Why Medicare’s coverage decisions don’t work

The following is a guest post by Nicholas Bagley, University of Michigan Assistant Professor of Law.

In an article at JAMA Forum last week, Austin drew attention (yet again) to the connection between galloping health-care expenditures and novel technologies, many of dubious medical value. He called for the creation of a new institution within Medicare that could review new technologies and, potentially, decline to cover them. As Austin put it, “Medicare needs a body that can more reasonably balance the needs of beneficiaries for coverage with those of taxpayers for a cost-effective program.”

The idea is worth exploring, and I thought I’d take a chance to flesh out what else would have to happen for the new body that Austin has in mind to be effective. We can learn something from Medicare’s current process for making coverage decisions. It’s not a terribly robust process, mind you. When it reviews a new treatment, Medicare isn’t supposed to think about cost. It’s only supposed to ask if it works. That means that, if two treatments are equally effective, Medicare will cover both—even if one is vastly more expensive than the other. (I know. It’s nuts.)

Still, Medicare makes hundreds of coverage decisions each year. Most aren’t made by the Centers for Medicare and Medicaid Services (CMS) itself, but instead by the contractors that the agency hires to process the torrent of claims—roughly 4.8 million every day—that are submitted to Medicare. A contractor’s “local coverage determinations, ”or LCDs, govern only in the geographical area that it oversees. Today, there are more than 2,000 LCDs on the books. When there are conflicting LCDs or a particularly controversial technology comes down the pike, CMS can step in and issue a “national coverage determination,” or NCD. But the agency does so rarely. To date, CMS has issued just 331 NCDs.

Here’s the thing, though: this whole Medicare coverage process doesn’t really work. As I explained in a paper last year,

Medicare’s contractors have neither the capacity nor the incentives to enforce compliance with the thousands of local coverage determinations they issue each year. To get a sense of the scope of the enforcement challenge, consider that most LCDs conditionally approve medical interventions for use in certain subpopulations. Checking whether providers have complied with LCDs thus requires detailed clinical information—information that is rarely found in claims forms. … Although Medicare’s contractors can and sometimes do request additional information, the cost of collecting clinical information on millions of claims relating to thousands of different LCDs would be prohibitive. In any event, the contractors have few incentives to assiduously enforce coverage determinations. There is no indication that CMS evaluates its contractors on whether they enforce their coverage determinations—or that CMS would even have the resources to do so.

These enforcement challenges help to explain why a recent study comparing the effects of conditional LCDs across different geographic regions concluded that “coverage policies alone can, but generally do not, impact provider behavior.” Although there has been no systematic research on national coverage determinations, there is suggestive evidence that Medicare contractors do not reliably enforce NCDs either. For just one example, Medicare purports not to cover colonoscopies within ten years of a prior colonoscopy that revealed no abnormalities. Yet Medicare contractors deny only about two percent of claims for inappropriate, repeat colonoscopies.

If this experience is any guide, establishing a new agency along the lines that Austin suggested would only be the first step. Medicare’s rickety administrative apparatus would also have to be overhauled.

Maybe this seems obvious. Yet all too often, mundane questions about administrative structure get lost in the tumult over questions of substance. Indeed, Medicare’s structural inadequacies have an especially impressive record of thwarting well-intentioned reform efforts.

That’s how powerful interest groups like it. Hospitals, physicians, and technology companies prefer a Medicare that pays and pays and pays. They lobby hard to prevent the program from accruing the sort of administrative power that might cut into their bottom lines. And they often win. As Terry Moe has said in words that could have been written about Medicare, “American public bureaucracy is not designed to be effective. The bureaucracy arises out of politics, and its design reflects the interests, strategies, and compromises of those who exercise political power.”

Which brings me back to Austin’s proposal. If it’s worth pursuing—and I think it is—its success will depend not only on empowering Medicare to consider the costs of new treatments. It will also depend on whether Congress can summon the political will to rework the administrative machinery of the Medicare program.

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