1984 was the beginning of Congress’s unilateral control over Medicare fees. The prospective payment system was first introduced using Diagnosis Related Groups (DRG’s) by which hospitals were prospectively paid according to diagnosis with possible modifiers. In 1992 Congress instituted a complex scheme, the Resource Based Relative Value Scale, as the method by which to reimburse physicians. Although ostensibly created to improve reimbursement for evaluation and management, this payment system has not done so and has instead dedicated more resources to specialization and technology.(1) Skilled nursing care, home health visits, rehabilitation and long term hospital stays were changed from reasonable cost to fixed federal government reimbursement also in 1992.
Starting in 2000, hospital outpatient payments went from a cost-based to a fixed price system. A Robert Wood Johnson survey of physicians in 2009 found that 62% reported adequate reimbursement by private insurance while only 9.2% reported adequate reimbursement by traditional Medicare (2) (Medicaid pays even less). An American Hospital report (2008) found that for American hospitals in 2007, 58% received Medicare payments less than cost while 67% received Medicaid payments less than cost with total hospital losses from these programs totaling $32 billion. (3) Hospitals make up these losses by cross subsidization from private insurance. In essence because of these inadequate Medicare/Medicaid payment amounts, premiums paid by those with private insurance subsidize these benefits. This is a hidden tax on the working middle class. Unfortunately Congress has not had the courage to either limit benefits or raise taxes to cover Medicare/Medicaid costs.
Has Congress’s attempts at limiting Medicare payments because of budgetary concerns been successful in limiting costs? The Medicare Payment Advisory Commission (MEDPAC June 2008 Healthcare Spending and the Medicare Program) answered this question.
With a 9.7 percent annual average rate of growth, nominal Medicare spending grew considerably faster over the period from 1980 to 2006 than nominal growth in the economy, which averaged 6.2 percent per year. Medicare spending has grown nearly 12-fold, from $37 billion in 1980 to $432 billion in 2007.Hospital and physician costs continued to increase in total and per capita with Medicare/enrollee growth in spending increasing at a rate that is about 1% lower than private insurance from 1970 through 2006. The growth rate of private insurance costs at only 1% greater than Medicare is quite remarkable since private insurance has cross subsidized Medicare and Medicaid at increasing amounts as these government programs have decreased their reimbursement rates.
Despite successive decreases in Medicare payment rates, Medicare spending has continued to parallel the increases in private insurance, but at a slightly lower rate. The reason is, in large part, the changes fostered by these decreases in Medicare payments to the culture of American medicine. The changes to American medicine include: inadequate primary care, excessive use of technology, outdated and uncoordinated information management, emergency departments feeling the need to completely work up patients rather than making the decision to admit or send home, the revolving door of nursing home patients to and from hospitals with no chance of overall benefit, hospitals' need to over-utilize procedures and testing to stay solvent because of Medicare/Medicaid reimbursement, inadequate training of young doctors in the basics of history taking, physical diagnosis and lack of reliance on clinical judgment, drug and device companies advertising along with excessive influence over Congress and medical societies.
With these unsuccessful previous attempts to control Medicare spending by decreasing payments and not addressing the multitude of these other issues, it does not bode well for the success of the recently passed health care reform law as it is supposedly financed in large part by decreasing Medicare spending.
1. Vladeck BC. Fixing Medicare’s Physician Payment System, New England Journal of Medicine 2010;362:1955-1957 (PMID 20445166)
2. http://www.rwjf.org/pr/product.jsp?id=48454 table 3