Monday, August 20, 2012

How Ryan's plan may indeed reduce costs for Medicare

Robert Samuelson is widely respected as a non-partisan writer who has been warning about fiscal issues for a long time. He writes this week about a study in the Journal of the American Medical Association that finds that a Ryan plan of premium support would actually reduce costs in contrast to how Medicare works now.
The study compared the costs of traditional Medicare with Medicare Advantage, a voucherlike program that now enrolls about 25% of beneficiaries. Medicare Advantage has cost less for identical coverage. From 2006 to 2009, the gap averaged 11% between traditional Medicare and voucher plans that, under the proposal by Ryan, would serve as a price benchmark.

The central issue here is whether the runaway cost of the health sector, comprising nearly one-fifth of the economy, can be controlled without eroding medical quality. Almost all agree that the delivery system — hospitals, clinics, doctors and nurses — should be reorganized to lower the price and eliminate unneeded care. The question is how.

One group favors marketlike mechanisms. Consumers would receive vouchers — payments or tax credits — to buy coverage. The theory: As people shop for low-cost and high-quality plans, competition forces the delivery system to restructure. Hospitals, doctors, insurers create more efficient networks with more coordinated care than today's fee-for-service system.

By contrast, fee-for-service reimburses doctors and hospitals for services they perform; this encourages unneeded tests and procedures.
There is more evidence about the effects of competition on lowering prices comes from the Medicare drug benefit that President Bush enacted in 2006.
Medicare Advantage reinforces another bit of real-word evidence for marketlike policies. This is the Medicare drug benefit launched in 2006 with a voucher approach. In 2012, beneficiaries could choose from at least two-dozen plans. Its costs have been about 30% below early government estimates, though vouchers are not the only reason (more generic drugs is another). In 2013, average monthly premiums — paid by recipients — are projected to stay at $30 for a third straight year.
The contrast is to how health care costs are supposed to be controlled under Obamacare. Those cost controls are illusionary.
The ACA cuts $700 billion from Medicare over a decade by slashing payment rates. But reimbursement cuts don't change the delivery system. Providers often react by increasing the volume of services; the system becomes more wasteful. (The Medicare cuts don't actually reduce health spending; they just transfer funds from Medicare to spending mandated by the ACA.)

The rest of the ACA's cost controls are mostly fluff. One idea is accountable care organizations (ACOs), which link payment to better coordination of medical treatment. The administration says its ACO proposal might save $470 million from 2012 to 2015, when projected Medicare spending exceeds $2 trillion; savings would be a rounding error.

Then there's the Independent Payment Advisory Board, a body of 15 experts who limit Medicare spending if it passes certain targets. But the law handcuffs IPAB. It can't increase patient cost-sharing, restrict benefits, modify eligibility requirements or — in any one year — cut spending by more than 1.5%.
The Obama campaign is trying to argue that the cuts that Obamacare made in Medicare weren't on benefits but to providers. This is just silly. It is obvious that cutting back on the money going to health care providers will affect the quality of care. Sarah Kliff makes this point in the Washington Post as she looks at a study examining the impact of cuts made in Medicare back in 1997 and contrasting the impact on health outcome from hospitals that underwent larger cuts compared to those with smaller cuts.
“We find that Medicare [heart attack] mortality rates between large-cut and small-cut hospitals had similar trends prior to and immediately after BBA was implemented, but diverged between 2001 and 2005,” Wu and Shen conclude.
Put another way: Every $1,000 in lost Medicare was associated with “6 to 8 percent increase in mortality rates…implying a 1 percent reduction in payment would translate to a 0.3 percent increase in mortality rates.”
As to why large-cut hospitals had worse outcomes, Wu and Shen took a look at employment. They saw that hospitals with bigger cuts were more likely to scale back staffing, especially among nurses.
It is clearly logical that hospitals and doctors who receive less for Medicare than they previously received will make adjustments in the care they provide. They may simply decide to stop accepting Medicare patients. That is exactly what has happened among Medicaid providers. Now we can expect those sorts of developments among Medicare providers due to Obamacare. As Rich Lowry reminds us the actuaries of Medicare have been warning about this.
Medicare’s actuaries consistently sound the alarm about the consequences. A May 2012 report by the Centers for Medicare and Medicaid Services said, “The large reductions in Medicare payments rates to physicians would likely have serious implications for beneficiary access to care.”
It also noted the punishing effect on hospitals, nursing facilities and home-health agencies, which “would have to withdraw from providing services to Medicare beneficiaries, merge with other provider groups or shift substantial portions of Medicare costs to their non-Medicare, non-Medicaid payers.”
This is why Romney and Ryan are exactly correct that this is a debate we should be having and a debate that the Republicans can win.

Premium support for Medicare such as Ryan and Romney are advocating have been ideas supported by Democrats since the Clinton administration. We are going to have to reform Medicare so why not look to reforms that may actually lower health care costs? Do we want competition driving costs down or government-imposed price controls?