Answer to Question #6: Have the decreases in Medicare payments been successful and how have these policies affected American medicine?

To meet budget demands, Congress has made many downward adjustments to the payment schedule since Medicare’s inception in 1965. When first created, Medicare paid prevalent private insurance rates to hospitals and physicians. Additionally, physicians were able to bill patients directly and could charge more than the Medicare rates, with the difference either paid by the patient or by supplemental insurance. Starting in 1972, because of federal budget issues, Medicare imposed limits on physician payments using its newly defined “Medicare Economic Index”. In the 1980’s physicians became limited in billing patients above the Medicare payment rates and had to submit bills directly to Medicare’s intermediaries. Hospitals were limited in per diem nursing, room and board charges, ancillary (testing) charges and increases in costs/stay.

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.
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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
3. http://www.aha.org/aha/content/2008/pdf/08-medicare-shortfall.pdf

Answer to Question #5: How Can We Remedy the Imbalance of Too Many Sub-Specialists and Not Enough Primary Care Doctors?

According to David S. Goodman and Elliot S. Fisher (New England Journal of Medicine April 17, 2008):

“… between 1979 and 1999, the physician supply per capita grew by 45% in primary care, 118% among medical specialists, and 21% among surgical specialties, yet four of every five new physicians settled in regions where the supply was already high”.

Additionally, the authors suggest that an unrestricted expansion of the physician supply would add to our fragmented specialist driven health care system because of the reimbursement systems underpayment for primary care. In Massachusetts since 1976 the physician-to-population ratio has doubled, now having the highest ratio including primary care in any state in the union, yet the medical society repeatedly makes claims of a physician shortage and patients report an ever increasing shortage of primary care.

These authors hypothesize that besides a skewed physician distribution the reasons for this disparity is the inadequate payment for primary care services forcing physicians to spend less time with each patient, referring more cases to specialists and having hospitalists care for their hospitalized patients and restricting their practices to patients they already know. This is because new patients take much more time during their initial visit.

Demonstrating that this problem is not a shortage of physician numbers, in the same issue of the Journal John K. Iglehart documented that in the U.S. there was an increase ratio of active physicians per 100,000 populations from 144.7 in 1960, to 278.5 in 2000 and expected to be 294.2 in 2020. As stated by Drs. Goodman & Fisher, the key for improvement is, “…..improve care coordination and chronic disease management; and accelerate efforts to reform payment systems so that they foster integration, coordination, and efficient care”. I propose a payment system designed to adequately reimburse primary care physicians based on being able to spend 1hr. for each new patient and 1/2hour for each return patient and some time to follow their patients in the hospital.

Concerned about the primary care workforce Dr. John D. Goodson recently wrote (Annals Internal Medicine June1, 2010), about various aspects of the Patient Protection and Affordable Care Act (PPACA). With thirty-two million Americans newly insured, our specialty oriented physician workforce (70% specialists) will be poorly suited to provide adequate primary care services, health maintenance and coordinating care of those with chronic diseases.

The bill reauthorizes funding to expand primary care by providing financial assistance to programs and individuals for five years. The law establishes a National Health Care Workforce Commission to recommend actions by Congress to meet physician manpower needs. The problem is that in the past these programs have languished for lack of funds. With Medicare funding being curtailed to help fund this new law and expanding federal deficits, I doubt that these recommendations will reach reality.

The bill states that the Secretary of Health And Human Services should adjust the Resource Based Relative Value Scale (RBRVS) to enhance payment for primary care. The law provides for a 10% increase of present day payments to primary care physicians for five years and increases Medicaid payment to Medicare levels for 2 years. The problem is that the RBRVS is deeply flawed, grossly underpaying for evaluation and management. Congress since 1991 has been unable to fix it and it should be scraped. Medicare payments, although higher than Medicaid are still inadequate to cover costs. Because of the long training period for physicians, by the time these increases could affect decisions, they will have expired, keeping in mind that it will take decades to increase the ratio of primary care to physician specialists.

A new Center for Medicare and Medicaid Innovation to help create new payment and service models was created. These new models would include expanded bundling, a single doctor payment for a disease event and follow-up, capitated payment that would cover hospital and doctor fees for an illness and a managed care type plan that would accrue monies to the providers for care costing less than expected. Other ideas to be tested are: a patient centered medical home (which in my opinion is what primary care physicians should be doing all the time) and Accountable Care Organizations that will contract with the Center of Medicare and Medicaid Services for complete medical care for a group of patients retaining any profit. The problems are as I see them is that physicians have not been trained to avoid excessive testing and rely on clinical judgment, the public has unrealistic expectations of medical care along with demands for non beneficial care, and the mistrust of managed care type models have not been addressed.

The reasons that many young doctors wish further specialty training are not limited to economics. In this age of molecular biology and advanced patho-physiology young doctors want to learn more, This makes them better doctors, not only in their area of specialization, but better doctors in general. Their skill set does not have to become narrower with appropriate further training. There are no active mechanisms in this law to change the physician and patient culture that pervades our system - too many tests, too much non-beneficial care, excessive demand for drugs and devices. The way to meet the need for greater primary care capability within a reasonable time frame is to have medicine and pediatric sub-specialists provide primary care for their patients who do not have ready access to a primary care physician.

Answer to Question # 4: Why do teaching hospital costs vary to the degree that they do, even though their physicians are salaried and do not charge f

Using the Dartmouth Atlas of Health Care data an article in Time magazine (June 29, 2009) by Michael Grunwald compares the costs as revealed by Medicare spending per patient in the last two years of life in five major large hospital teaching centers, all with salaried physicians. The costs itself are of some importance, but more importantly they reflect the style of medicine practiced at each medical center. From most expensive to least they are: UCLA Medical Center $93,842, Johns Hopkins Hospital $85,729, Massachusetts General Hospital $78,666, Cleveland Clinic Foundation $55,333 and Mayo Clinic $53,432. The reasons for these differences are variable but do not include physician entrepreneurship. Although the medical center was paid for the physician services on a fee-for-service basis, the physicians were paid by salary or in some cases on an hourly basis.

There are many known factors causing these differences and many that are harder to define. Certainly the idea that the physicians at the Mayo and Cleveland Clinics have access to information that is unavailable to UCLA, Mass. General and Johns Hopkins in this computer age is absurd. Thus comparative effectiveness research may be somewhat helpful, but it will not solve the problem of making the more expensive centers more like the less expensive ones. There is little to no difference in the availability of advanced technology, but outcomes are possibly worse in the more expensive centers. The more that is done having no benefit the greater the chance of mishaps. The more expensive hospitals have more beds; the patients are in the hospital more often and have more consultant and sub-specialist visits. Alas more (The American Way) is not better. There are of course other complicating factors; hospitals serving less privately insured patients need to maximize billing to compensate for the fact that government programs do not cover the costs of their activities. Even for salaried physicians there are subtle but real pressures to enhance income.

Each teaching center has its own medical culture which is the result of many forces, both historical and economic. The physicians of the Mayo Clinic have a long tradition of quick informal consultation, creating an environment of collegiality and helpfulness not requiring costly formal consultation. The patients at the Mayo and Cleveland Clinics frequently travel long distances for their care and are thus probably more amenable to a conservative approach and more likely to have private insurance; as time passed these institutions developed a more conservative practice of medicine utilizing less consultation, hospital days and ancillary testing.

The wide variations between the costs of care in these fine large teaching hospitals give pause to the concept of the widely touted proposal of bundled payments. This is because many of the patients in these prestigious hospitals are members of the managed care organizations that have evolved over time. Again, it is the medical culture, the skills the physicians have in history taking, physical diagnosis, interpretation of simple tests, ability to conceptualize cases, understanding probabilities and risk-to-benefit ratios along with the ability to communicate effectively.

This difference in medical culture as a primary cause of differences in cost is well documented by Dr. Atul Gawande in his article, The Cost Conundrum, in the June 1, 2009 New Yorker magazine. He compared two centers in Texas, McAllen and El Paso. McAllen spent twice as much ($15,000 vs. $7504) as El Paso per Medicare enrollee/year. Dr. Gawande found that McAllen’s much higher costs were clearly due to an over-delivery of medical care by doctors, without better results.

Dr. Gawande reported on another community, Grand Junction, Colorado which practices in a fee-for-service setting. It had achieved Medicare’s highest quality of care scores. They provide this excellence as one of the lowest health care cost areas in the country. The secret: the physicians have the courage and spirit of collegiality to meet regularly in small groups to review each other’s charts and discuss how to improve care. This is in marked contrast to that found in most centers of aggregated impersonal computerized review. In addition they implemented a regional electronic medical record system reviewing each other’s data, somewhat akin to my suggestion of a national medical record.

We need a medical culture on the national level that is willing to support and effectively teach each other while regularly reviewing cases. We must provide evidence-based care tailored to each patient’s needs. This idea is similar to my suggestion of an active real time peer review system.

Question #3: How Should We Address the Issue of A Gross Domestic Product of 17% Price Manufacturing and Jobs Out of This Country?

During the recent health care debate one of the stated goals was that any health care bill should not increase the federal deficit. There was no discussion on the effect that the percentage of gross domestic product (GDP) devoted to health care has on the overall economy and jobs. There was also no discussion on how a negative effect on the economy would decrease tax revenue and thus have a profound effect on the federal deficit. According to this line of reasoning two issues arise regarding the Patient Protection and Affordable Care Act:

(1) will there be a significant increase in the percentage of GDP devoted to health care and
(2) if there is a significant increase of GDP devoted to health care would this cause a decrease in good paying American jobs?

Answer to (1): The Chief Actuary of the Centers for Medicare and Medicaid Services, Mr. Rick Foster, has calculated that when this law is in full effect it will increase the percentage of GDP devoted to health care to 21% and that the cost containment efforts will be largely ineffectual.

Answer to (2):
In addition to the business roundtable assessment Cathy Arnst wrote in Bloomberg Businessweek July 23, 2010, “The rate of growth in U.S. health care costs has outpaced the growth
rate in the gross domestic product (GDP) for many years. In 1940, the share of GDP accounted for by health care spending was just 4.5%. By 1990, it had reached 12.2%, and 16% in 2005, when health care spending totaled nearly $2 trillion, or $6,697 per person, far more than any other nation. This year health care spending is on track to equal 18% of GDP” and that a recent Rand study revealed that this imbalance (especially when % GDP devoted to health care reaches 20%) versus other countries does have a negative impact on our economy and jobs. This newer information coupled with this statement from the Henry J Kaiser Foundation and the Health Research and Education trust, “Health care costs skyrocket in United States, threatening to bankrupt national economy”, adds credence to the concept that no matter how we pay for health care, our excessive costs must be successfully addressed for us to pass prosperity on to our children. Not only will these excessive relative health care costs cause jobs to decrease , but by hampering economic activity it will also decrease federal tax revenues adding complexity to an already difficult problem.

How would a rational society deal with the problem of meeting its need for universal coverage while at the same time get its percentage of GDP devoted to health care more in line with other countries?

1. Deal with the pivotal meaning of Dr. Relman’s statement, “Doctors, in consultation with their patients- not insurance companies, legislators, or government officials – make most of the decisions to use medical resources, thereby determining what the United States spends on health care”. (New England Journal of Medicine September 24, 2009).
2. Understand the forces (i.e., perverse payment system encouraging an overly technological style of medicine, unrealistic public expectations, adverse legal environment, excessive administrative costs and complexity) acting on the doctor-patient relationship that are causing American medicine to be so expensive.

3. Understand the changes that will be necessary to rectify these pernicious factors. Although the new health care bill makes attempts to control costs, most experts suggest that these attempts will be marginal at best. Seriously addressing the changes needed to bring our health care costs more in line with other nations will cause many powerful entities, (i.e. pharmaceutical and devise companies, intensive care units, some specialists) to have a decrease in income thus requiring greater political will to bring about real cost containment.

4. Adopt a process of doctor-patient agreement on the primacy of beneficial care and physician oversight to insure the practice of evidence-based national standards along with the creation of a health care agency that would be independent of lobbying activity. This agency would create national insurance options, a national electronic medical record, a rational physician payment schedule and many other administrative functions.

There is no doubt that the physicians in this country, if given the right tools, can provide universal coverage costing no more than 15% of GDP.