What Is Medicare Going to Do to Survive?

Author Affiliations: Dr. Stefanacci served as a CMS Health Policy Scholar for 2003-2004. He is Director of the Center for Medicare Medication Management and the Geriatric Health Program at the Mayes College of Healthcare Business & Policy, University of the Sciences, Philadelphia, PA. Dr. Spivack is Associate Clinical Professor of Medicine, Columbia University, New York, NY; Consultant in Geriatric Medicine, Greenwich Hospital, Greenwich, CT; and Medical Director, LifeCare, Inc., Westport, CT.
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When Medicare was created in 1965, the average lifespan for those 65 years of age was four years, and this was being paid for by ten taxpayers for each Medicare beneficiary. The number of Medicare beneficiaries at this time was under 10 million. This was at a time when there was not much in the way of innovative expensive therapies. Today, the Medicare system still has an eligibility age of 65, while those at that age can expect to live, on average, an additional 20 years. In addition to the significant increase in the number of Medicare beneficiaries—which now exceeds some 40 million—there are now seemingly endless supplies of innovative expensive therapies. Unfortunately, this explosion in demand and supply is not being supported by greater resources; in fact, those supporting each Medicare beneficiary is actually decreasing, so that today the number is only three taxpayers supporting each Medicare beneficiary (Table I).

So with baby boomers aging into Medicare and genetic decoding promising expensive personalized therapy in the face of economic uncertainty, the question is: What is Medicare going to do to survive? The short answer is that there are only three ways to make Medicare last longer and bring the costs down:

1. Spread the costs of Medicare among Medicare beneficiaries.
2. Reduce provider prices.
3. Optimize utilization and benefits, and focus on quality of care.

Spreading the Cost

An obvious starting point to extending the reach of Medicare resources is by spreading the costs to others. Medicare has already moved in this direction by adding a premium-adjusted means test to Medicare Part B premiums.

Prior to the Medicare Modernization Act (MMA), all Medicare beneficiaries were treated the same with regard to premium. MMA, among other things, changed that. Now, Medicare beneficiaries with incomes over $85,000 for individuals and twice that for married couples will be subject to monthly premiums above $96.40 for Medicare Part B. At minimum, the increased premium over the base of $96.40 is $10 per month but reaches over $70 more per month for those individuals earning above $170,000.

This same means testing likely will be applied to Medicare Part D prescription drug premiums as well—all in an effort to spread the cost, or rather shift some of the costs from Medicare to the beneficiaries.

Another more sophisticated method of cost shifting that has been proposed is reference support. This is a system of coverage where beneficiaries are provided a base benefit, while additional benefits require payment by the beneficiaries themselves. An example would be a “special” hip prosthetic: Medicare would pay for a base hip prosthetic, and the differences in price for the “special” prosthetic would be the responsibility of the patient.

Medicare is also shifting financial burden to Medicare beneficiaries regarding vaccines. Historically, Medicare had covered vaccines under Medicare Part B. Under the Part B program, beneficiaries, at most, are responsible for just 20%. By shifting all vaccines except influenza, pneumococcal, and hepatitis B to the Part D program, beneficiaries are now responsible for much more. In fact, if the need for one of the new innovative vaccines, such as those being tried in Alzheimer’s disease, occurs during the doughnut hole, then that Medicare beneficiary would be responsible for 100% of the cost.

Decreasing Provider Prices

While Medicare providers have been under the threat of substantial reimbursement decreases for years as a result of the Sustainable Growth Rate (SGR) formula, legislators have consistently come to providers’ defense. Although that has been the case in the past, Medicare providers are always at risk for across-the-board and massive reductions in reimbursement.

Recently, Medicare Advantage plans have not been so fortunate. And additional decreases in their reimbursement are more than likely. This has happened before: first, in the late 1990s, and more recently as a result of the Medicare Improvement for Patients and Providers Act of 2008.

In a system such as Medicare where the prices are controlled in large part by the payor, controlling costs through reductions is a politically easy tool to utilize. The limiting factor of how extensive the provider reimbursement cuts would be is dependent on access. If and when access to Medicare providers becomes an issue for seniors through the exiting of Medicare providers from the system because of low reimbursement, that is the point at which provider reimbursement will cease to be an issue. However, up until that point—which is monitored and reported to Congress by the Medicare Payment Advisory Commission (MedPAC)—provider reimbursements will continue to go under the knife.

Improving Utilization

Decreases in the utilization of services can occur through many different avenues, from such approaches as raising the age for eligibility of Medicare from age 65 years to, say, 70, or decreasing benefits. While both are likely to be strongly fought against, the raising of Medicare eligibility age is more likely, especially if a long enough phase-in period is allowed. The decreasing of benefits directly by Medicare is highly unlikely given the U.S. dislike for any form of government rationing, especially in healthcare.

While direct rationing and raising Medicare eligibility is politically disliked, an approach that is considered “good medicine” is eliminating the waste from the healthcare system. Several approaches aim at improving the quality of healthcare through the reduction of waste.

Value-Based Purchasing
We can start with Pay for Performance, Medicare’s movement away from a reimbursement system that rewarded volume regardless of the quality of the outcome. Medicare has moved from that approach to one that rewards quality outcomes. To help achieve these improved outcomes, starting in 2009, Medicare will be rewarding prescribers who utilize an approved electronic prescribing system.

The promotion of electronic prescribing systems is being provided through the Physician Quality Reporting Initiative (PQRI). Currently, an additional 1.5% is available from Medicare for providers reporting measures identified as physician quality measures. Providers are required to report on at least three quality measures in at least 80% of the cases in which the respective measures are reportable. And while the return and number of providers participating in this exercise has been low, it is clear that in coming years Medicare will provide greater incentives to this program, making participation almost certain for most Medicare providers.

In addition to direct Pay for Performance as a means to assure value-based purchasing on the part of Medicare, a system of comparative effectiveness analysis has been proposed. This will set up a system so that Medicare is assured that payment is being provided for true value, which has been demonstrated through an independent national institute. The United Kingdom and other countries have operated under such a system for some time, and it appears that the United States will also adopt a similar approach soon as a means to assure that they are paying for value.

Back to Basics: Coordinated Primary Care
Our current reimbursement structure rewards procedures and the use of technology but not time spent with patients or coordinating care. There is little incentive for primary care, although there are plans to revise this trend by providing loan repayment, training grants, and improved provider reimbursement as a means to increase the availability of primary care services.

When comparing the United States to other countries that enjoy better healthcare at lower costs, one major contributing factor is their focus on convenient primary care services. The United States has slowly moved in that direction through the increased use of nurse practitioners (NPs), convenient care clinics such as those populating many local pharmacies, and the Medicare Medical Home Demonstration project.

It should come as no surprise that NPs are increasingly providing primary care to older patients. NPs are advanced practice nurses whose field was born in 1965 at the University of Colorado. Today, there are over 115,000 NPs practicing in the United States, with an additional 6000 added annually as a result of programs at more than 300 academic centers. NPs are able to reach patients in a unique manner by blending nursing and medical care.

This unique manner, combined with the increased availability of NPs, has not been lost on the Governor of Pennsylvania, Edward Rendell, who believes strongly in the value of NPs. The governor stated that, “We should employ nurse practitioners in the delivery of health care services far more than we do.” A major reason for this support is an estimate by academics that an NP can perform approximately 70% of the things that a primary care physician can do, often at 50% or lower cost. The Pennsylvania plan calls for expanding the scope of NPs through unlocking of regulations that restrict their scope of practice.

In addition to a focus on primary care, a back-to-basics approach also calls for encouraging coordination of care. Under our current system, care is often fragmented into silos. Medicare is engaging in reimbursement systems that promote greater coordination of care. One example is Medicare demonstration in bundling Medicare Parts A and B payments.

Providers such as skilled nursing facilities and hospitals will have Medicare Part B payments included in their Medicare Part A reimbursement. Instead of physicians billing Medicare directly under Medicare Part B they will be engaged by these Part A providers (hospitals and subacute nursing centers), who will be responsible for paying for their services. As such, it is likely that these Part A providers will employ physicians directly, thus resulting in greater coordination of care.

Yet another example of the promotion of coordination of care is the Medicare Medical Home Demonstration project. This demonstration mandates a trial in up to eight states to provide targeted, accessible, continuous, and coordinated family-centered care to Medicare beneficiaries who are deemed to be high-need (ie, with multiple chronic or prolonged illnesses that require regular medical monitoring, advising, or treatment). The objective is to bring greater coordination of care to the Medicare fee-for-service system.

The Medicare “R’s”
While reimbursement is certainly the focus of the Centers for Medicare & Medicaid Services (CMS; previously Health Care Financing Administration [HCFA]), CMS also has a few other “R’s” it has been utilizing. These other “R’s” are regulations, resources, and reporting (Table II). Each of these are tools that Medicare will utilize to save the Medicare program.

Medicare will, for example, continue to expand available resources, especially those available through quality improvement organizations (QIOs). These will likely focus on greater use of electronic prescribing and health record systems.

Reporting will also continue to be a tool that Medicare utilizes to drive beneficiaries to higher quality providers as a means to improve outcomes and lower costs. And, of course, as a federal organization, regulations will always be a tool at Medicare’s disposal. Regulations serve to force providers under Medicare’s control to act in a specific manner.

While all of these are certainly tools that Medicare can and will utilize, the critical point is that Medicare’s focus must be set on quality outcomes rather than focusing only on cost reduction. It is only through a focus on quality that all involved in healthcare can be healthier—and most assuredly happier—as a result.

The author reports no relevant financial relationships.