Friday, December 23, 2011

A Lump of Coal from Medicare

If you're 65 or older, or the Social Security Administration has declared you disabled (or if you have chronic kidney failure), you are covered by the federal health insurance program called Medicare. This is a good thing: it has kept many millions of senior citizens from becoming medically indigent.

But there is a growing gap between what Medicare pays to doctors and hospitals for caring for its beneficiaries and what it costs to provide that care. There is also a gap, growing even faster, between what Medicare pays and what commercial health insurance (also known as "real insurance") pays.

This is not because commercial insurers are generous. Rather, it is because the federal government has decided that the way to slow the growth of the Medicare budget is to pay the providers of health care services less (in inflation-adjusted dollars) each year.

A large part of the reason so many hospitals struggle to stay in the black is that many of the services they provide to Medicare beneficiaries are paid for at rates so low as not to cover the cost of providing the care.

It wasn't always this way. In the 1970s Medicare paid hospitals for what they did, with a bit of a margin. This is called a "cost-plus" system of financing. But the feds decided that was much too expensive, and in the 1980s they implemented a new system in which hospitals were paid based on what was wrong with the patient. If they could care for the patient for less than Medicare paid for the patient's diagnosis by being very efficient, they did well. If it cost more than that to get the patient well enough to be discharged, the hospital took a loss. This was supposed to give hospitals an incentive to be more efficient.

But life is full of unintended consequences. If innovations become available that improve the quality of patient care, will hospitals use them? When the system of health care financing pays for the patient's diagnosis, not for the treatment provided, this favors innovations that prove to be cost-efficient, while those that improve quality but increase cost may fall by the wayside.

Fortunately hospitals also get paid for taking care of many patients who have real insurance, so the potentially stifling effect of this system of financing on innovation has been substantially mitigated.

Nevertheless, as our nation's population gets older and sicker, and the proportion of patients covered by Medicare grows inexorably, more and more hospitals will be squeezed harder and harder.

The situation for doctors is just as bad, but the approach has been different. In the Balanced Budget Act of 1997 a new formula was introduced: the Sustainable Growth Rate formula, or SGR. As its name implies, the purpose of the SGR was to keep growth in Medicare expenditures for services provided by doctors within the realm of sustainability.

Each year a complicated calculation tells the folks at the Centers for Medicare and Medicaid Services (CMS) how much growth is permitted in payments to doctors for taking care of Medicare patients. If the allowable growth in expenditures is less than the projected growth in expenditures, CMS must adjust for this by paying doctors less.

While on its face this seems patently unfair, there is a rationale based on a certain school of thought in health care economics. The idea is that physicians have a degree of control over utilization of resources. They have some flexibility in deciding what tests and treatments to order or recommend. So the system is devised to give them an incentive to do less. The less they do for Medicare patients, the slower the growth in Medicare expenditures. The slower the growth, the less likely it is that the projected rate of growth will exceed the sustainable growth rate (SGR). Then, instead of getting paid less every year for what they do, they might even get paid a little more.

There are several obvious problems with this approach. First, it assumes that physicians act as a group, in the interests of the group and all its members. After all, if I am constantly looking for ways to practice more cost-efficient medicine, but my colleagues are not, I will not benefit from a reduction in the rate of growth in expenditures. It is only if we are all singing from the same hymnal (the metaphor seems apt on the eve of Christmas) that we will all reap the benefits of economizing.

Second, it assumes that SGR-driven reductions in payments are a sufficiently powerful incentive to physicians to take a less-is-more approach to patient care, when many other factors are pushing them in the opposite direction. These other factors include a focus on doing what is best for the individual patient, with an emphasis on diagnostic certainty and state-of-the-art testing and treatment; a natural inclination to pursue the best possible health outcomes regardless of cost; and concern about the consequences of missing something by being less than very thorough, including the possibility of ending up a defendant in a medical malpractice lawsuit.

For quite a while now, the projected growth rate has exceeded the SGR more often than not, meaning CMS is supposed to reduce what doctors get paid for what they do for Medicare patients. And, more often than not, Congress has intervened to prevent the cuts. Each time that happens the gap between actual growth and "sustainable" growth gets bigger, and so each year the cuts that would be triggered by the SGR grow larger. On January 1, 2012 it would be 27%, except that Congress is about to enact a two-month reprieve to give itself yet another opportunity to figure out what to do about this absurd system.

Why should you, if you are not in a health profession, care a whit about whether doctors get paid poorly by Medicare? (And believe me, the difference between payments by Medicare and those for services provided to patients with "real insurance" are sometimes eye-popping.)

Think about CMS as an employer. If your employer decided to pay you less every year for doing the same work, while other employers were giving raises at least enough to cover inflation, how long would it take before you started looking around for other opportunities?

Now imagine you are a doctor who takes care of a diverse population of patients. Some have real insurance. Some have Medicare. Some have Medicaid (the publicly financed health insurance for the poor). And some are uninsured. If you want your practice to be a going concern, you have to limit the number of patients who have no insurance and cannot pay. You probably also must limit the number on Medicaid, which generally pays very poorly for services rendered. It is now getting to the point where more and more doctors are realizing they must limit the proportion of their patients who are on Medicare.

They are not sending letters to their Medicare patients telling them to find another doctor. But they (actually their receptionists) are saying no to new Medicare patients. They have no choice. They have practice overhead to cover: mortgage payments on the office, utility bills, staff salaries, purchases and maintenance of equipment. Oh, and they want to maintain their own personal income, too, because they have educational loans to pay off, families to support, children's college tuition to pay or save for, mortgage and car payments - you know, the same stuff the rest of us worry about. They may drive fancier cars or live in bigger houses, but they're a lot like you.

Expecting doctors to practice cost-efficient medicine - to get the biggest bang for the buck when making decisions about tests and treatments for each and every patient they see - is reasonable. Expecting them to take responsibility for "unsustainable" growth in Medicare expenditures, when that growth is rooted in so many factors beyond their control, is not reasonable. And punishing them when growth in expenditures exceed targets that are based on a deeply flawed formula is decidedly unreasonable.

When you or your parents reach the age of 65, it's going to be harder to find a doctor who takes Medicare patients. That's why you should care.

No comments:

Post a Comment