Reform’s Unanswered Question: To Trim or Transform Medicare?

by Dan Diamond, California Healthline Contributing Editor

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It’s gotten very, very hard to find someone in Washington, D.C., who wants to leave Medicare untouched, let alone expects the program to escape more cuts this year.

“Medicare reform is inevitable, and it should be addressed sooner rather than later,” the Healthcare Leadership Council’s Mary Grealy said last week.

“Our goal is to limit any changes in benefits,” AARP’s John Rother conceded in June. (Rother has since left the organization.)

“We know that we can still cut fat from the program,” the Urban Institute’s Bob Berenson told California Healthline.

How did this happen?

Medicaid advocates appear to have won the early battle to protect that program from White House and Congress’ deficit reduction plans. That moved Medicare further into the crosshairs — and in a surprising shift, some Democrats and liberal-leaning policy organizations are offering prescriptions for reforming an entitlement they’ve long held sacrosanct.

There’s irony in cutting Medicare now, given that its annual spending growth has fallen to just 3.5% per beneficiary and that the program appears to be as efficient as ever. Medicare also took on hundreds of billions in cuts under the Affordable Care Act, which already reduced projected spending by 6% over a decade.

Meanwhile, CMS officials are tightening their belts even as Medicare absorbs a steady flux of new beneficiaries, as about 7,000 baby boomers are beginning to join the program each day.

“In a normal world, we would address that with increased revenues” to bolster Medicare operations, Berenson noted. “But we live in unusual times.”

Medicare’s Fraught Finances and Even More Fraught Politics

The government’s deficit battle has thoroughly worked its way into all levels of politics and policy. The fallout has left Medicare teetering on its fourth major funding crisis in its 45-year history.

The previous full-blown battles to overhaul Medicare financing — in 1969, 1982, and 1995, according to Jonathan Oberlander’s “The Political Life of Medicare” — were marked by the program’s looming insolvency. But Medicare’s trustees don’t forecast running out of funds until 2024, which is a veritable lifetime compared to the prognostications that sparked past crises.

Instead, the rhetoric around fiscal austerity is clearly driving new thinking on Medicare. As one consequence, the public’s appetite for Medicare reform may be more favorable than ever before.

The Kaiser Family Foundation’s April 2011 tracking poll found that 52% of respondents would support slowing Medicare spending as a tactic to cut the deficit; that was sharply up from a similar question in November 2006, when just 35% of respondents agreed that it was a worthy strategy.

Walking a political tightrope, President Obama has gone further than any leading Democrat to advocate more changes, stepping back from a possible “grand bargain” this week but still pushing his party to simultaneously ensure Medicare’s long-term viability and cut deficit spending.

But most legislators remain wary of major health reforms, and woe betide the politician who appears to threaten the program’s future. The Hill’s “Healthwatch” chronicled the dizzying back-and-forth of the past year: First, Republicans invoked Medicare fears to bash congressional Democrats before the 2010 midterm elections; months later, Democrats flipped the script en route to a special election victory in New York.

How To Trim

So instead of dramatic transformation, Democrats and policy wonks are flirting with enacting a passel of savings provisions that were left out of the ACA or building on that law.

For instance, Obama’s scaled-down reforms would use Medicare’s negotiating power to win lower drug prices and strengthen the Independent Payment Advisory Board’s authority to cut spending.

Berenson’s own analysis, co-authored with his Urban Institute colleague John Holahan, is titled “Preserving Medicare: A Practical Approach to Controlling Spending.” The report proposes a slew of changes that include:

  • Means-testing beneficiaries: Adjusting premiums using a multiple of beneficiaries’ income;
  • Raising the eligibility age: Assuming the ACA isn’t repealed, phasing in an age increase from 65 to 67; and
  • Focusing on dual-eligibles: Better coordinating care for this population, which also qualifies for Medicaid and represents about 21% of Medicare enrollees but 36% of total Medicare spending.

Many also suggest that Medicare is getting better at monitoring its spending, crediting HHS for a new $2.1 billion initiative designed to recover improper payments, but say the program must further target fraud and abuse that remains rampant.

For example, reporter Jordan Rau noted in the New York Times that Medicare spending on hospice care surged from $2.9 billion in 2000 to $12 billion in 2009, raising concerns about misuse of the therapy. HHS is also in hot pursuit of a new list of “Most Wanted” health care fugitives.

But every high-profile bust of a Medicare fraudster contributes to the popular perception that the current program’s broken — and fuels enduring arguments for a dramatic overhaul.

How To Transform

Two proposals to revamp Medicare linger just offstage. And while they may seem political non-starters, at least one remains a talking point for some members of Congress.

GOP House Budget Chair Paul Ryan won plaudits — even from some liberals — when he unveiled his Medicare reforms in April. “It is the only hope,” Douglas Holtz-Eakin of the American Action Forum wrote at the time.

As the centerpiece of his proposal, Ryan would convert the fee-for-service program into a system that would annually allot fixed subsidies to beneficiaries. While the plan took heat, it clearly shifted the conversation. Economists like Austin Frakt and Tyler Cowen have acknowledged that transforming Medicare into a voucher program could offer potential cost controls, under certain conditions.

On the other end of the spectrum, some die-hard liberals want to see a Medicare transformation of a different stripe: expanding the program to every American.

Robert Reich, President Clinton’s labor secretary, has contended that a “Medicare for All” plan would be constitutional, popular and cost efficient. Sen. Bernie Sanders (I-Vt.) has lobbied Obama for a similar, if extremely unlikely, reform.

Continued Challenges

Of course, policymakers’ plans for Medicare don’t necessarily translate to law. And judging by stakeholders’ reaction to Obama’s comparably straightforward proposal, the industry will fight any effort that tries to further upend reimbursement.

Already, nearly two-thirds of hospitals lose money serving Medicare patients and an increasing number of physicians say that they’ll close their practices to beneficiaries if cuts continue.

Yet there’s one final reason why Medicare changes seem like a safe bet in 2011: Ongoing debt negotiations essentially require them. Either Congress’ so-called “Super Committee” will reach a deficit-reduction deal this winter, which would certainly involve more changes to the Medicare program, or an automatic “trigger” kicks in to cut Medicare spending.

Here’s what else is making news around the nation.

Spotlight on ACOs

  • The Mayo Clinic, the Cleveland Clinic, Geisinger Health System and Intermountain Healthcare have opted not to apply for the federal government’s “Pioneer” Accountable Care Organization program, which HHS unveiled in response to the overwhelmingly negative reception to proposed ACO regulations. HHS said the Pioneer program would “provide a faster path for mature ACOs” and allow high-performing health systems to access their savings up front in exchange for taking on greater financial risk. Intermountain representative Daron Cowley said the health system did not apply because “the ACO regulations fell short of the goals that had been set, especially as it pertains to institutions that already are organized to coordinate care” (Gold, Kaiser Health News, 9/14).
  • On Monday, CMS announced it will create a new database to track health data on Medicare beneficiaries who receive care from providers participating in accountable care organizations. According to the announcement, CMS will use the data to help in its efforts to bundle payments. The database would include personally identifiable information on Medicare beneficiaries and certain individuals participating in ACOs, including providers, health care sole proprietors, managers and contact persons. The agency is accepting comments from the public on the database until Oct. 19, the same day the project takes effect (Mosquera, Healthcare Finance News, 9/19).

Effects of Reform

  • Provisions in the federal health reform law and the 2009 economic stimulus package that are slated to take effect in coming years might prove overly onerous for older physicians, prompting some to leave the industry altogether. Along with the new requirements, physicians are preparing to switch to a new system in October 2013 that will increase the number of codes used to describe medical services from 18,000 to 140,000. Nearly 250,000 physicians ages 55 and older — about 32% of the physician workforce — are being forced to weigh these obligations against early retirement, according to American Medical Association data (McCarthy, National Journal, 9/15).

Eye on the Courts

  • Last week, a federal district court judge in Pennsylvania ruled that the federal health reform law’s individual mandate is unconstitutional (Stempel, Reuters, 9/13). The lawsuit’s plaintiffs sought to overturn the law, arguing that they dropped their health insurance coverage because of the high costs and that they would be forced by the mandate to repurchase the insurance (Frieden, MedPage Today, 9/13). In a 53-page ruling, Judge Christopher Conner wrote that the federal government’s power to regulate interstate commerce does not include the authority to force U.S. residents to buy health insurance if they do not wish to do so (Mondics, Philadelphia Inquirer, 9/14).

In the States

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