• MedPAC on Medicare plan competitive bidding

    I cracked open the latest MedPAC report to read its recommendations on hospital readmissions. There wasn’t much new in it beyond what I could infer about the Commissions’ thinking in March. Still, there’s a lot more detail. You’ll find it in Chapter 4 (PDF) and the accompanying appendix (also a PDF). Some of it was reported on by Jordan Rau. All of this is ungated, which is one reason I’m giving it short shrift here.

    The other reason is that I was more surprised by what I found in Chapter 1 (PDF).

    Consistent with the goal of encouraging beneficiaries to make cost-conscious choices, this chapter presents an overview of a model based on government contributions toward purchasing Medicare coverage—an approach we call competitively determined plan contributions (CPCs). The Commission uses the term CPC to broadly describe a federal contribution toward coverage of the Medicare benefit based on the cost of competing options for the coverage, including those offered by private plans and the traditional FFS program. Specifically, CPC has two defining principles: First, beneficiaries receive a competitively determined federal contribution to buy Medicare coverage; second, beneficiaries’ individual premiums vary depending on the option they choose.

    As far as I know, this is the first time the Commission has considered Medicare plan competitive bidding (aka, premium support) — their CPC — in this way before. To be clear, it is not recommending CPCs. It’s merely exploring the idea. The chapter hits many of the issues related to competitive bidding that have been discussed on this blog (look here and here).

    Competing private plans, however, do not necessarily lower the cost to the Medicare program if the rules defining how they get paid do not encourage them to compete based on cost or premiums. For example, the current Medicare Advantage (MA) program produces a higher cost to Medicare than the traditional FFS program. Therefore, whether a CPC approach can lower overall Medicare spending depends on the specific design of the model and how different components of the model interact. […]

    Medicare Part D provides a working example of a CPC approach and illustrates the range of the detail and specificity of the rules that a CPC approach requires. […]

    The Federal Employees Health Benefits (FEHB) Program also illustrates different applications of the CPC principles.

    Again, you can read the chapter for details. There you’ll also find an exploration of these questions:

    • Should the benefit package be standardized?
    • Should a CPC model be based on competitive bidding?
    • Should a CPC model include FFS Medicare?
    • How should the federal contribution be determined?

    These are just the “first-order” questions. A presumably high-order question, “How does the federal contribution grow over time?” was raised in the report but not addressed.

    What’s interesting to me is not so much what MedPAC addressed or how they did so, since, again, I’ve covered it all here in some form. What’s interesting is that it has taken a small but significant step toward competitive bidding/premium support, not by endorsement, but just by consideration. It’s now clearly on the table for discussion by the Commission, though I don’t think this necessarily moves the political needle at all. Meanwhile, as far as I know, the Commission’s prior MA payment recommendation still stands: pay plans 100% of average fee-for-service cost.

    UPDATE: MedPAC considered competitive bidding in a 2009 report. See Chapter 7 here.


    • From what I recall, price elasticities on Medicare Advantage are hades low, so there isn’t really a theoretical basis for supposing that privatizing medicare will lead to any savings to taxpayers, unless they have a plan to try to make consumers more discriminating in their choices than medicare advantage customers currently are. Dr. Ziebarth has a paper on basically just that, showing how framing can influence price elasticities for publicly financed private health insurance plans: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1977827

      Can’t necessarily generalize the estimates from the German data from the US, but I think we should be testing these kinds of reforms to see if we can make Medicare Advantage work.

      • I agree that we dont really know if it will work, but it seems like there are enough reasons to think that it might to give it a shot. At present, MA plans seem to carefully avoid competition, but IIRC Austin has published studies showing that in areas where they actually do compete (Miami?) prices are lower.


    • “Premium support.”

      Still trying to fathom how that became a “conservative” notion.

    • It seems rather sad that all we hear is about pushing patients to make cost-conscious choices, as apparently our only way to control health care spending.

      In most other industrial nations, the authorities make cost-conscious choices, with only some input from physicians.

      America wants the patients to be the kamikazes of cost control.

      We do not have a mechanism to control drug prices and the prices for extreme procedures. So, we ask all patients to cut back on a $118 office visit in order to pay for a $500,000 transplant. If you study health insurance claims, this is exactly what is going on.

      We want to find some form of rationing, but we only seem to ask the patients to do self-rationing.

      As Joseph White points out, America believes in a kind of Adam Smith approach to health care — i.e. if every patient makes better choices then the resulting system will balance.

      Other nations consider this to be poppycock. Other nations build a health care system more or less from the top down.

      Bob Hertz, The Health Care Crusade