. Competitive bidding, also known as competitive pricing. This idea really puts the market to work to buy Medicare benefits for the lowest possible price on a market-by-market basis. Participants can be public and private entities. It piggybacks on the exiting, hybrid structure of Medicare (FFS Medicare + Medicare Advantage) and makes all participating plans compete directly in a way they never have. Scholars have estimated the savings to be 8% of Medicare spending. I’ve written a lot about this elsewhere. Perhaps this post is the best place to start.
    2. Competitive bidding can be put to work for durable medical equipment too. See the work of Peter Crampton.
    3. Part D formulary design and drug pricing. Did you know the VA buys drugs for 40% less than Medicare? True! That alone suggests Medicare could spend a lot less on drugs. There are many possible Part D reforms that would lower program spending. Kevin Outterson wrote about some. For more about what it would take and mean to make Medicare’s drug benefit more like the VA’s see my post, which links to my paper with Steve Pizer and Roger Feldman.
    4. Reference pricing. This idea came to me via David Leonhardt and Peter Orszag (smart guys, by the way; you should talk to them). The basic idea is that Medicare should only spend an amount on therapy for a condition equal to the lowest cost, effective one (that’s the “reference price”). If individuals want more costly therapies that are no more effective, they should pay the difference out of pocket. There’s more to this. See this prior post and related links therein.
    5. There are lots of things Medicare shouldn’t even be paying for at all because they don’t work. See Rita Redberg’s NY Times op-ed on this.
    6. Support comparative effectiveness research so we can learn more about which therapies are most effective. There is too much we don’t know and it is costing us.
    7. Let ACOs be tested. We don’t know if they’ll work, but they’re worth a try.
    8. Support the IPAB. Isn’t it obvious by now that Congress itself can’t control Medicare costs?
    9. Consider all-payer rate setting. More on that here. Perhaps this post is a good starting point.

    There, that’s a good start. I know I didn’t provide cost savings estimates for everything above, but quickly looking through some links, I think it is clear that there is at least 10-20% to be saved without harming health. I hope readers will provide more ideas in the comments.

    Best of luck with your work. It’s important. I hope you take it seriously.

    LATER: See the addendum.

    LATER STILL: If the above is what the Super Committee should do, here’s a post about what it is likely to do.

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    • Perhaps the most important message for the committee is to distinguish between cost shifting and cost savings.

      Shifting costs to seniors (for example, increasing eligibility age), especially given that alternatives are likely more expensive than Medicare (see CBO report on the Ryan plan), increases rather than decreases our spending. True, it would save the federal govt money, but it would cost the country more than is saved. That may be good for some (who would save more in taxes than they would pay in healthcare costs), but it is not good for us as a whole. It might not even save Medicare money if people forego necessary care, resulting in larger costs over time.

      • That, perhaps, is the best bumper-sticker advice: beware the cost shift! It actually has two meanings. Maybe too clever by half though. :)

        • Austin,

          The quickest and fastest way to save money in Medicare is to simply have the entire payment systems for Medicare consolidated into one data base.

          Then sort out the top 1000 individual providers and audit them.

          Then sort out the top 100 clinic or hospital providers and audit them.

          I did consulting for medical groups in the 1980s. The level of pure fraud that I stumbled across by accident was totally amazing.

      • It is unbelievable how one or two underlying assumptions can make such a huge difference in what people think are viable solutions.

        Assumption 1: I believe that individuals will make better decisions about how to spend limited health care dollars for themselves than a bunch of bureaucrats. We’re just going to get a bunch Congressmen or IPAB members sitting around in a room getting courted by special interest groups (not just companies but organizations and doctors) making decisions that most people will think are stupid.

        As to you ideas. While I don’t rejoice over your competitive bidding idea, it is palatable at least. A solution I could live with. Everything else is a nonstarter because it assumes top down control.

        Assumption 2: Government price setting is morally offensive, as it should be to anyone who believes in individual liberty.

        I tried to tone down this assumption. But it sets me off whenever I read things like the government should set the prices or use its market power to negotiate rates. The government is not to be trusted, any more than private companies are to be trusted. The market is the only way devised thus far to reach some kind of balance of power, where no one entity exercises too much control.

        So if any kind of dialog is going to be productive, I think it should focus on areas where we should be able to agree if we are being honest. Things like:
        -Phasing out/Getting rid of the current subsidies to companies for health care
        -Accepting that some kind of tax revenue increase will be necessary and income will be transferred to those with less
        -The costs of any system should be completely transparent
        -Government can regulate and prevent abuse, but it should not be setting prices or given power to act authoritatively
        -Ensuring that while the government can have a leading role, market forces must be able to balance power between the government, companies, and individuals
        -Accepting that people will not have perfectly equal access to health care

        From the last point follows a third assumption/topic for conversation, that hopefully people will be able to discuss without all the grandma killing talk. And that is, how much care should people be guaranteed? Should people be guaranteed all they need or some other minimum level. I do not think that everyone should have access to every treatment. I think people should be transferred enough money (balanced for risk, age, etc., details to be worked out) to buy some minimum level of care. My minimum level is lower than this blog’s average reader’s would be. But we cannot write people blank checks for whatever procedures they may need.

        • These are really excellent suggestions. As an older, retired guy who worked many years in the acute healthcare industry, I take exception to those who leave there moral anchors at the door of “free market” thinking. If one were to take a poll of 2000 ordinary citizens and ask the simple question: What is the best diagnostic test for disease “x” or what is the best drug for this malady, most would be dumbfounded. The healthcare marketplace is the most massive public ripoff in the creation of mankind, in my opinion. Every American should support “comparative effectiveness” studies and their application to the system. We are paying vast amounts of monies for so-called “care” and drugs that do little or nothing to improve health. Wake up America, the “free market” thieves are looting your pocketbook!

      • This is so, so true, and why the argument, at this stage, whether Medicare should be expanded to cover everybody (single-payer), privatized (Ryan plan) or somewhere in between misses the main point: out-of-control health care costs make the whole economy sick. I personally believe in single-payer, which I think, counterintuitively, could end up being cheaper per capita than Medicare as it exists now, due to the removal of adverse selection. But, either way, since most private reimbursement schedules are based on Medicare’s, fixing Medicare should help private insurance as well.

        I know from reading his blog that the author is aware of alternative models to fee-for-service medicine (medical homes, ACO’s, bundled payments, chronic disease management, etc); all are being advocated here in Oregon by OSPIRG in its submissions to the Oregon Health Authority, charged with implementing Oregon’s exchange plan. Laura Etherton is the person at OSPIRG in charge of the research and advocacy project. Also, the author should be aware of Medical Group Management Association (MGMA), a trade organization for in-house clinic managers and outside consultants; they publish articles such as the one from March 9, 2010 discussing the Johns Hopkins pilot “guided care” project, and offer seminars updating members on the constantly changing regulations, and best practices.

        As the author points out, he has many resources available from among his many on-line followers. Hopefully we can all contribute toward real solutions.

    • Excellent piece.

    • Rule One: A provider must charge all of its participants the same amount for the same service. (They may change these prices periodically.)

      Rule Two: A provider must post these prices on the internet.

      Rule Three: A mechanism must be put in place that (at least) minimally rewards participants for lower costs.

      Rule Four: A mechanism must be put in place that costs providers for ineffective service.

    • This article misses the forest for the trees. The one thing hardly ever discussed is that 5 percent or so of the population is responsible for about 50 percent of health care spending. The elderly comprise the greatest segment of that group and people over 80 comprise the greatest part of the elderly’s cost. So, what do we do with that 5 percent? We don’t really have a health care spending crisis as-much as we have a dilemma as to what to do with those who are very ill. Either we commit to paying for them- no matter what- and find the savings and monies to do so or we examine things on a cost benefit analysis. For the record, I believe there is plenty of money in America (although poorly allocated) to pay for that 5 percent. But the truth is we don’t have just an economic problem; there is the moral component.

      • In fact I think that is a valuable addition. Focus on the most costly and sickest. Another way of saying almost the same thing is, take management of chronic illness seriously.

      • This is a good point – it is Pareto analysis. This group of patients is by far the least likely to be able to make their own healthcare choices effectively. Speaking from the experience of coordinating the end of life care for my mother, who recently passed away, a lot of the spending on these patients does not really benefit them. The treatments are often invasive and painful and just make the end of life unpleasant and longer. I am now fearful that I will have to go through a year or 2 or 3 of expensive care when my quality of life is very poor and no recovery is possible.

        It is very hard to word an advanced directive to take care of these grey areas too. A profound stroke can leave a person mentally diminished, yet not incompetent. The healthcare system does not deal with these situations well at all.

    • Expand Medicare eligibility to age 50-65 for a profitable price. That is, you can opt into Medicare at age 50+, but you have to pay 125% of the normal means-tested premium. You get honest health insurance, Medicare gets more younger healthier participants, and earns a profit that saves govt money.

      • Yes!!! This is such a great idea! I’ve been wondering about this for literally years.

        We should get AARP to advocate this.

      • Why only to 50? Why not to anyone who wants to buy in?

      • Rather than buying into Medicare, have people buy into a new, public insurance option that implements all of the cost savings mechanisms we know about (stronger price negotiations without Congressional interference, no fee-for-service, etc). When folks reach Medicare age, give the option of continuing with their current plan or switching to Medicare. If they choose to stick with their current insurance, refund half of the difference in cost-per-capita between Medicare and the new public plan by supplementing Social Security checks.

    • Find out the role DTCA is having on consumption of Medicare services. Specifically I am talking about Medicare Part D. Maybe we can cut some of the unnecessary consumption by preventing some aspects of DTCA.

    • The best and most obvious solution is the one that congress rejected out of hand ( that’s one of the few things that congress does well). To simplify the U.S. health care system, reduce costs, improve outcomes and provide affordable health care to the entire population we need look no further than the other the industrialized countries. These other countries spend a much higher percentage of their health care costs on the actual health care diagnosis and treatment than the periphery aspects of their health care systems. The U.S. spends far more for their health care than every other industrialized country and congress is determined to keep it that way. In addition to these high costs, most of the outcomes of U.S. health care are worse than those in these other countries. We are ignoring the obvious solution.

      Replacing our dysfunctional “system” with a single payer system is the way to go. This system would be funded by individual taxes, corporate taxes and co-pays. Far too much of our money is currently not spent on actual health care diagnosis and treatment. We should replace the Medicare, Medicaid, SCHIP, veteran’s health systems, numerous private insurance plans, the different state health insurance sets of regulations and the onus of private companies to provide group health insurance plans with a nationwide single payer health care system. This approach would eliminate billions of dollars spent every year in our current health care “system” that goes to lobbying, underwriting, sales commissions, salaries, bonuses and benefits of the health insurance employees, inefficient and redundant administrative costs…

      This approach has additional benefits:
      1) Eliminates the most frequent cause of personal bankruptcy – health care costs.
      2) Eliminates the need for employers to provide health insurance to their employees. This will significantly reduce their cost per employee, so they will reduce overhead and be more likely to hire additional staff when demand for their products/services warrants.
      3) Eliminates the cause for employees to feel tied to their employer for health insurance reasons.
      4) Eliminates the need for the many current health insurance benefits for retirees.
      5) As the largest purchaser of the health care services, the government would have much more leverage to negotiate lower prescription drug and provider service prices.
      6) Significantly reduces the administrative costs of the providers because they would no longer need to deal with so many payers and payer systems.
      7) Health care services and outcomes could more easily be tracked and assessed to identify the most and least effective treatments. This information can then be used to further reduce health care costs by enabling the providers to be more efficient.
      8) Since health care costs are a very significant cause for our current and future government deficit, this would significantly improve that situation.

      This approach is not an experiment – there are many versions of this approach currently in use that we can assess.

      A single payer system is an obvious improvement in so many ways, but congress is more concerned about preserving the profits in the U.S. health care system (and their financial support as a result) than saving costs and providing health care to the millions that are currently in need of health care. I am not holding my breath…

    • That’s a lot of work to save 10-20% when you could simply nationalize healthcare, bring costs down by around 50%, have Congress decide how much money to spend on universal healthcare annually, and charge HHS with providing the most cost effective treatment with that amount of money. Take Congress out of the loop entirely outside of debating a single number and let the more flexible executive branch do the job of figuring out how to provide the most care for a given amount of money. If voters think money’s being wasted, vote in a different President. If voters think we should spend more or less money, vote in a different Congress.

      It’s sort of incredible that nationalization isn’t on the table. The same folks who oppose it tend to be overwhelmingly concerned with short-term deficits, long-term debt, public-sector pensions, and private-sector unions; bring down the cost of health care and take it out of the hands of folks who shouldn’t have anything to do with it and you fix a majority of Republicans’ gripes overnight.

    • I have to agree that this misses the forests for the trees. The problem with further Rube Goldberg additions to the Medicare tree has been aptly studied by the public choice literature for 3 decades – special interests extraordinarily concerned about these issues are likely to overcome their collective action challenges and lobby successfully to ensure that a) treatment for their disease (or treatments they provide) are covered and b) that price controls are not onerous.

      Moreover, many of the schemes suggested above seem to believe that medical science is determinant, that prospective treatments are easily classified as efficacious or not. But that is simply not true – especially in respect to diseases like heart disease or cancer that are more likely to impact the elderly.

      We HAVE to bring the consumer into this. They have to make decisions that have price factored in. Yes, it can get ghoulish quickly but if you are serious about reigning in costs SOMEONE has to decide unless you simply wish to continue to print money.

    • Let me follow up with an example from your link as to why the approach you advocate will not work. You cite Redberg’s piece, whose first example is to note the ineffectiveness of colon screening for age 75 and older.

      Now lets fast forward to your and Redberg’s world. At the committee overseeing medicare is the crying family member relating how their dad, who was a war hero, who saved PUPPIES during his retirement, died a horrible death from metastized colon cancer at age 82 because you HEARTLESS bureaucrats WOULDN”T PAY for ROUTINE screening that could have caught those suspicious growths in time! The AMA will be there to note just how ACCURATE screening has become and how, when compared to the cost of treating ONE stage 3 colon cancer victim it pales. SHUDDER the thought!!! With condescending comments from the dais, suddenly the Combating Colon Cancer act of 2016 gets passed and Medicare is back in the business even while epidemiologists from oh-so-prestigious schools bemoan that these tests are not really effective.

      Now lets imagine a Ryan-like world. Granddad gets a voucher. It is HIS choice for the plans he wants to buy. Some might provide screening, others won’t. Maybe he opts for the “won’t” but decided to pay out of pocket once ever 2 years.

      • Assuming Grandpa can afford a plan that covers colonoscopies, how does he learn how likely they are to be effective? Wouldn’t recommendations made by any government supported agency be subject the same political theater you describe?

    • I am late to the party.

      Aside from direct changes to the program, here is what I would like to see. In my heart, as much as folks might point out the downsides, this strategy has more upsides than the status quo.

      Dems and GOP each submit names of ? 30 candidates for the Super Committee. Seniority, smarts, breadth and depth of knowledge on important issues, etc., all will be at the forebrains of leadership.

      The kicker.

      Other side picks.

      Think about it.

      Better than what we are going to get, ie, the certain oil and vinegar that is our destiny, Think less filling vs taste great x 100.

      Any congressional precedent for such an impossible feat?

    • I remember Eric Holder on 60 Minutes talking about $60-90b a year in Medicare fraud…a huge number and yet from our elected officials we get crickets.

      Has anything really gotten done regarding Medicare’s idiotic pay-and-chase system that virtually screams GIANT UNGUARDED PILE OF MONEY RIGHT HERE to any reasonably savvy criminal organization?

      I’d heard noises about the system at long last being tightened up, but nothing about money actually not being stolen, which would be the point.

    • What about charging the individual for their unhealthy lifestyle? I’m 57, run ultramarathons and have a very low BMI. Today on a 27 mile training run in the Cascades of Central Oregon, here is a 20 something, overweight young lady, stopping to have a cigarette. Can’t we develop a system that rewards good behavior: moderate exercise, eat healthy, not smoking?

      • Rob —

        OK, let’s have a system that rewards “good behavior”. I’m not exactly sure what that is, but since we are discussing costs, let’s say that we will reward people who behave in a way that will reduce expected costs, and punish people who behave in a way that will increase expected costs. What I’m wondering is: who should I charge more, you or the overweight smoker?

        This is no joke. Many studies show that the really big costs are generated at the end of life. If the overweight smoker dies at 65, she might not generate a lot of lifetime costs. But if Mr. Fitness manages to survive until 90, and runs up additional costs for his additional 25 years of life, then shouldn’t he pay more for those costs?

        In other words, shouldn’t you be paying a premium if you’re going to enjoy increased longevity?

        • Interesting point. One argument is simply that end of life, whether it occurs at 50, 60 or 90 is the cost generator. What you die of, and how long/expensive the treatment is the burden. Cancer and diabetes are two expensive and long term treatments.
          I think one of the solutions that will be considered will be withholding certain types of costly treatment the older you get. Hip replacement for a 90 year old for example. Keeping the relatively young healthy would lead to decreased costs if we go down this route.

          • It is a slippery slope, what you suggest. It doesn’t only deal with older folks or chronic disease. You could argue, should we charge more for motorcycle riders? They get in one accident, and often, the results are quite bad. Should you charge more for skydivers? Mountain climbers? Mountain bikers? What about people with arrhythmias who play sports? Divers? Skiers? Snowboarders? All of these activities usually appeal to those who are often physically fit, but carry with them inherent risk for injury. You would suddenly find a moral dilemma deciding who should pay more or less. I do agree with your ultimate premise, but oftentimes these appeals to logic don’t work. You would really need public support to encourage those lifestyles and make them accessible in order to begin to make the argument you are making. In Finland, for example, they have excellent walking and biking paths. I can tell you in many places in the US, we do not have that.

            In addition to that, you also must consider that “healthy” food is literally 10X the cost of processed foods. So, one big impediment to the healthy lifestyle is literally economic access. This goes back to the food industry, which is ultimately interrelated with the health industry.

    • Home late again. I like several of these ideas. I would also bring back paying for end of life consults. I would allow/encourage Medicare to look at utilization rates. Areas with increased utilization would receive lower reimbursements, or we could try freezing their reimbursements and only increasing them for the lower utilization areas.

      Or, we could just subcontract the whole deal out to another country that has figured this all out.

      Steve

      • Increased utilization can indicate an infectious disease. Discouraging treatment of say, leprosy or typhoid fever, does not strike me as cost effective. It would be better, to my mind, to investigate just why utilization is going up. Which means an expanded and better paid staff of public health experts. The cuts to the NIH and CDC have costs which pop up in other parts of healthcare.

    • to Tom B. I think your point about top down government price setting always being worse is something we have heard over and over, and I wonder why it is never challenged. Could it be true?

      After a fashion, I think that the deregulation of Wall Street almost cost the world its whole economy, and certainly it has cost me and the rest of us trillions, if you could view the previous regulations as a form of cost setting by the government. Wall Street certainly thinks it is, at least in the derivatives market, where they claim that any regulation will cost them money.

      • Except I don’t think it was deregulation that caused the problem with Wall Street. It was a combination of a few factors (in my view, which depends on my assumptions): 1) the government push on mortgages and the granting of AAA rating to MBS; 2) the presence of lots of regulations which created a false sense of security; 3) too much power held by a few firms.

        Government price setting does not work if your goal is to promote individual liberty and allow growth. The communist and socialist countries have never been able to achieve what those with market economies have. No one is smart enough to calculate all the moving parts in an economy and figure out all the consequences of an action. That is what money and prices do.

    • Former Representative Alan Grayson submitted a 3 page bill to the House that would allow Medicare for All on a cost neutral basis, ie you can have Medicare outside of current requirements if you’re willing to pay the full estimated average cost.

      This plan would save money by getting younger and potentially healthier people into Medicare. It would also save money because people in their early 60’s without healthcare frequently put off elective surgeries like joint replacement until they qualify for Medicare.

    • education education
      people have unrealistic expectations of their bodies and healthcare

    • I’m late as well, but there’s been something missing in the debate related to the cost shift problem. Raising the age of eligibility for Medicare might save that program some money (a nominally “conservative” move), but because of the individual mandate it will necessarily increase the average age of both the Medicare pool and the private insurance pool, which will lead to higher premiums and more cost in the aggregate.

      Imagine we had a reverse system — say the government provided health insurance for everyone under 30 and then after that you had to buy private insurance. An increase in the age at which the transition takes place (this time a “liberal” move) would have a similar effect. It has more to do with the binary nature of a hybrid system than usual left-right principles or values.

    • I (sadly) get SSDI,, and Medicare after the 2-year wait. I’m not as smart as some of the posters here, but I do have ideas. I am only 57, but have been getting SSDI since 2000.

      Allow doctors and patients to decide the best and most effective care. I should get physical therapy twice a week for the rest of my life, but am only allowed 17 visits a year. In all the months I can’t get it, I physically regress; have to return to pain medications, and essentially can’t do much outside of my home. Medicare will pay for an in-house “power chair”, but not for an outdoor scooter. I supposed maintaining your mental health by being active and not isolating is not considered essential. However, that causes other mental health issues, such as depression. More doctors’ costs incurred; medications; etc.

      Treatment options are at best, a guessing game. I believe that patients should have access to all options that are reasonable and sound; including “natural” or not typically considered medical. Massage, stress reduction training, whatever will maintain, reduce or cure symptoms – leaving someone more capable and productive – can only be good for society.

      Supplements are a necessity for me. They cost a lot, but without them, I just can’t function well. I am low-income, and get state assistance for my premiums, and have small co-pays. It’s crazy when a bottle of acetaminophen costs more than a prescription for pain medication; and I’d MUCH rather take a non-narcotic!!

      There are plenty of ways to cut costs without cutting services and coverages. Efficiency is one area to look at. I would hate for any more Americans to lose jobs, but if a system is taking more time, more paper, look at it. I’m not sure, but I think the SSA, in general, is more about keeping people out of the system than helping get retirement, disability, health and prescription coverage, and more. For me, it’s wonderful that things are online, but how many seniors and people with disabilities can use a computer – let alone have access to one! Their phone systems are horrendous, and getting served in an office is a joke.

      Absolutely check out fraud. But, also find out why. Are providers adding extra services because their reimbursements are so low? In my experience, formularies don’t work. I had Humana Part D for several years, until a number of my medications were no longer covered. People play hop-scotch with Part D insurers, hoping to find the one that will cover most of their prescriptions.

      I, too, am a firm believer in “coverage-for-all”. The risk pool evens out; more medication buying power – AND, the lobbying would end. I don’t begrudge pharmaceutical companies for earning lots of money to pay for research and the researchers; I do resent the money spent on public advertising. I resent “kickbacks” that some companies give prescribers. I resent doctors who prescribe the last paperweight given with a prescription’s name on it. I would much prefer those advertising dollars go into actually educating doctors, nurses, APRNs…

      Get RID of “Medicare Advantage Plans”. The only entity that gets an advantage is the insurance company. They make it sound pretty, but when you tear them apart and really look at them, they’re not so great.

      I don’t know a lot about economics. However, after working for 20 years with disabled, seniors and low income folks…and becoming a Medicare user, I do see the consumer side, very clearly.

      As I often hear about other kinds of insurance: they basically are all the same and don’t really need to compete on price. Perhaps if Medicare didn’t have to worry so much about “how much for this or that”, it could be more concerned with getting and keeping good and ethical doctors, and focus on getting and keeping patients as healthy as possible.