Category: Medicare

Medicare Prices Shape Payment Formulas for the Entire Health Care System

2020902271Our results suggest that Medicare’s decisions are far more influential than you may imagine,” said Joshua Gottlieb, an economist at the University of British Columbia. His research shows that a $1 change in the price that Medicare pays yields a $1.30 change in what private insurers pay.

What happens if the government gets those prices wrong? In the past year, a Washington Post investigation has shown that Medicare prices are sometimes based on faulty premises, offer perverse incentives for unnecessary care and provide widely varying amounts for equivalent drugs

“Our results indicate that the private sector will copy Medicare’s pricing errors,” Gottlieb said. (Washington Post)

Is Sebelius Trying to Kill Medicare Advantage for Special Needs Patients?

Like the ObamaCare exchanges, [Medicare] offerings feature higher premiums and worse benefits, as well as insurers that are competing in fewer markets and shrinking their physician networks.

According to federal data, average consumer premiums are jumping by about 5% above the underlying rise of health costs. Three of every five counties have fewer options than they did this year, most of them in the South and Midwest. A recent Lerrink Swann research note for the nine major publicly traded insurers concludes their premiums are 26% higher and maximum out-of-pocket costs — a proxy measure that is inversely proportional to benefit generosity — have climbed by 22%.

About one of 20 seniors on Advantage had to switch plans because their old coverage was cancelled, but the damage has been particularly acute in a category called special needs plans, or SNPs. More than 1.5 million people were covered by about 500 of these plans in 2013, but the consultants at Avalere Health report that 13% were wiped out.

Liberals want to zero out about 80% of SNPs and allow them only for end-stage renal disease, AIDS and mental disabilities that require patients to be institutionalized. Everyone else is supposed to be shifted into new government-controlled, provider-side “reforms” that were part of ObamaCare. (WSJ)

Is This an Opportunity for Entrepreneurs?

Tom Scully thinks so. This is from the NYT Magazine:

Medicare, which picks up a majority of their health bills, encourages hospitals to discharge patients quickly after surgery, but it doesn’t offer financial incentives to choose one form of post-acute care over another. And because discharging a patient to home care requires a lot of extra work — ensuring that the correct equipment will be in the home, training family members and so forth — many doctors choose the easier option. They can simply ask a nurse to send the patient to a rehab facility, and everything is handled in about a minute. Medicare automatically approves payment for 20 days of recuperation in a nursing home, and many facilities simply treat the patient for the full allotment. “Miraculously, everyone is cured on the 21st day,” Scully says…

On average, Medicare’s fee-for-service model pays for about 2,000 days in a post-acute care facility for every 1,000 beneficiaries. By comparison, Kaiser Permanente, a provider of low-cost quality care, averages 600 days per 1,000 clients while achieving better outcomes.

Cost of End of Life Care


Source: Paper by David Stevenson and colleagues via Austin Frakt.

How Medicare Influences Private Payment

This is from an NBER Working Paper:

On average, a $1 change in Medicare’s relative payments results in a $1.30 change in private payments. We find that Medicare similarly moves the level of private payments when it alters fees across the board. Medicare thus strongly influences both relative valuations and aggregate expenditures on physicians’ services. We show further that Medicare’s price transmission is strongest in markets with large numbers of physicians and low provider consolidation.

HT to Tyler Cowen, who draws implications.

This Will Teach Little Old Ladies to Brush Up On Medicare’s Rules

So here’s a sad story about medicine and the law. Sarah Mulcahy was 96 years old when she suffered a bad fall. The pain was so severe that she became incontinent and nauseous. After going to the emergency room, she was hospitalized and spent three nights at Manchester Memorial Hospital in Connecticut. While there, she was X-rayed, CT scanned, hooked up to an IV, treated with an incentive spirometer, and given compression cuffs to prevent deep vein thrombosis. After being discharged, she went to a skilled nursing facility (SNF) to recuperate. She stayed there for more than three months at a price tag of about $30,000.

Fortunately, Medicare covers the costs of SNF care for patients who first spend at least three days as a hospital inpatient. (This is known in the lingo as the “three-midnight rule.”) Unfortunately for Ms. Mulcahy, however, she was never technically admitted as an inpatient to Manchester Memorial. Instead, the hospital had put her on “observation status,” an ill-defined halfway house for a patient who’s too sick to go home but who might not be sick enough to need the full range of hospital services. Because Ms. Mulcahy wasn’t ever an inpatient, Medicare wouldn’t cover her subsequent SNF stay.

So she sued and lost. And then there is this:

The bad news for Ms. Mulcahy is that financial incentives have recently been pushing hospitals to put more and more patients on observation status. (More from the Incidental Economist)

Medicare Spending Varies by Region — Mostly Outside the Hospital

Regional variation in Medicare spending is often blamed on inefficiency in the Medicare program. Purportedly, the Medicare program would become much more efficient if only policymakers could force hospitals in high-spending regions to practice medicine in a similar manner as hospitals in low-spending regions.

A new study in JAMA by economists, Joseph Newhouse and Alan Garber, casts doubt on this theory. Newhouse and Garber found nearly three-quarters of the regional variation in Medicare spending is on post-acute care outside the hospital. This includes: nursing home care, home care, skilled nursing, rehab, hospices, etc. Newhouse and Garber go on to explain these are services that are rarely used by non-Medicare populations, which is partially why regional variation is not as common among private insurance expenditure.

An earlier analysis by NCPA senior fellows, Rettenmaier and Saving also called into question whether regional variation could be blamed on inefficient hospitals. Although they didn’t analyze Medicare spending by category, Rettenmaier and Saving found that Medicare spending was high when the uninsured population is large, and spending by private insurance is low. Basically, they found that Medicare spending substitutes for lower private spending:

As expected, a higher uninsured rate is associated with lower state health care spending in the non-Medicare/Medicaid population. In contrast, a higher percent of the population with no insurance resulted in higher Medicare spending per enrollee indicating cost shifting to Medicare.

The Medicare Doc Fix Will Never Get Fixed Like This

Earlier this month, the Congressional Budget Office (CBO) scored the cost of a Republican-led bill to permanently “fix” the Medicare fee schedule for physicians. The cost to taxpayers? $175 billion over ten years. To put that in perspective, according to the Congressional Budget Office’s bishopx-largeMay 2013 budget outlook, the ObamaCare’s effect on health spending is that it will cost $1.8 trillion over ten years. So, this so-called permanent doc fix would cost almost one tenth the entire cost of ObamaCare.

How can anyone possibly call that a “fix?

This blog has addressed the doc fix before. To recap: Medicare pays most doctors fee for service. However, the fees are drawn out of an aggregate spending estimate that is supposed to increase annually by the Sustainable Growth Rate (SGR). For many years now, the SGR has not kept pace with physicians’ practice costs. So, at least once (and usually two or three times) a year Congress has to pass a short term “fix” that blows the cap off the SGR, restoring physicians’ fees. Without another “fix”, physicians’ fees will drop by 24 percent on January 1.

Should Medicare Benefits Be Taxed?

tax-calculator_304Congress’s Joint Committee on Taxation…calculates the taxes that ought to be levied on Medicare benefits in excess of taxes and premiums paid. This year, the tax expenditure for the hospitalization portion of Medicare is $34 billion, $26.4 billion for Medicare Part B and $6.6 billion for Medicare Part D, which provides prescription drugs. That is a total tax benefit to Medicare beneficiaries of $67 billion in 2013. (More from Bruce Bartlett)

More on Hospital Readmissions

All this is courtesy of Austin Frakt:

The problem:

Low-income African American patients [] are up to 43% more likely than their higher-income white counterparts to find themselves back in the hospital within weeks of discharge. As a result, the cost of care for these disadvantaged patients is high, as illustrated by the population of low-income patients who are dually eligible for Medicare and Medicaid. Dually eligible individuals cost twice as much as other Medicare beneficiaries largely because they are 4 times as likely to be readmitted to hospitals for ambulatory care–sensitive conditions. [...] (JAMA study)

Making the problem worse:bilde

Most importantly, many post discharge interventions are fundamentally clinical interventions, delivered by a workforce trained to address clinical issues. Paradoxically, intensifying clinical follow-up care [] might actually increase admissions; outpatient medical providers often do not have the tools to address the underlying social causes of poor health and have no choice but to refer these patients back to the hospital when they inevitably fall ill. (JAMA study)

Penalizing providers who deal with the problem:

Because the measure used for Medicare’s penalty is not adjusted for patients’ socioeconomic status (SES), and because patients with lower SES experience higher rates of readmissions, safety-net hospitals on average receive higher penalties under the current regime….

Experts [] noted the futility of discharging vulnerable patients into communities lacking strong networks of primary care and the community support systems necessary to aid patients in their recovery.  (Commonwealth study)