Ten Miles Square

Blog

April 10, 2013 9:39 AM Why Medicare Reform Hasn’t Worked

By Austin Frakt

Nicholas Bagley’s “Bedside Bureaucrats: Why Medicare Reform Hasn’t Worked” (PDF) is a well-reasoned critique of the program and the Affordable Care Act’s reform of it. The premise establishes the fundamental tension: By culture and politics, in the U.S. we, by and large, yield to physicians for clinical judgement about the necessity and benefit of care. This idea, once woven into Medicare — and, I will point out, almost every other form of health insurance, public or private — overwhelms all other management priorities, including financial control. Physicians, as Medicare’s “bedside bureaucrats,” have been granted tremendous control over the provision of care and, with it, its cost to the taxpayer and consumer.

Moreover, Bagley argues, the ACA isn’t designed to change things much. I would counter, however, that this is, itself, by design in the following sense. The century-long struggle with how to finance health care reveals political and cultural constraints that have shaped the current system and are largely respected in the ACA. From bundled payments to accountable care organizations to the Independent Payment Advisory Board to the Center for Medicare & Medicaid Innovation, the nascent attempts at cost control within the ACA all have fundamental flaws that Bagley accurately describes.

They are necessary flaws. Without them, there would be no ACA. As such, the law’s drafters did just about all they could have possibly done and still passed a law. And it barely passed. It also barely survived its trial before the Supreme Court, was challenged in a presidential race, and remains challenged on many fronts in many states today. The ACA is not ready to be tougher. That’s not to say it shouldn’t be. But if it were, defeat would be or would have been more certain.

If one is generally in favor of the types of cost control structures in the ACA, and Bagley is, the best that one can hope for is that a future political climate permits Congress to build on them, to make them more effective. Bagley is correct that right now they are little more than empty shells. I’ve characterized it as a toothless mouth. If it’s going to take a bite out of programmatic spending, someday we must add teeth and then sharpen them. To have endowed it with fangs at the start would have doomed the enterprise.

The paper is full of great quotes. Some of my highlighted ones are below. Footnotes to sources are omitted. You can search the ungated paper for them.

  • Medicare manages private-sector contracts worth more than all of the federal government’s other contracts for goods and services combined.
  • For Medicare, the absence of institutional capacity to manage the private physicians with whom it contracts reflects a deep social commitment that government should keep out of the examining room. Medicare thus exploits its institutional weakness to enhance its legitimacy. Distance between the federal government and the physicians with whom it contracts—a relative lack of accountability, transparency, and public participation in medical decisions—is itself a public value.
  • Although there has been no systematic research on national coverage determinations [NCDs], 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 Medicare cannot depend on the rules and hierarchies of classic Weberian bureaucracies to manage this vast network of private physicians, then it must—as it has before—turn to private organizations to do the job for it. Medicare must, in other words, bring bureaucracy to its bureaucrats. Enlisting third-party organizations thus offers a kind of privatized Weberian solution to Medicare’s accountability and management troubles.
  • The lesson appears straightforward: if Medicare wants its agents to act as if they faced resource constraints, Medicare must constrain their resources.
  • Medicare is sufficiently generous that an average physician seeing only Medicare patients would still make roughly $240,000 in take-home pay each year.
  • With a staff about the same size as that of the Smithsonian Institution, the Centers for Medicare and Medicaid Services (CMS) oversees distribution of a Medicare budget that exceeds the size of Argentina’s economy.
  • Congress broke CMS and now won’t fund it because it’s broken.
  • About the best that can be said about IPAB is that steadily mounting cuts to Medicare could bring providers to the negotiating table.
  • The best-case scenario for PCORI is that it could generate information that private risk-bearing organizations—managed-care plans or integrated medical groups—could use to encourage their affiliated physicians to favor cost-effective treatments. But Medicare’s programmatic structure still discourages the development of these organizations.
  • [With ACOs,] physicians remain locked into the same sort of collective-action problem that made the SGR such an ineffective cost-containment tool.


[Originally posted at The Incidental Economist]

Back to Home page

Austin Frakt is a health economist and an assistant professor at Boston University's School of Medicine and School of Public Health. He blogs at The Incidental Economist.