THE American Medical Association launched an ad blitz last weekend, charging a handful of GOP senators with imperiling the nation’s elderly.
It worked: The Senate yesterday passed the Medicare bill in question – which raises fees paid to doctors but cuts subsidies to private health plans. President Bush will veto it – but the votes seem to be there to pass it into law anyway.
This pitting of insurers against health-care providers for pieces of the Medicare pie is now an annual Washington event. Yet, while various interests battle over narrow slices of political terrain, everyone ignores systemic problems that lower the quality of care.
This bill will push off cuts to the fees physicians get paid for seeing Medicare patients – but doesn’t address Medicare’s flawed process for setting the prices of medical services.
Understand: Medicare’s formula has been dictating such cuts in doctors’ fees for some years. Congress keeps finding temporary ways to avoid them – so that, by the time that funding runs out, the formula is dictating further slashing. Thus, despite Congress’ “fix” for the current 10.6 percent cut, doctors will face another round of slashes in just a few years.
Few lawmakers have the stamina to address Medicare’s flawed policies. And fewer vested interests – the AMA included – want to reopen settled rules.
The formula was born in a bargain doctors and the AMA struck with Medicare years ago, limiting how much the total reimbursement to doctors for Medicare services can grow each year. In exchange, doctors got de facto control (via the AMA) of the coding process that lists every treatment Medicare will pay them for.
Under this physician-fee schedule, spending is supposed to remain “budget neutral”: If Medicare adds a new service it will cover, or raises what it pays for an existing service, another service must somehow be cut.
Control of the coding process has become a lucrative side business for the AMA, via its sales of code books and other related material. Plus, yearly negotiations on changing the fee schedule have given the AMA a permanent role in Washington.
But the system breeds dysfunction – including poor health care. It encourages doctors to deliver care that fits the billing codes – to do listed medical procedures, rather than more mundane and lower-paid, but effective, services like counseling or screening.
It also favors inventing new procedures – because it takes the Medicare price controllers time to ratchet down reimbursement rates on new services. Typically, the newer a procedure, the more Medicare pays for it. (Meanwhile, the overall scheme hasn’t been updated in a decade to account for how technology has really changed medical practice.)
The fight over doctor fees is also a reminder of how, when a big government agency like Medicare tries to “manage” costs, it only adds to health-care inefficiencies and inequities. Medicare trustees say the program has an unfunded liability of $36 trillion over the next 75 years. Price controls, it turns out, aren’t working to keep the program solvent.
Highly politicized price controls have already distorted markets for medical equipment, hospitals and other service providers. It’s just a matter of time before they extend to developers of drugs and devices as well, along with rising costs and reduced quality.
Rules set in Washington, by people insulated from the consequences of their decisions, will increasingly limit the health-care choices of ordinary people.
The alternative? Leave pricing to markets, via competing private plans that cover set benefits for a defined contribution of money. A remote Washington bureaucracy is ill-suited to managing doctor networks or setting fees. Insurance plans that are closer to the delivery of care are far better placed to tie fees to measures of value and medical outcomes.
Every time Medicare has experimented with market-style pricing – whether for drug coverage under its “Part D” program or for durable medical equipment under a competitive-bidding program – it has found that the market-based prices wind up being far lower than the rates that its own actuaries would set for the same goods and services.
But changing Medicare would require Congress – and groups like the AMA – to relinquish their role in these yearly pricing rituals. That is, they’d have to give up power for the public good.
Scott Gottlieb is a resident fellow at the American Enterprise Institute and a former senior official at the Centers for Medicare and Medicaid Services.