Congress’s chicken-hawk problem in disciplining Medicare

U.S. Representative Glenn Thompson (R-PA) believes in tough measures to control the deficit. If you don’t believe me, look at his website, which posts this recent statement on President Obama’s policies:

“Today the President put forward a budget that spends more, taxes more, and ignores the threat that massive deficits pose to the long-term vitality of our economy,” said Rep. Thompson. “After managing the three largest annual deficits in the country’s history and 35 consecutive months with unemployment at 8 percent and above, it’s astounding that the President has chosen to double down on the same failed policies.”

… “Without spending discipline and a budget framework in which Washington begins to live within its means, our national debt will continue to undermine economic growth,” added Rep. Thompson.

Thompson also offers a free-market critique of the Affordable Care Act, which he would repeal:

…my worst nightmares have become a reality as the law’s implementation continues to drive up costs, saddle small businesses with burdensome regulations, and imposes unfunded mandates ….

On the other hand, Thompson appeared in the New York Times the other day for his own most prominent health care reform bill, which he describes thusly.

In March, I formally introduced H.R. 1041, the Fairness in Medicare Bidding Act, deficit neutral legislation to fix the Medicare Durable Medical Equipment Prosthetics, Orthotics, and Supplies (DMEPOS) competitive bidding program. Created under the Medicare Modernization Act of 2003, the DMEPOS program’s goal is to create cost savings. However, both provider and consumer groups have illustrated problems with the program, which will force smaller suppliers from the market, threaten Medicare beneficiaries’ quality of care and ultimately drive up costs. We must allow for a marketplace where seniors have quality and choice and smaller, local providers are competing to deliver these supplies.

Cutting through the verbiage, he opposes a disruptive but valuable competitive bidding process through which Medicare can significantly cut costs.

In 1989, Medicare established a fee schedule for durable medical equipment: walkers, wheel chairs and a variety of other things people need when they are ill or disabled. As TIE readers already know, this is terrible public policy. In some cases, Medicare pays much more for basic items than individual shoppers would pay off the shelf at Wal-Mart.

Almost everyone in health policy—ranging from socialist single-payer advocates to libertarians at the CATO Institute—agrees on two things: (a) Medicare could save a lot of money by using buying oxygen supplies, electronic wheelchairs, diabetes test strips, and the like from the cheapest suppliers, and (b) a Medicare fee schedule creates perfect opportunities for special interest groups to leverage their political influence to restrain competition and raise prices. As one examines the scary budget projections over the coming decades, it’s especially important to impose greater price discipline to put Medicare on a sustainable fiscal path.

Medicare officials and fiscal conservatives in Congress have sought to address equipment pricing by replacing the fee schedule with competitive bidding. This is possibly the most bipartisan, belt-tightening deregulation measure in all of health policy. The Obama administration conducted an apparently-successful experiment in which Medicare officials invited bids and awarded contracts to 356 suppliers of medical equipment in nine metropolitan areas. The program has saved an estimated $202 million. The Times cites one example: Under Medicare’s fee schedule, the program would have paid $2,080 for an oxygen concentrator last year. Under competitive bidding, Medicare paid only $1,395. These savings matter for overall program costs. They also matter for individual aged and disabled Medicare recipients. The $2,080 charge brings a punishing $416 copayment. Under competitive bidding, that copayment is reduced to $279.

The Obama administration plans to expand this effort. This is not a partisan fight. A Republican administration might well wish to do the same. I’m sure the competitive bidding process will have glitches that need to be ironed out. I’m also sure that we’ll fight about whether and how to favor small and/or local supplies in this process. I’m especially sure that Medicare administrators from both parties will be fought every step of the way by people such as Rep. Thompson, who support “spending discipline” in the abstract yet become notably unenthusiastic when one gets down to the budget particulars. These congressional figures are allied with a concentrated group of medical suppliers with obvious stakes in a less competitive system.

Beating back such coalitions is essential to bend the cost curve and to enact effective delivery reforms. It will be difficult trench warfare, particularly because winning this fight requires Congress as a whole to curtail the prerogatives of individual members to micro-manage procurement policies to favor particular local constituencies and interest groups.

Congress’s Medicare collective action problems provide one reason why reforms such as the new Independent Payment Advisory Board are so important, and why these same reforms will attract such bitter opposition.


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