There Is A Plan to “Save” Medicare…But It’s Complicated

In his response to President Obama’s State of the Union speech, Florida’s Senator Marco Rubio warned; “anyone who is in favor of leaving Medicare exactly the way it is right now, is in favor of bankrupting it.”

Implying that the current administration is in danger of doing exactly that, Rubio asked us, “Instead of playing politics with Medicare, when is the President going to offer his plan to save it?”

First of all, as Sarah Kliff points out in the Washington Post’s Wonkblog, Obama did mention three specific initiatives for achieving Medicare savings in his speech:

1)    Restoring the Medicaid drug rebates for so-called dual-eligibles (the mostly poor, sick or disabled people who qualify for both Medicaid and Medicare) that were rescinded once their medications were covered under Medicare Part D. The administration estimates this would save $156 billion over 10 years.

2)    Means-testing the Medicare program for higher-income seniors. This boils down to raising premiums by another 15% for the 5% of well-to-do seniors who already pay more for their Medicare premiums. According to the Congressional Budget Office, this would generate $30 billion in savings over the course of a decade.

3)    Paying doctors and hospitals for the quality of care they provide, not quantity. Cost savings: Well, that’s complicated—but this could be the game-changer.

It’s true that the President didn’t spend much time on health care in his speech. That’s probably because he knew that studding his State of the Union address with health policy-speak and detailed models would have caused even more of the audience to fiddle with their cell phones or perhaps indulge in a catnap. It’s also because “saving Medicare” and bending the “cost curve” of health care spending in general is a whole lot more complex than is portrayed by politicians and much of the media.

Marco Rubio and other deficit hawks like him take the simplistic approach; calling for broad, disruptive policies like raising the Medicare eligibility rate from 65 to 67 and turning the program into a voucher system that provides seniors with a lump sum to buy their own coverage. These two policies are the centerpieces of the Republican plan to cut Medicare spending by $600 billion over 10 years. The problem is that restricting eligibility and issuing vouchers (for what will likely be less comprehensive coverage) does nothing to confront the serious systematic problems—high prices, waste and overtreatment, fraud and poor care coordination—that plague Medicare.

In reality, the choice between broadly slashing funding for Medicare and keeping it “exactly the way it is right now” is an outdated and inaccurate conundrum. The real choice is between broadly slashing funding for Medicare to appease deficit hawks and having the patience to usher in widespread transformation of an ailing system.

If politicians could step back from their rhetoric for a bit, they’d see that with little fanfare, Medicare is already undergoing fundamental changes. Spurred on by initiatives like the Shared Savings Program and Pioneer Accountable Care Organization (ACO) Model that are rooted in the Affordable Care Act; demonstration projects, pilots and large-scale experiments are underway that focus on a host of ways to provide well-coordinated, high quality care that is designed to cost less in the long run.

The various innovative models currently being used to pay for and deliver care include “bundling” payments into episodes of care,  capitation, global payments and, of course, ACOs. You can go here to read more details about these models, but what they all have in common is a departure from the status quo of fee-for-service practice that rewards doctors and hospitals for merely providing more – rather than better – care.

Absolute savings have been hard to quantify, but here are some promising Medicare innovations that are well under way:

–Last month, the Center for Medicaid and Medicare Services (CMS) announced that more than 500 hospitals and related health care organizations would receive single “bundled payments” for all the care associated with some 48 different conditions or procedures, including stroke, joint replacement and spinal fusions.

— There are more than 250 Medicare ACOs caring for 4 million enrollees in the U.S. Each ACO is made up of a set of providers, including primary care physicians, hospitals, specialists and long-term care facilities (among other providers) who agree to share responsibility for the total care of patients, including health outcomes, patient care experiences, and the cost per person. The ACO receives a lump payment that covers the cost of caring for a defined population of Medicare patients, and providers can share in the profits if they meet quality and savings targets. On the flip side, ACO providers also agree to accept penalties if there are cost overruns.

–Some 500 Federally Qualified Health Centers are participating in a demonstration project that uses patient-centered medical homes to care for 195,000 Medicare patients, many of them the costly “dual eligibles” who also receive Medicaid benefits. CMS agrees to pay a monthly care management fee to FQHC’s if they use a team approach to actively coordinate care for their patients, help them manage chronic conditions and work to lower costs.

None of these new approaches to care delivery and payment reform will, on its own, “save” Medicare or the nation’s health care system as a whole. But a recent report by the Commonwealth Fund estimates that if payment reforms that “create incentives to coordinate care, lower costs, and improve outcomes” are widely adopted by both public and private payers, national health care spending could be cut by as much as $1.3 trillion through 2023.

Change is already apparent. Between 2008 and 2011 Medicare spending per enrollee increased just 3.7%. This is in contrast to the increases of 8.4% annual growth experienced between 2002 and 2009.

In 2011, the response to this slowdown from health policy experts was guarded, with many speculating that it was primarily due to the recession and a resulting drop-off in how often people visited the doctor or underwent preventive tests or procedures. With the ink still fresh on the Affordable Care Act, it was too early to attribute a decrease in Medicare spending to new models of care and delivery or growing incentives for consumers to seek out lower cost, higher quality care.

But in a report published just last week, the Congressional Budget Office revised down its 10-year spending projection for Medicare by $137 billion, or two percent. The authors noted that Medicare spending has risen by an average of just 2.9 percent each year since 2009, far less than expected. In fact, total health spending grew in 2012 at the lowest annual pace since the government started keeping records 52 years ago.

Douglas W. Elmendorf, the director of the CBO, told the New York Times that “the recession and the loss of income and wealth” has caused people to cut back on health care. But he did add that a “significant part” of the slowdown “probably arises from structural changes in the health care system.”

In the end, it isn’t just liberals and frightened senior citizens who oppose the across-the-board Medicare cuts that Rubio and his fellow austerity-obsessed friends are recommending. Health care stakeholders and policy experts in the public and private sectors know that it will require a lot of experimentation and patience to bring about systematic change. Prices for services need to come down and be more transparent to consumers. Better care coordination is necessary to prevent so many costly hospital readmissions. End-of-life planning needs to be a part of every Medicare patient’s treatment plan. We need more comparative effectiveness research and outcomes data to identify the most valuable care.

This will all take time. But rest assured Senator Rubio, there is a plan in there somewhere—it just doesn’t lend itself to a 30-second sound bite.