Smart Health Care Cuts Hit a Brick Wall

Smart Health Care Cuts Hit a Brick Wall

MedPAC report calls for cost accountability

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One of the outcomes of the 1997 Balanced Budget Act was the establishment of MedPAC, which was formed to monitor costs and quality for the Medicare program.  But intentions don’t produce results, so President Obama included a juiced up version in the health reform law signed last March. He called it “MedPAC on steroids.” The idea was to change the Medicare Payment Advisory Commission’s annual reports into hard and fast blueprints for implementing money-saving changes throughout the nation’s senior citizen health care program.

The Independent Payment Advisory Board (IPAB) will make annual recommendations (just as MedPAC does now) for cutting Medicare’s costs whenever they rise significantly faster than the general rate of inflation, starting in 2014. The “on steroids” part means that IPAB’s recommendations automatically go into effect unless Congress votes comparable cuts, or musters a 60 percent margin to override the proposals. At the least, IPAB would be a much needed pay-as-you-go system for health care. 

Alas, last week’s Capitol Hill hearing on the latest MedPAC report offered a sobering reminder of how hard it will be for IPAB to hit home runs in the cost control game.

Rather than focus on implementing any of the dozens of intriguing cost control recommendations in MedPac’s latest 267-page report, members from both political parties took potshots at specific proposals that would hurt local hospitals and providers. Rep. Frank Pallone, D-N.J., chairman of the House Energy and Commerce Committee’s subcommittee on health, set the tone for the two-hour hearing by opening with a complaint about a proposal to change how Medicare pays teaching hospitals for graduate medical education. The nation’s 125 teaching hospitals, many of them safety net hospitals in inner cities, receive about $9.5 billion a year in extra payments to cover the cost of training future physicians.

MedPAC chairman Glenn M. Hackbarth, a lawyer and a former head of a Massachusetts hospital system, patiently explained why the report concluded that these payments were misdirected. The system produces far too few primary care physicians and far too many specialists, he said, and the specialists it produces are the wrong kinds – too many radiologists, not enough geriatricians.

“They are also getting the wrong training,” Hackbarth said. “There’s no focus on evidence-based medicine, on team-based medicine, on cost awareness or on sharing decision-making” with patients.

Moreover, MedPAC years ago set the amount needed to train future doctors. But instead of paying that amount, Congress doubled it. The recommendations would deal with both problems by setting standards for training (like what percent of every class ought to be primary care physicians) and then basing payments on achieving those goals.

    But Pallone wasn’t convinced: “The safety net hospitals have already called me about these recommendations . . . If you’re going to take some money away, I’m concerned that this is not the right time to do that, given the recession.”

    “We’re not saying take the money away,” Hackbarth said. “We’re saying establish accountability for the use of the funds.”

    Pallone: “If money is taken away from hospitals in the red . . .” His voice trailed off in exasperation. “Have you taken that into account?” he asked. 

    “We’ve proposed a three-year period to develop the standards to guide the new payment policy and give the institutions time to prepare to adhere,” Hackbarth responded.

At least MedPac’s recommendations on physician training got discussed. The most interesting proposals in the report were completely ignored. The first chapter asked Congress to give Medicare specific authority to use innovative pricing schemes for lowering costs. Most of these were relegated to pilot projects or weren’t included in the reform law.

For instance, CMS could pay only the lowest price among the different alternatives that exist for treating a common disease. Or, Congress could give the Centers for Medicare and Medicaid Services the right to bargain over drug prices, which was expressly forbidden by the 2003 law that created the prescription drug benefit.

The report gave a simple example. There are at least five products that physicians use to treat osteoarthritis of the knee, a common ailment among seniors. Each is approved by the Food and Drug Administration. Each works through the same clinical mechanism and achieves more or less the same results. The Congressional Budget Office estimated that CMS could save $500 million between 2010 and 2019 if Medicare set the payment for all five products at the price of the lowest priced product. Instead, it pays physicians 106 percent of the average sales price, which is set by each manufacturer.

Another example cited in the report: CMS could pay the same amount for proton beam radiation therapy for prostate cancer (estimated cost in 2007 — $49,000 per treatment) as it does for more traditional intensity-modulated radiation therapy ($20,000). There is a “lack of comparative research assessing whether proton beam therapy results in better outcomes than other treatments,” the report noted.

But when a local Medicare payment contractor (CMS subcontracts this function to more than 30 of these groups across the country) proposed paying the lower amount or at least requiring proton beam providers to collect clinical evidence that might prove its superiority, it didn’t happen. “The contractor did not implement the least costly alternative” because CMS was still mulling creation of a data collection scheme that would prove whether or not the pricier procedure was actually superior.

Merrill Goozner is the author of The $800 Million Pill: The Truth behind the Cost of New Drugs.