Making a Mint on Medicare: Private Businesses?
Business + Economy

Making a Mint on Medicare: Private Businesses?


The real beneficiaries of Medicare “entitlement,” say the authors of a recently released book, are the private companies that rely on the $600 billion that Medicare spends each year: the drug companies, device manufacturers, hospitals, doctors, investment banks, hedge funds, private equity firms and others who pile up billions of dollars of unnecessary spending as they serve the needs of the Medicare population.

Medicare Meltdown (Rowman & Littlefield 2013), by Rosemary Gibson and Janardan Prasad Singh is the latest in their series of volumes about health care in America. By reframing the debate, and calling for a change in the conversation, Gibson and Singh hope to create enough public outcry to reform Medicare and protect beneficiaries at the same time.

They’ve taken on an uphill battle.

Medicare is the largest entitlement program for any business sector in the U.S. economy, the authors note, as they begin with some startling statistics including:

  • If Medicare were a country, it would be the 20th largest economy in the world
  • Medicare wastes the equivalent of the entire economy of New Zealand
  • The average person pays $60,000 for Medicare during a lifetime of work
  • A new retiree can expect to receive about $180,000 in Medicare benefits
  • Between now and 2030 Medicare will be adding the equivalent of the populations of Austria, Hong Kong, Israel and Switzerland to its rolls
  • The number of corporate health care firms on the Fortune 100 list has increased from zero in 1965 to fifteen today

Gibson and Singh note that Medicare providers have done a great deal of good by bringing products and services to older adults and all Americans. Their concern is the manifestation of the excess, in particular payments made to hospitals, that is contributing to Medicare becoming unsustainable financially.

“The nexus between business and elected officials is at the heart of the excessive, wasteful spending,” Gibson told The Medicare NewsGroup in a recent interview. “The open ended fee for service system was agreed to by LBJ (President Lyndon Baines Johnson) who had to agree to industry demands if hospitals and doctors were to participate. “

Medicare, they say, needs to change.

The authors fix their sights, though, on the startling growth of for-profit health care companies since the advent of Medicare. Where the medical landscape, at the inception of Medicare in 1965, had been made up of not-for-profit hospitals and independent physician practices, today 20 percent of hospitals, half of all hospices and 80 percent of dialysis centers are for profit, they note.

The waste from Medicare, as they also illustrate, is frightening. Pointing to a calculation by The Institute of Medicine of the National Academy of Sciences released in 2012, they note that 30 percent of health care dollars in the U.S. are wasted. That’s $170 billion, more than the economy of New Zealand, which applies to Medicare. Instead of helping seniors, that money goes to excessive pricing and overuse of unnecessary services. And, they imply, much of this waste, while not fraudulent, is also not accidental.

Medicare Meltdown is the fourth book by Gibson and Singh about the health care industry. As in their previous collaborations, they unearth facts and tell stories that, while largely taken from press and other public sources, are not in daily mainstream media conversations.

Gibson, the principal writer, spent 16 years at the Robert Wood Johnson Foundation, where she designed and led national initiatives to improve health care quality and safety, becoming, in effect, the chief architect of an over $200 million strategy to bring hospice to hundreds of hospitals around the country. In Medicare Meltdown, she and Singh weave in examples of how institutions that the public might hold in high regard, such as the American Medical Association (AMA), the American Hospital situation (AHA) and various physician associations have their own agendas as well.

For example:

  • Hospital executives are paid, not to be good stewards of Medicare resources or even primarily to take good care of patients, but to maximize revenue. They illustrate how building excess capacity leads to unnecessary and even harmful treatment.
  • When Medicare tried to crack down on improper payments, cardiologists, Wall Street, the AMA and the AHA pushed back, causing Medicare to delay its review.
  • Congress hamstrings Medicare officials by preventing them from paying the lowest cost for drugs under Medicare Part B.
  • the Obama administration created a loophole in the Medicare Advantage (MA) bonus program to reward less than stellar performers, thus making up some of the revenue MA plans might lose under the Affordable Care Act (ACA).
  • Congress and drug companies have worked together to make sure higher doses of dialysis drugs are approved by Medicare, even when those doses might be harmful to patients.
  • “Fast-tracking” of medical devices such as artificial joints or brain stents, in response to Wall Street pressure, can lead to higher payouts and patient harm.

Gibson says one of the factors that drove her to write this latest book was talk of raising the eligibility age for Medicare. She noted that suggestions to raise the eligibility age or raise premiums are coming from both sides of the political aisle. “Before that is done they should ensure that the money the public is already entrusting to Medicare is used appropriately,” she said.

She and Singh aim to shift the conversation from beneficiaries being dependent on Medicare to realizing that what is really driving the cost is the health care industry that uses $550 billion a year.

“Medicare is a big business, not just a program for older adults,” she says, noting how popular the topic is when she speaks to groups. “I was aiming at the public” with the book, she notes. “Democracy will only work when people push back.” She was also aiming at people who work in health care, to help them explain what they see in their workplace.

The final chapter of Medicare Meltdown offers five suggestions that sum up the authors’ response to a New York Times editorial that claimed that other than cutting payments to health care providers, raising premiums on high-income beneficiaries and mandating drug company rebates, “there are very limited options for further reducing Medicare…spending.” Instead, the authors note, “there are lots of ways for Medicare to save money.”

Noting that raising the Medicare age to 67 would save about $15 billion a year according to the Congressional Budget Office, they offer five alternatives to create equivalent savings and urge the public to push back against the health care industry to bring these about:

  1. “Create a Costco for hospital supplies and equipment,” meaning that the market should provide the most favorable deal to customers, including hospitals, ambulatory surgery centers and other health care facilities. They estimate savings of $5 billion a year for such items as alcohol dispensers to oxygen tanks, infusion pumps and CT scanners.
  2. “Cut improper payments to hospitals and doctors. Estimates of improper payments by Medicare officials are around $48 billion a year. If ten percent of these payments were stopped, the savings would be nearly $5 billion a year, the authors note. Medicare officials have moved to address this issue and the ACA strengthens fraud and waste measures as they relate to improper payments.
  3. “Cut Medicare payments to hospitals for routine doctor visits. Once independent physicians sell their practices to hospitals, the hospitals can charge 8 percent more for a fifteen-minute office visit. Seniors pay higher co-pays as well. The savings estimate here is $1 billion per year. In June, the Medicare Payment Advisory Commission (MedPAC) recommended that Congress immediately cut payments to hospitals for such services.
  4. Tackle Medicare fraud. Backed by the ACA, federal officials have increased their efforts to combat fraud. It has become focal point in congressional discussions about Medicare reform. Still the authors note a 10 percent cut in fraudulent payments would yield $5.6 blllion in Medicare savings.
  5. Cap Medicare spending growth with targeted cuts in waste, fraud and abuse.