• 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.

    • “It will also depend on whether Congress can summon the political will to rework the administrative machinery of the Medicare program.”

      You could say that abour reforming PPACA, too.

      And therin lies the inherent and unavoidable problem/issue. The decisions are always political where driven by government mandates/requirements.

    • Who has the guts to cut services and care for our seniors? Does anyone really believe that $716 BILLION will be cut from Medicare to pay for Obamacare? It is just like the DOC FIX…..

      Both parties use Medicare cuts or proposed Medicare cuts to attack the other. We have a crisis of rising health care costs. Obamacare will not only fail to address this problem. It will exacerbate the cost explosion.

      It is a SHAME that proponents of the law like Austin fail to address this issue head on and speak HONESTLY about it.

      • Trolls be trollin.
        No one believes it because it’s not happening.
        Only in the world of politics could a SAVINGS of 700billion be called a “cut”.

        Politifact calls it the “talking point that won’t die”.

        Quote: “First, Obamacare does not literally cut a dollar amount from the Medicare program’s budget. Rather, spending will grow.

        But the health care law instituted a number of changes to slow the program’s future spending growth and try to contain future health care costs in the program. At the time the law was passed, those savings amounted to $500 billion over the next 10 years.” (end quote)


      • Health care costs are growing at the slowest rate in 50 years. The reduction in future spending – i.e., a reduction in cost growth – is already happening. If current trends continue – a big if – these reductions will total far more than $700 billion.

        • CMS already weighed in on the reduction in HC spending. They analyzed the data and stated that it was related to the economy. As the economy improves and Obamacare is implemented (in terms of the coverage expansion) HC costs will increase and add another $621 BILLION to our debt. Maybe the automatons missed that report?

          • @healthcareattorney and @Pjk:
            Don’t be so smug. I think we can all agree that these are complex uncertain issues. But it is by no means a given that the slowdown in spending is entirely a result of the economy. Take a look at these:



            But I understand your skepticism. So, what do you propose?

            • Smug? You cite the CBO as a serious source and you call me smug? You mean the same CBO that trumpeted $60 BILLION in deficit reduction due to the long term class provision of the ACA? That CBO?

              I am not a legislator. I do believe that consumer control of healthcare dollars, as with HSA’s have worked well in Indiana. When their is a financial incentive for the consumer to control costs, I believe that has a real chance at success.

              But, we do know one thing. (That is if you are not a partisan ideologue and are willing to look beyond the politics of the ACA)What we know is that the BEST cost analysis (The NY times called it a “detailed and rigorous analysis of the law) comes from the Medicare Acutary. CMS is NOT bound to accept the nonsense numbers and assumptions that are given to them by the party advancing the legislation.

              Again, the CMS analysis in 2010 and 2013 demonstrates clearly that the law (with its 30 million new healthcare consumers) will bend the cost curve up and add approximately $600 BILLION to our debt.

              This reality about the ACA is in contravention to this statement made by the President in his speech to congress in 2009 on Healthcare.:

              ” Finally, our health care system is placing an unsustainable burden on taxpayers. When health care costs grow at the rate they have, it puts greater pressure on programs like Medicare and Medicaid. If we do nothing to slow these skyrocketing costs, we will eventually be spending more on Medicare and Medicaid than every other government program combined. Put simply, our health care problem is our deficit problem. Nothing else even comes close.”

              If the President is in fact correct (and I believe that he is) then it seems abundantly clear that the ACA will take a terrible situation and make it worse.

              What do we do about it? As I said, I am not a legislator and I am not sure. But, I am confident about one thing; the ACA was sold to the American public on a pack of lies. The President and the democrats had a real opportunity to get this right. They screwed the pooch big time and exacerbated a terrible situation. On the political side of the coin, I think they will pay a deep price for what they have done. This was demonstrated in 2010 very clearly. The ACA was the key issue going into the 2010 midterms. It led to a defeat of historic proportions for the democrats. If workers by the tens of millions begin to receive cancellation notices next fall (I am sure the administration will try to prevent that by delaying things until after the midterms) then I believe you will see a backlash that is worse than what you are seeing now. For the first time, you are starting to see polling that demonstrates that a majority of Americans favor repeal, not delay!

            • @healthcareattorney,
              The Medicare Actuary is an excellent source that usually provides reasonable estimates and analysis. And is sometimes way off (see projections re: Part D). You may ridicule CBO all you want, but it is the official scorekeeper for the costs of legislation. It too usually provides reasonable estimates and is sometimes way off. The same could be said for most analysts. And even if we ignore CBO – do you have problems with Cutler and Brookings? And other analysis that finds similar results?

              The bottom line is that for the last four years, health care costs are growing relatively slowly. That is indisputable. There are legitimate arguments as to the causes of the slowdown and whether it is sustainable. But broad black-and-white statements about the ACA (and most other things) – It’s going to save us! It’s going to bankrupt us! – are rarely supportable. Can we at least agree on that?

    • One problem for Medicare has been inability to publish a regulation governing the coverage process. There was an article by Susan Foote about this — Journal of Health Politics, Policy and Law, Vol. 27, No. 5, October 2002. This underlies much of the murky process which has grown up because of the lack of underlying regulation.

    • I agree wholeheartedly that this should be done. This is how every other advanced country controls it’s national healthcare costs.

      Unfortunately here in the US its, queue the faux (or Fox) outrage. 3…2..1…

      DEATH PANELS!!!!!!

      • You mean like how the left and the MSNBC crowd destroyed Paul Ryan when he suggested “Premium support?” You mean sort of like the commercials that were aired by the Democrats showing ryan pushing grandma off the cliff? BOTH SIDES DEMAGOGUE THIS ISSUE! And that is why we are heading towards a financial crisis in this country that will make 2008 look like a walk in the park. But, go ahead, blame it on Fox news.. Sheesh!

    • Again, one only need follow the dollar to understand why Medicare contractors care about LCDs. They are essentially graded by CMS based upon a poorly conceived sampling method that generates a CERT error rate. A high error rate can result in a loss of a contract (look at the factors leading to Trailblazers loss to Novitas), which is a big deal.

      They implement LCDs with the hope of improving documentation in the claims they manage, and in doing so lower their CERT error rates. This is the disconnect between LCDs as tools of utilization managment vs. business maintenance tools.