Is pain-free Medicare reform possible?

Note to readers: I welcome questions and comments, and will try my best to reply in a timely manner. I ask only that you do your part to keep our discussion reasoned and polite. – MM 

In his Inaugural speech, President Obama renewed his commitment to safety nets: “these things do not sap our initiative; they strengthen us.”

Yet last week, he signaled that he is “open to making modest adjustments to programs like Medicare.” Should seniors brace for bad news?

No. There are many ways to cut Medicare spending without drawing blood. It’s a matter of using a scalpel, not an axe, to trim the fat.

Not long ago, the Center for American Progress (CAP) unveiled a Senior Protection Plan that would do just that, revealing how we could reduce Medicare spending by $385 billion without harming beneficiaries.”

The administration pays attention to CAP. Recently Bloomberg News described CAP as “the intellectual wellspring for Democratic policy proposals, including many that are shaping the agenda of the Obama administration.” This suggests that the report’s proposals may offer a preview of “adjustments to Medicare spending” that the president would consider.

How would CAP save $358 billion without rationing benefits or shifting costs to middle-class seniors? The report focuses on squeezing waste out of the system. Waste doesn’t help beneficiaries.

During recent fiscal cliff negotiations, Democrats and Republicans agreed to adopt four of CAP’s proposals, and I suspect that, over time, we will see more of its recommendations become part of the reality of health care reform.

Recently, I interviewed CAP president NeeraTanden and Topher Spiro, CAP’s managing director for health policy. I was impressed by how their practical approach differs from conservative strategies for slicing “entitlements.”

“Painful” doesn’t mean better

When Republicans discuss safety nets such as Medicare they tend to talk proudly about the “very painful cuts” that will be needed. (Given their righteous tone, one would think that they were the ones who were going to suffer.)

Tanden explains that CAP’s goal is to offer ideas that would reduce waste and make Medicare more efficient “without punishing seniors.”

Complicated problems and simple solutions

Typically, conservatives favor blunt solutions that can be summed up in a sound bite: “Raise the eligibility age for Medicare to 67.” (Here, I’m reminded of H.L. Mencken’s observation: “For every complicated problem, there is a solution that is short, simple, and wrong.”)

In truth, forcing seniors to wait until they are 67 would save nothing. The change would merely shifts costs to older seniors, younger Americans who have private insurance, employers, and the states. CAP points out: that “the cost increases would be twice as large as the federal savings.”

Nevertheless, in 2011, President Obama seemed open to this idea. Could this be one of the “adjustments” that he has in mind?

Spiro doesn’t think so. “That was in a different context. Since 2011, the Supreme Court has ruled that the states do not have to expand Medicaid.” As a result, more than 270,000 65-and 66-year-olds could be left uninsured. “The administration will take this under consideration.”

The other change, of course, is that “the president has more leverage,” Spiro notes. “He won the election.”

Dozens of reforms are needed

While Republicans prefer sweeping across-the board solutions, thoughtful reform is more complicated.

CAP calls for dozens of discrete changes, including:

• prohibiting “pay for delay” agreements that let “brand-name drug manufacturers pay generic drug manufacturers to keep generics off the market” (saving $5 billion);
• increasing premiums for the wealthiest 10% of Medicare beneficiaries (raising $25 billion);
• insisting that drug-makers extend Medicaid rebates to low-income Medicare beneficiaries (saving $137.4 billion).

To fully understand CAP’s approach, consider the four ideas that were accepted during Fiscal Cliff negotiations.

Reduce excessive payments to dialysis facilities

Since 2011 Medicare has been making “bundled payments” to dialysis facilities to cover services, drugs and lab tests.

In the past, pricey drugs known as “erythropoiesis-stimulating agents” accounted for a huge share of dialysis drug spending. But in recent years, facilities have cut back on their use, in part because higher doses are linked to cardiovascular problems.

Yet Medicare payments have not been adjusted to reflect lower doses. CAP’s report estimates that by making the appropriate adjustments, Medicare could save $3.6 billion over 10 years.

“The Congressional Budget Office (CBO) then scored it as saving $4.7 billion,” Spiro observes. “This suggests that we were being conservative.”

The dialysis industry was not happy. “I got really hard push-back,” he recalls.

Recoup $10. 5 billion in overpayments to hospitals

According to the Medicare Payment Commission (MedPAC) – a bipartisan group that is widely seen as independent – hospitals have been “up-coding” patients’ problems when submitting bills to Medicare, making them look sicker than they are.

MedPAC’s analysis says that hospitals were overpaid by $11 billion from 2011 to 2012, and fiscal cliff negotiators agreed to let Medicare take back $10.5 billion.

Hospitals claim that today’s Medicare patients are sicker. But MedPAC notes that hospital costs have been declining – so why are they charging more?

Continue to reduce “DSH” payments to hospitals after 2020, saving $4 billion

Medicare pays hospitals more if they care for a disproportionate share (DSH) of uninsured patients. The ACA reduces those DSH payments from 2014 to 2010. CAP predicts that the number of uninsured will continue to fall after 2020.

Require that Medicare Advantage insurers engage in competitive bidding

In 2011, competitive bidding for durable medical equipment reduced Medicare spending by more than 42 percent. During Cliff negotiations, politicians agreed to extend competitive bidding to Medicare Advantage insurers, saving another $10 billion.

CAP would go further, expanding competitive bidding to include medical devices, for savings of $20.5 billion. The medical device industry boasts a formidable lobby. Would Congress ever endorse this proposal?

“Some of these recommendations may not seem politically feasible” Sprio acknowledges, “but things that weren’t possible may be more possible in the current political context.

“Congress is demanding substantial health care savings,” he adds.” Some of these reforms have to happen before you touch beneficiaries in any way. The idea that you would shift costs to beneficiaries before recapturing a windfall for Pharma just isn’t palatable.”