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Managing Medicare's Costs

The excesses of Medicare's fee-for-service system (2 of 3)

Why is the United States tied for first in the world for knee replacements per 100,000 people, but only one-third of adult men have been screened for cholesterol in the last five years? Why is the U. S. second in the percentage of people who have magnetic resonance imaging (MRI) exams and computerized tomography (CT) scans, yet only one-half of adults receive important preventive services?

Last year a PBS Report summarized the results of a study by the Organization for Economic Cooperation and Development (OECD) that tracked health care indicators in 34 industrialized countries (the full study is here). The OECD report ranks countries by their scores on various health indicators. These rankings tend to paint a gloomy picture of U. S. healthcare.

Despite spending $3,000 more on each patient than the second most expensive country, the U. S. is tied for 25th in the ranking for the average remaining life expectancy of a 65-year-old (page 163 of the OECD report). And even though the U. S. has the most advanced medical research, top-tier physicians, and cutting-edge technologies, it gets a weak bang for its buck.

There is sizable discrepancy between what we spend for health care and what we get in return? Why does the U. S. rank an embarrassing 29th in the number of doctors’ consultations per person (page 81), since doctors’ offices are the places most diseases are detected and treated? On the other hand, why does Japan rank first in per-capita doctors’ consultations with three times as many as the U.S.? Could the frequency with which Japanese people see doctors be related to the fact that since 1960 Japan has gained seven years more than the U. S. in life expectancy at birth (page 7)?

Of course no single factor accounts for the differences in cost and longevity among countries, but some experts say that one reason that the U. S. under performs is that it focuses too much on the most expensive but not necessarily the most valuable procedures. Knee and hip replacements, for example, cost $15,000 or more, and the bill for a CT scan or MRI typically runs at least $1,500. That’s in contrast to preventive services, screenings and regular checkups, which typically cost $250 and less.

If you were an auto dealer, these experts point out, you would prefer to sell more expensive cars, not the ones that cost $250. It’s no different, they say, for the many physicians who find themselves attracted to lucrative specialties and pricy procedures that they can perform in large volumes, staying away from primary care services that combine high frequency with modest reimbursements.

Giving this theory some credibility, the most expensive procedures have been on the rise and primary care, until very recently, has been on the decline. There’s been a 160% increase in knee replacements paid for by Medicare over the last 20 years, according to a study last year by USA Today.

And in last year’s Data Book, the Medicare Payment Advisory Commission (MedPAC) displayed charts showing that the use of CT and MRI scans per 1,000 beneficiaries had roughly doubled between 2000 and 2009. In this year’s Report to Congress, MedPAC mentioned echocardiograms and nuclear imaging stress tests as technologies that have been increasingly prescribed. In a cautionary note MedPAC added that heightened testing raises health concerns, particular cancer risks (for nuclear imaging).

Other countries have been able to restrain providers’ tendency to concentrate on the high-cost services. Mark Pearson, head of the Division of Health Policy at the OECD, mentioned in an interview shown in the PBS documentary that France and Japan are two countries with lower-cost fee-for-service systems that produce high quality health care. He said that they use a common fee schedule for most services – so that all insurers and patients pay the same rate.

Pearson added that if a particular service grows more quickly than expected, the government may attempt to get lower reimbursements approved for that service. MedPAC has also said that a surge in a specific procedure is sometimes a signal that it is overpriced, although Medicare has limited power to change reimbursement rates without Congressional approval.

When the Medicare beneficiary pays nothing for an expensive service because he or she has comprehensive supplemental insurance, doctors make more money and over time patients pay higher premiums. MedPAC’s recommendations to Congress to tighten the rules for imaging and other overused services have had limited success because of pushback by physician and industry groups.

Physicians have recommended their own set of changes. Their ideas are partly to stave off more radical reform, but they will curtail some of the current abuses. Three months ago the National Commission on Physician Payment Reform issued proposals that include an outcome-based fee-for-service system in which payments to doctors are linked to the quality of care, as is now the case with Medicare Advantage plans. Thus doctors whose outcomes are below average would receive smaller reimbursements. The commission also suggests that “evaluation and management” services receive higher payments than they do now. This would likely shrink the pay gap between primary care doctors and specialists, although the proposal explains that many of these E&M services are provided by specialists.

The commission also recommends that facility-based services be reimbursed at the rate as those services are when performed in lower-cost offices, since Medicare’s current fee-for-service system has a component to recover the cost of the facility. This last suggestion would make payment rates for MRI’s the same whether they’re done in a hospital or an outpatient office. Finally, the commission encourages the development of bundled payment approaches to reduce today’s incentives for high volume.

To defend its position, in 2011 MedPAC officials held a press conference to explain their reasons for asking for more restrictions. They issued a press release which in part said, ““In the last decade, ancillary services have reached high levels of use, fueled at least in part by unduly high payments.” At the same time, MedPAC has been careful to say that expensive procedures are warranted in many cases.

When seniors do not have comprehensive insurance, of course, they are more likely to question the value of a specific procedure. If they have a 10% co-pay for whatever procedure they undergo, they will often do enough research to determine if a higher-cost one is needed. Meanwhile, if they are going to have knee replacements or other surgeries, if they can they should enroll in a comprehensive plan.

Medigap Plans C and F are the best ones for people who don’t have employer supplements. Perhaps after surgery is completed, they can during their next open enrollment change back to a less comprehensive plan. The ability for unhealthy people to adversely select comprehensive Medigap plans is one reason for their high premiums – but in the meantime, if there’s a legitimate loophole in the system, seniors shouldn’t feel guilty about using it. But in most states switching to and from between less and more comprehensive plans will not work if you have a serious medical issue or chronic health problems. In those cases you may find it difficult to purchase Medigap policies after their initial six-month guarantee issue period has passed. ◊◊

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