New savings estimate of Medicare competitive bidding

Roger Feldman, Robert Coulam, and Bryan Dowd* previously had estimated that a competitive bidding premium support program for Medicare could save 8 percent of Medicare spending (pdf). Their new estimate, described in a recently published AEI paper (pdf), incorporates increased enrollment into Medicare Advantage (MA) as well as revisions in MA payment policy embedded in the ACA. (Technical point: Due the nature of the plan bid data available to the researchers, the new estimate is based on comparing the 25th percentile of MA bids of per enrollee costs (not the lowest or second lowest) to traditional per beneficiary Medicare spending. See the paper for details.)

The bottom line from Feldman, Coulam, and Dowd:

Using data from 2009, we estimate that fully-implemented competitive bidding would save 9.5 percent of Medicare spending, which is more than our previous estimate. However, the Affordable Care Act of 2010 (ACA) is estimated to save 4.2 percent if it is implemented as the law requires, and so competitive bidding would save 5.6 percent more than the ACA legislation.

That’s a one-time savings or shift in the spending curve. It’s a large shift, so I’m not dismissing it as unimportant. Far from it. We should keep options of this type on the table for discussion. But other things should be on the table too. Beyond the scope of their work is the question of how a competitive bidding premium support would alter the rate of growth in Medicare spending. Though it would clearly shift the curve, would it bend it? This is a crucial question.

Not all curve bending (or shifting) is the same. What we should want is bending/shifting driven by increases in efficiency in the delivery of health care and health. It’s not a big leap from this ambition to consideration of comparative effectiveness. After all, it’s the very definition of inefficient to employ a treatment or mode of delivery that costs more for no more health than another. Comparative effectiveness research (CER) is intended to discover just when, where, and for whom this occurs. Big money is at stake and substantial growth. For instance, ten percent of the growth in Medicare since the mid-1990s is due to percutaneous coronary intervention (coronary angioplasty) a procedure known to be employed in many cases for which a cheaper medical therapy would do. We know this from CER, the COURAGE trial.

An important feature of CER is that it’s a public good. Consequently, it will be (and is) underprovided by the market. The infrastructure to support and translate it into practice is a proper role for government. Funding for such an infrastructure is provided by the Affordable Care Act. The key question, again well beyond the scope of Feldman et al.’s work, is what a premium support program — or the legislation in which it is embedded — would do to that nascent public infrastructure.

It’s this question, among a few others, that gives me pause about premium support. It’s not that it isn’t a worthy idea, yet no idea is perfect. It’s that other ideas are worthy too and some of them are already written into law and are just being implemented. Often, proponents of premium support also support repeal of that law, suggesting it’s one or the other. It’s actually a false choice. Our problems in health care are broad. We ought not discard potential solutions before they’re even attempted.

More in my series on premium support, in the FAQ, and my NEJM paper with Henry Aaron.

* FULL DISCLOSURE: I work or have worked with all of the authors.


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