Reform Could Shift Medicare Money Away From California

As part of health care reform legislation, Congress is addressing regional variations in the cost and intensity of care at hospitals in different parts of the country.  Recent research shows significant differences in the level and cost of care provided in various geographic regions. Legislators are considering changing Medicare reimbursements to help even things out and to save money.

Proponents frame the debate as a comparison of small, rural hospitals where care is relatively inexpensive to large, urban hospitals where care tends to be more extensive and expensive. They say realigning regional spending differences and increasing efficiency could cut Medicare spending by 15% to 30%.  They say reducing Medicare’s annual growth in per-patient spending from the current national average of 3.5% to 2.4% could save $1.42 trillion by 2023.

Opponents, many of them in California, say that the research on which the proposals are based has been co-opted and twisted and that the proposals are politically — ­not clinically — motivated.  Opponents characterize parts of the legislation as a money-grab by Blue Dog Democrats.

“This may have started out as a legitimate examination of how hospitals treat Medicare patients, but it has morphed into a policy-driven argument,” said Tom Rosenthal, chief medical officer at UCLA Medical Center. 

“I don’t think there’s any question that this was seized on by (White House Office of Management and Budget Director Peter) Orszag as a way to help pay for reform, and the Blue Dog Democrats from the Midwest seized on it as an opportunity to direct more money to their states,” Rosenthal said.

California Could Lose $2.6 Billion a Year

The Democratic House health care reform bill (HR 3962) directs the non-partisan Institute of Medicine to conduct a two-year study of regional disparities in Medicare spending. IOM would then provide recommendations about how to remedy those disparities. Barring objection from Congress, those recommendations would go to HHS for implementation.

Fourteen states, including California, could see $18 billion per year in Medicare payments shifted to other states as a result of this legislation, according to estimates from some members of the House of Representatives. 

California stands to lose more than $2.6 billion a year, the third largest hit in the country following New York ($3.6 billion) and Florida ($3.4 billion), according to calculations by Massachusetts Democrat Michael Capuano. Hospitals and hospital officials in most of those 14 states — including California — argue against severe reapportionment.

“There are valid reasons that Medicare payments for the same hospital services vary in different parts of the country,” said Jan Emerson, spokesperson for the California Hospital Association.

“These variations account for the fact that the cost of living in California and other large states is significantly higher than it is in smaller, more rural states. The adjustments help level the field when considering variances in the cost of living, area wage differences, cost of real estate, and other expenses that contribute to the cost of providing medical services and care to the Medicare population. It also should be noted that medical care costs also vary based on a patient’s socio-economic status, level of health insurance coverage and many other less tangible factors,” Emerson said.

In a letter to California Democratic Rep. Henry Waxman, chair of the House Committee on Energy and Commerce, Thomas Priselac, president and CEO of Cedars-Sinai Medical Center in Los Angeles, wrote: 

“Geographic variation is an important issue and addressing it in the proper way can make an important contribution to patient well-being and the entire health care system.  I feel strongly that more work needs to be done to truly understand the reasons for the variations so that the best approaches to addressing the problem can be developed.  There have been legitimate factors identified that affect variation besides practice style that deserve further understanding as to their impact.  We also need a more complete understanding of the association between spending and results before implementing  broad policy changes.”

Dartmouth Research at Core

Reform bills in the House and Senate base much of their Medicare reimbursement language on data from the Dartmouth Atlas of Health Care, a research arm of Dartmouth Medical School’s Institute for Health Policy and Clinical Practice.

Dartmouth Atlas researchers examined Medicare expenses on chronically ill patients in their last two years of life when medical costs are generally highest.

The national average for Medicare spending over the last two years of life was $46,412, according to Dartmouth researchers. In New York City, the average tab was close to $100,000, and in Los Angeles the average was almost $85,000.

Researchers said doctors in urban areas with ready access to more hospital beds, laboratory tests and specialized physicians, tend to hospitalize patients more frequently and order more tests and specialized care than doctors in rural settings.

Rosenthal argues that Dartmouth researchers did not take the whole picture into consideration.

“We had some concerns that the methodology used by Dartmouth Atlas wasn’t as thorough as it could be,” Rosenthal said. “First of all, they used claims data, rather than clinical data. Secondly, they looked only at people who died, and third, they took more or less everybody on Medicare without taking into account their condition. It makes a fairly big difference what kind of disease you have and what kind of condition you’re in when you arrive,” Rosenthal said.

Dartmouth researchers divided the country into “health referral regions” and compared data from each region. Regions varied widely by population size, socio-economic class, cost of living and other variables.

“But most of those factors weren’t taken into consideration in their comparisons,” Rosenthal said. “Los Angeles, with 11 million people where a lot of the Medicare recipients are dual eligible — which means they qualify for Medi-Cal, which means they’re probably pretty poor — is one HRR (referral region) and Montana, with one million people, is also an HRR.”

“How can you compare L.A. County with the state of Montana and reach any meaningful conclusions?” Rosenthal asked.

California Hospitals Do Their Own Study

Rosenthal organized research among UC hospitals to examine variations in hospital resource use and outcomes for elderly patients with heart failure.

“This was not a direct response to the Dartmouth Atlas work, but it was our sincere attempt to look at the issue from a specific perspective, looking at patients with similar conditions. And we didn’t just look at those who died,” Rosenthal added.

The study, “Looking Forward, Looking Back,” concluded California teaching hospitals that used more resources caring for patients hospitalized for heart failure had lower mortality rates.

Long-Reaching Effects of Medicare Fund Shuffle

California hospital officials warn that redirecting Medicare funds from large urban hospitals, especially teaching hospitals, could have far-reaching repercussions.

“While we understand the need to control Medicare costs, untested approaches to smooth out these variations in cost could result in unintended consequences,” Emerson added. “Any attempt to balance Medicare payments across geographic regions will unravel California’s ability to provide care to seniors and disabled persons.”

Rosenthal and other critics of Medicare readjustment plans express wary support of the way IOM studied the issue for two years before recommending a course of action.

“One has to hope and trust that that’s a neutral enough organization that they’ll seek a wide enough swath of input,” Rosenthal said. “But many of us feel it’s a risky situation that the findings do not go back to Congress and could theoretically just get swept into practice without much oversight. That makes some of us nervous,” Rosenthal said.

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