MBA - Health Care

Find Your Inner Leader
 

COVER STORY

 Real Medicare Reform 

"True Leadership is Needed?"

 
Background
 
Medicare was established in 1965 as a federal social insurance program to provide what the private insurance market did not: adequate, affordable health insurance for America's elderly population. Prior to Medicare�s enactment, only about a half of the elderly population in America had health insurance, and they paid close to three times as much as younger people while having half as much income.
 
Serving 19.1 million in 1966, Medicare enrollment reached 46.3 million Americans in 2009; over 15 percent of the total population (Source: 2010 Annual Reports of the Board of Trustees of the HI and SMI Trust Funds).
This figure included over 38 million senior citizens and approximately 8 million permanently disabled, including over 300,000 suffering from end-stage kidney failure. Although 75 % of the beneficiaries of Medicare are between the ages 65 and 84, the disabled and those over 85 are the fastest growing segments. In 1966, the first complete year of the program, total Medicare spending was $1.6 billion. Medicare spending reached $509 billion in 2009 and is expected to grow to $895 billion by 2019 (2010 Medicare Trustees Report).
 
Each year, the Trustees Report projects the year that the HI Trust Fund will become insolvent. The HI Trust Fund began running deficits in 2008 and according to the 2011 report; reserves are projected to be depleted by 2024. At that point, if no changes are made, scheduled HI income will cover 90 percent of estimated expenditures.
 
Put another way, when HI Trust Fund reserves are depleted in 2024, payments to doctors and hospitals can still be made, but only from current payroll tax contributions; these tax contributions will only be sufficient to cover 90 cents on the dollar. Congress could make up this gap through direct appropriations.
 (Medicare Finances: Findings of the 2011 Trustees Report), Sabiha Zainulbhai and Lee Goldberg, Health Policy Brief, National Academy of Social Insurance)
http://www.nasi.org/sites/default/files/research/Medicare_Finances_Findings_of_the_2011_Trustees_Report.pdf
 
 Can we have an honest debate on real Medicare reform?

Like most Americans, I did not like the political wrangling in Washington relating to the national debt and the failure of the supercommittee. 
(Panel Fails to Reach Deal on Plan for Deficit Reduction, Jennifer Steinhauer, Helene Cooper and Robert Pear, The New York Times, November 21, 2011) 
(http://www.nytimes.com/2011/11/22/us/politics/death-of-deficit-deal-opens-up-new-campaign-of-blame.html ) There was one positive that came out of this political tug-of-war:  increased public awareness as it related to our national debt and the impact that Medicare has on it. The public needs to recognize that we do not have unlimited resources to meet all of our societal needs. As a result of this scarcity of resources, we need to make choices, and those choices can be very difficult.

Ultimately those difficult choices will focus on the entitlement programs, specifically Medicare and Medicaid. Medicare, especially, has always been the untouchable federal program, especially given the politically powerful senior population. 

I believe, historically, that seniors have been used as a political pawn by both parties when it comes to Medicare reform. Each party accuses the other of attempting to derail Medicare at the expense of seniors' health, welfare and security.  There has never really been an honest and forthright discussion of both the challenges that Medicare faces and the alternatives to address the problems.

As discussed in a prior issue of the BW Health Care Report (April/May 2010) http://www.bw.edu/academics/bus/programs/hcmba/nl/archives/QUARTERLY_HEALTH_CARE_REPORT_April.pdf, Congress has known about the problems facing Medicare since the 1970s, and they have not be able muster the political courage to address them.

I am also very disappointed, but not surprised, by the failure of AARP to truly represent current and future seniors in a responsible manner. Instead of attempting to stifle national debate on Medicare reform, AARP needs to recognize the importance of such discussions and debate in order to foster a new era of openness, which would benefit not only seniors, both past and present, but society in general. 

Recently, for example, I had an opportunity to teach a class on healthcare policy in the Institute for Learning in Retirement program at Baldwin Wallace University. The attendees of the class were all seniors (approximately 30) and the class discussion focused on health policy related issues, including Medicare reform. The discussion was rich and insightful, and it gave me an appreciation of the experience and energy that seniors can bring to a national dialogue on real healthcare reform. 

While this group of seniors had a strong interest in cost, quality and access issues relating to their own generation, they were also very open to meaningful discussion relating to end-of-life issues, personal accountability, etc. In fact, the seniors were most passionate about making sure that we are building an affordable quality based healthcare system for their children and grandchildren.  

 
Who are the High Spenders?

Medicare spending is highly concentrated among a small group of people who have significant medical needs. Ten percent of beneficiaries accounted for 60% of spending, while 22% of beneficiaries incurred less than $1,000 each in Medicare costs (accounting for only 1% of program spending), and 12 percent incurred no costs at all (Kaiser, 2010).  "Medicare Finances: Findings of the 2011 Trustees Report"), Sabiha Zainulbhai and Lee Goldberg, Health Policy Brief, National Academy of Social Insurance)http://www.nasi.org/sites/default/files/research/Medicare_Finances_Findings_of_the_2011_Trustees_Report.pdf
 

In order to address Medicare reform we must focus on the real cost drivers: chronic diseases and end-of-life care

 
Chronic Diseases
 
While the highly skewed distribution of spending has been markedly persistent over time, the proportion of expenditures accounted for by the highest spending groups has actually declined somewhat over the past two decades as high medical spending has spread to a broader swath of the population. For example, spending by the top 5 percent of spenders declined from 56 percent in 1987 to 48 percent in 2008.  This flattening of the spending distribution is consistent with the well-documented increase in population risk factors, most notably, obesity, and a concomitant increase in treated disease prevalence for chronic conditions that are clinically linked to these risk factors, such as hypertension, diabetes and hyperlipidemia.
 
People with at least one chronic health condition were two to four times more likely than the general population to have spending in the top 5 percent, with the risk increasing as the number of chronic conditions rose. The link with obesity-related conditions was also evident in this work. Nearly half of all people in the top 5 percent of spending reported having hypertension, one third had lipid disorders (high cholesterol), and more than one quarter had diabetes.
 
Chronic conditions are also a likely reason why some people have high spending over an extended period, particularly when multiple chronic conditions are present. A recent analysis of MEPS data by Cohen and Yu provides evidence of the degree of persistence from one year to the next in spending patterns for a given individual (Figure 6).4 They found that 18 percent of people who were in the top 1 percent spending category in 2007 remained in the top spending category in 2008. For the top 5 percent and top 10 percent spending categories, the comparable retention figures were 31 and 43 percent, increasing to nearly two thirds retention from year to year among those in the top 30 percent of spending.
 
End-of-Life Care
 
Between 27.2 and 30.6 percent of Medicare expenditures in a given year were for the 5.0 percent of beneficiaries who died during the year, and this share of Medicare spending has been quite constant over a couple of decades. About half of spending in the last month was for hospital care, and one in five patients die in an intensive care unit (ICU). Of those who die in an ICU, their average stay was about 13 days. (Containing the Growth of Spending in the U.S. Health System, Urban Institute, Health Policy Center, October 2011)http://www.urban.org/UploadedPDF/412419-Containing-the-Growth-of-Spending-in-the-US-Health-System.pdf
 
How can we effectively address chronic diseases and end-of-life care?
"The systems approach"
 
In order to effectively address chronic diseases and end-of-life care, we must have a systems approach to problem solving by looking at these cost drivers from a holistic perspective.

Systems thinking has been defined as an approach to problem solving, by viewing "problems" as parts of an overall system, rather than reacting to specific part, outcomes or events, as in this case, "chronic diseases" and "end-of-life care."
Chronic Diseases
 
Let us first look at chronic diseases. As stated above, we know that chronic diseases are a major cost driver in healthcare and especially in Medicare. Let us start by addressing the following questions

  • Why are chronic diseases more of a cost driver in the U.S. vs. other countries?
  • What are the major contributors to chronic diseases? 
     
  • Are there fundamental issues relating to our society in general as well as the U.S. healthcare system that are the root cause of our chronic disease epidemic?
  • From a systems perspective, what fundamental changes can we make in our healthcare system to create an environment that minimizes the negative impact of chronic diseases?
     
Why are chronic diseases more of a cost driver in the U.S. vs. other countries? What are the major contributors to chronic diseases? 

The combination of poor societal lifestyles and a lack of a comprehensive and coordinated approach to preventing and managing chronic diseases are the major reasons why the U.S. is plagued by higher healthcare costs related to chronic diseases vs. other countries.

As noted previously in this issue of the Health Care Report, per the Center for Disease Control, 50-70% of the U.S. healthcare costs are directly or indirectly related to chronic diseases that are lifestyle related (e.g. obesity, poor diet, smoking, alcohol and drug abuse, lack of exercise, etc.).   The combination of bad lifestyles, the lack of a true primary care system, and a health care system that is dominated  by our medical technology arsenal are the reasons we have such high health costs relating to chronic diseases.

Are there fundamental issues relating to our society in general as well as the U.S. healthcare system that are the root causes of our chronic disease epidemic?

There are many positive aspects to health insurance. Ultimately, it provides access to healthcare services to millions of Americans that otherwise could not afford it. There is a downside to health insurance, though, in that it insulates the consumer from the true cost of healthcare services.   In economics, we call this moral hazard.  Moral hazard arises since insurance reduces the net out-of-pocket price of medical services and thus increases the quantity demanded.

Another negative side effect of health insurance is that it can insulate an individual from the financial consequences of bad lifestyle choices. When risk is pooled, as in the case of employer insurance (especially for large size groups), and for the Medicare and Medicaid programs, the healthcare cost risks of poor lifestyles are spread across the many people in a group/program that have healthier lifestyles or overall lower healthcare costs.

Finally, instead of addressing chronic diseases through better life-styles and a strong primary care system, the U.S. uses high-priced technology as the cure all. Both private health insurance and Medicare and Medicaid, as they are structured today, further exacerbate the chronic disease costs related to poor lifestyles.   Historically, our public and private insurance programs payment policies did not adequately pay primary care and was the major catalyst for the fragmented technology dominated healthcare system that exists today.

From a "systems" perspective, what fundamental changes can we make in our healthcare system that will create an environment that minimizes the negative impact of chronic diseases?

Given the above, there needs to be a recognition that we need to find a way to link poor lifestyle choices with financial accountability as well as develop a comprehensive and coordinated primary care system.

As it relates to poor lifestyles, if that financial accountability linkage can be made, there would not only be a fairer distribution of healthcare costs among consumers, but there will also be an increased likelihood of improved societal lifestyles. As noted previously in this Health Care Report, employers have started to take a proactive role in this arena by not hiring smokers and charging higher premiums to employees over a certain BMI level. 

There also needs to be a recognition that any real societal solution to the lifestyle dilemma cannot just focus on the stick, there also needs to be appropriate "carrots" in place. There needs to be available programs, possibly with incentives, that both educate and help facilitate healthy lifestyles (e.g. smoking cessation, nutrition, exercise, etc.).

In addition to addressing the unhealthy lifestyle issue, we need to financially incent the creation of a comprehensive and coordinated primary care system that is focused on prevention and management of chronic diseases.
   In theory, Accountable Care Organizations and Medical Homes models are potential vehicles to facilitate the prevention and management of chronic diseases. I state in theory, since as discussed previously in this Health Care Report, the key to success of these initiatives will be the rapid evolution of Medicare�s current payment methodologies that rewards overutilization, to one that rewards success but also in a financial framework that incents real accountability on the part of providers of care.

End-of-life Care
 
The high cost of end-of-life care is often cited as the major driver of our societal healthcare costs.   As noted above, end-of-life care is indeed a major cost driver, but it comes in second to lifestyle related chronic diseases as a major cost driver.

As previously stated using
systems thinking as an approach to problem solving, how would this impact our discussion relating to end-of-life care.

Let us start by addressing the following questions:

Why is end-of-life care more of a cost driver in the U.S. vs. other countries?
 
  • What are the major contributors to end-of-life care costs?
     
  • Are there fundamental issues relating to our society in general as well as the U.S. healthcare system that are the root cause of our high end-of-life care costs?
  • From a "systems" perspective, what fundamental changes can we make in our healthcare system to create an environment that optimizes the high cost of end-of-life care without compromising quality-of-life?
Why is end-of-life care more of a cost driver in the U.S. vs. other countries? What is the major contributor to end-
of-life care costs? 

The combination of Americans' (or maybe more their families) unwillingness to let go of life, along with our arsenal of technology, highly trained physician specialists and our nation's blank check book, feed into our high cost of end-of-life care.

Are there fundamental issues relating to our society in general as well as the U.S. healthcare system that are the root cause of our high end-of-life care costs?

It is often said, that in other countries, people recognize that death is a natural part of life, but in the U.S. we have a fascination with immortality. While this may be true, we cannot realistically change the views of death that are deeply imbedded in different countries' cultures, including our own.

In the U.S. we have always had a difficult time discussing end-of-life issues. While it may be difficult within families, it is even more of a taboo on a political basis, and even in the physician office. As we recently rediscovered in the healthcare reform debate, even rational discussion about facilitating the education of Medicare members and their families regarding their end-of-life options has turned into "death panels." 

Ultimately, there needs to be societal recognition of the 1,000 pound gorilla in the room; the escalating cost of end-of-life care cannot be sustained. As part of this recognition, there needs to be a debate on how best to address this issue that would make sense in the U.S. culture.

Finally, as with chronic diseases, both private health insurance and Medicare and Medicaid, as they are structured
today, further exacerbate the costs relating to end-of-life care.   Our public and private insurance programs (especially Medicare) payment policies finance the high costs of end-of-life care.   Medicare pays for end-of-life care without regards to appropriateness and clinical effectiveness which financially incents overutilization of high-cost technology, and many times has a negative impact on the quality of life of the dying.  

Also as previously discussed in this Health Care Report, as a result of lack of financial responsibility on the part of the consumers and their families (moral hazard), there is an overutilization of high cost healthcare services at the end-of-life.

From a "systems" perspective, what fundamental changes can we make in our healthcare system to create an environment that optimizes the high-cost of end-of-life care without compromising quality of life?

As we have stated repeatedly in the Health Care Report, every society, including the U.S., has a scarcity of resources. As a result of this scarcity choices have to be made, and sometimes those choices can be very difficult. 
On a personal basis, I don"t believe that "rationing" of healthcare services would work in the U.S. culture.   I do believe that we can have a rational approach to end-of-life care in the U.S. that includes education, alternative approaches to end-of-life care (e.g. hospice), and some form of increased financial accountability.

The following are potential approaches to addressing the high cost of end-of-life care:

  • Medicare should pay for periodic individual and family counseling relating to end-of-life issues for all Medicare recipients (THIS IS NOT A DEATH PANEL);
  • As part of the overall education of Medicare members there needs to be a focused strategy for increasing awareness of hospice programs and services (including site visits);
  • Medicare payment policies need to facilitate the collaboration of acute and hospice services; and
  • While highly controversial, there needs to be some form of financial accountability for the consumer linked into end-of-life care that discourages overutilization of unnecessary services.
What road should we take to reform Medicare?

As noted above, any road that is taken to truly impact the high cost of Medicare must address chronic diseases and end-of-life care. Some potential roads include the following:

  • Free market approach to Medicare reform
  • A rationalizing approach to Medicare reform
     
  • A coordinated hybrid approach to Medicare reform
 The case for the free market approach to Medicare reform
 
Recently, Congressman Paul Ryan proposed a free market approach to Medicare reform. Under the broad title of the Health Care Security Act, the proposed legislation states the following:
 
For future Medicare beneficiaries who are now under 55 or younger (those who first become eligible on or after 1 January 2021), the proposal creates a standard Medicare payment to be used for the purchase of private health coverage. Currently enrolled Medicare beneficiaries and those becoming eligible in the next 10 years (i.e. turning 65 by 1 January 2021) will see no changes in the current structure of their Medicare benefits. The payment will be made directly to the health plan designated by the beneficiary (similar to the administration of the refundable health care tax credit), with the beneficiary receiving any leftover amount as a payment from the health plan, or assuming financial responsibility for any difference in the payment and the total cost of the premium. This allows the Medicare beneficiary to invest the leftover amount in a Medical Savings Account [MSA] to pay for other medical expenses, or to purchase long-term care insurance.

Each Medicare beneficiary becomes eligible for the payment by enrolling in a health insurance plan. Medicare will publish an annual list of plans that are "Medicare certified." Medicare enrollees are able to use their payment to pay for one of the Medicare certified plans, or any other plan, such as those offered by former employers or available from the private market. 
http://www.roadmap.republicans.budget.house.gov/plan/#Healthsecurity
The free market approach to Medicare reform has a number of inherent advantages including its reliance on competition between managed care plans and the financially engaged consumer that would facilitate competition between providers of care to provide cost effective quality services to Medicare members. Using private sector examples, competition along with financially engaged consumers fosters the following:

  • Competition between suppliers of services to meet the demands of the purchasers will foster innovation, efficiency and value
  • Competition takes production out of the hands of the less efficient and places it in the hands of the more efficient , constantly promoting more efficient methods of production.
  • Private sector examples (computers, cars)
The challenge with the free market approach to Medicare Reform, even though it may promote the most efficient allocation of resources is that it has the real potential of creating equity issues in the market place. While there could be programs in place to address these equity issues (tax credits, etc.), ultimately there will be some disparities.
 
Is it rationing or a rational approach to Medicare reform?
 
Even though U.S. spending on medical care exceeds that of any other country using virtually any metric imaginable, there is not enough money or resources to provide everybody with the medical care they desire. In a world characterized by scarcity, how do we determine who gets care and who does not? If we are unwilling to let the market price ration resources, we must come up with another mechanism. The dilemma we face today stems from our unwillingness to establish a formal rationing mechanism. Other countries, particularly in Europe, have established formal guidelines that determine who receives a particular medication or treatment and under what circumstances they receive it. A drug treatment that is appropriate for a young and otherwise healthy patient may be considered inappropriate for an elderly patient with a history of heart disease or stroke. The younger patient would receive the treatment and probably recover, but the older patient would be provided an alternative treatment and possibly die. 
 
Is it ethical to withhold treatment from critically ill patients? Clearly most medical providers consider it unethical to withhold treatment if the primary reason is financial. However, most providers do not consider it unethical when patients and treatments are prioritized according to comparative evidence. The problem most providers have with the current ad hoc system of rationing is that the decision is usually made under conditions of medical urgency. 
 
The U.S. health care systems ration medical resources, a statement that is also true for every government-run system throughout the world. The difference is that most of our foreign neighbors are more open about the rationing mechanism they use, and as a result, rationing has been subjected to a national debate. At some point, we are going to be forced to admit that rationing occurs in the United States. Only then will we be able to move beyond the arbitrary guidelines of demand management to establish national norms based on medical evidence.
(H � pg. 107-108). (�Who Gets Health Care? Rationing in an Age of Rising Costs,� Geeta Anand, Wall Street Journal, Four Part Series, September 12 � 23, 2003)
 
In the U.S. health care system, and in those of many other countries, the care of dying patients is generally not performed well, with pain and other distress frequently under-treated and patients' preferences not respected. Most of 2.5 million deaths each year in the United States occur in institutional settings (45% in hospitals and 22% in nursing homes) and over 25 percent of Medicare expenditures go to beneficiaries' final year of life. Moreover, researchers have found that the pain and other kinds of distress that commonly occur among dying patients are frequently undertreated in the U.S. Medicare's hospice benefit, though intended to facilitate palliative care (relief or prevention of pain and suffering at the end of life is limited to patients who forgo other treatment for their terminal illness; the benefit is used by fewer than 40 percent of dying patients, often only in the last few days of life.
 
England's evidence based End of Life Care Strategy could prove instructive. This issue brief discusses the origins, content, and imple�mentation of the strategy, as well as its potential impact. Both England and the United States struggle with similar challenges, including looking beyond the province of hospice and palliative care specialists and initiating palliative services before the patient's final days. Aspects of the English approach that may be useful in the United States include strategies to help physicians recognize when patients are entering a trajectory that may end in death, the use of "death at home" as a metric for measuring progress, improving the skills of clinical and care giving personnel through Web based training, and developing a national improvement pathway.  (England's Approach to Improving End-of-Life Care: A Strategy for Honoring Patients' Choices, Bradford H. Gray, Ph.D. http://www.commonwealthfund.org/~/media/Files/Publications/Issue%20Brief/2011/Jul/1527_Gray_Englands_approach_endoflife_care_intl_brief_v2.pdf

Will this rationalizing approach to Medicare reform work in the U.S.? It may be questionable, although given the current out of control cost trends for Medicare, it may be inevitable.
 
A coordinated hybrid approach to Medicare reform
 
Is there an alternative to the two extreme approaches to Medicare reform that are noted above (Free market and Rationalizing services)that would not just represent a compromise, but a real value added? Per our prior "systems approach" discussion relating to chronic diseases and end-of-life care, as well as the topics covered earlier in this Health Care Report, any such "Coordinated Hybrid Approach" to Medicare reform must address the following:
 
  • Lifestyle accountability
  • Financial engagement on the part of the consumer of healthcare services
     
  • Real provider cost (and hopefully quality) information that will foster true competition between providers and innovation both from a cost and quality perspective.
  • The establishment of a comprehensive primary care system that both helps prevent and manages chronic diseases
  • Payment for periodic individual and family counseling relating to end-of-life issues for all Medicare recipients
     
  • Focused strategy for increasing awareness of hospice programs and services (including site visits)
     
  • Payment policies that would facilitate the collaboration of acute and hospice services
     
  • Some form of financial accountability for the consumer linked into end-of-life care that discourages overutilization of unnecessary services
     
  • An aggressive timeline for the implementation of payment methodologies that would lay the foundation for a true "health system" vs. the costly "sick system" that exists today. The common denominator in all of provider payment methodologies should be a risk component that rewards success and promotes financial and quality accountability. 

Each of the bullet points, noted above, could be addressed by means of a free market or a governmental approach to Medicare Reform. It also would make sense for the government to facilitate alternative approaches to Medicare Reform that could be delivered through private sector Medicare Advantage programs.  
 
Conclusion
 
Ultimately there is no silver bullet to addressing Medicare Reform, but coordinated strategies can be implemented to make a real difference from a cost and quality perspective. Any of the three approaches noted above (free market, rationalizing, and hybrid) could potentially effectively address the high cost of chronic diseases and end-of-life care over a short and long-term basis. What is certain is that Medicare, as it exists today, not only will not effectively address the high cost of chronic diseases and end-of-life care, it will actually make it worse.
 
Finally, as noted earlier in this Health Care Report, Medicare, by far, is the biggest payer of health services and, as a result of this financial leverage, is the major influence on our current healthcare system. If real Medicare reform takes place it will have a ripple effect on private sector managed care organizations (MCOs) that focus on the under 65 population. These private sector MCOs will follow Medicare�s lead, particularly regarding reimbursement methodologies, since they lack the financial leverage to effectively influence provider behavior on their own. 

 

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