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A Medicare Crisis Gets Even Worse

The future of Medicare is on the forefront of Congress’ agenda for 2009, as warnings of the program’s eventual bankruptcy grow ever louder.

But despite the growing urgency, there’s still a real question as to whether the political will exists to make the wholesale changes necessary to fix the program — and whether enough money can be found to pay for it all.

Lawmakers, the administration and various interest groups agree that Medicare is in crisis — even more so than Social Security — with the program facing financial downfall over the next few years.

“The debate over whether this is worth doing is over,” Herb Kuhn, deputy administrator for the Centers for Medicare and Medicaid Services, told Roll Call.

Change is essential to preserve the program, Senate Budget Chairman Kent Conrad (D-N.D.) and ranking member Judd Gregg (R-N.H.) told attendees of a recent Medicare forum. The program faces a “demographic tsunami” as more baby boomers reach eligibility, Conrad said.

The result is that by 2050, more than twice the number of people will be eligible for the program as today.

Moreover, estimates show that the costs of Medicare, Medicaid and Social Security will eventually account for 18 percent of the gross domestic product. Such a situation is not sustainable and will cause the federal debt to “explode” if nothing is done, Conrad added.

“It’s absolutely essential that we do this sooner rather than later,” he said. “The clock’s ticking.”

Conrad and Gregg are trying, so far with only modest success, to persuade their colleagues to sign on to a bipartisan Medicare task force that would be responsible for ferrying through Medicare reforms.

Such a platform would help avoid the partisan wrangling that could otherwise bog down efforts to reform Medicare. If a Democrat or Republican alone were to introduce a reform proposal, there would be an immediate “locusts’ gathering of special interest groups” to knock down the idea based on partisan concerns, Gregg said.

The question is not only how to change Medicare, but also whether the gumption exists to get it done.

“There has to be the political will, but right now I don’t see it,” Sen. Orrin Hatch (R-Utah) told Roll Call. At this point, in Hatch’s view, both parties are just “jockeying for position” for next year’s Medicare fight.

But a senior House Democratic aide disagreed.

There is a “growing realization” that changes are needed soon. In part, increasing health care costs and its effect on individuals’ discretionary income have increased interest in making broad changes to Medicare and health care in general.

A host of potential roadblocks await any serious effort to undertake a large-scale overhaul of Medicare.

Costs, of course, are an issue. Under the current budget-neutral pay-as-you-go environment, all increases in spending must be offset by cuts elsewhere. However, various experts, including CMS’ Kuhn and senior Democratic officials, assert that changes in reimbursement methods and efforts to increase efficiency would save money over time — potentially a helpful feature in complying with PAYGO rules.

“You would save an enormous amount of money” by increasing efficiency and changing reimbursement methods, Kuhn said.

But other sources disagree, including Bob Doherty, the American College of Physicians’ senior vice president for governmental affairs and public policy. Part of the rub is that the Congressional Budget Office does not take health care benefits into account when scoring legislation.

In the view of CMS, Conrad, other lawmakers and lobbyists, the key to reforming Medicare is to focus reimbursements on quality of care, rather than quantity. The current system, the critics say, rewards more — and more expensive — treatments rather than the highest quality.

One way to do that is through value-based purchasing, known as VBP.

That involves basing Medicare payments on the quality of care provided to patients by doctors and hospitals. Such an approach will drive down costs, the Democratic aide said.

CMS already is working on VBP, with initiatives under way to focus on performance with hospital inpatient and outpatient activities, physicians, nursing homes and home health agencies.

Another way to consider quality is through comparative effectiveness, which involves the federal government comparing treatments for various ailments to ensure that it does not pay for ineffective medical care.

Conrad told the attendees that a system for comparing different treatments in order to find the most effective ones is an essential part of reforming the system and saving money.

However, the federal government must clarify how the government would conduct the effectiveness analyses and who would pay for them, health care lobbyists said.

Congress also is poised to explore the use of health information technology, including electronic physician prescribing, as a way to improve Medicare. The proposal has broad bipartisan support, with the hope not only of driving down costs but also of reducing medical errors.

But health IT legislation must first overcome concerns about the privacy protections and security for this data, along with the initial costs of setting up such a system, especially for smaller medical practices.

Lawmakers also are considering changing the formula used for doctors’ reimbursements under Medicare, known as the Sustainable Growth Rate, in order to make the Medicare program last longer.

The SGR sets an overall target amount of spending for physician services and items — such as laboratory tests, imaging services and physician-administered drugs — that are furnished in connection with physicians’ services.

Payment rates are adjusted annually to reflect differences between actual spending and the spending target. Since 2002, spending has been above targets established by the SGR, calling for larger and larger cuts to doctors’ reimbursements.

The SGR is a “pretty blunt instrument, and it’s time to find a better way to pay physicians,” Kuhn told members of the House Small Business Committee earlier this month.

Until now, the federal government has had to make temporary patches to the program to avoid massive cuts in these rates. But in order to make Medicare sustainable, the SGR must be dramatically changed, Kuhn added.

Changing the SGR is “an absolute must,” Rep. Tom Price (R-Ga.) said. The formula wrongly sets a figure to spend on seniors’ care at the beginning of the year, without knowledge of how much care will be necessary, he said. “That’s insanity.”

In addition, the longer Congress puts off overhauling the SGR, the more it will cost to get it done, Rep. Michael Burgess (R-Texas) — who is, like Price, a physician — told Roll Call.

Beyond changing the SGR, many observers believe that reducing reimbursement rates for private Medicare Advantage plans will also help bring Medicare costs under control.

These plans receive an average of 13 percent higher reimbursement rates than traditional Medicare, while providing little additional value, critics of these plans argue.

But Republicans are staunchly opposed to cutting Medicare Advantage. “Democrats have always hated that because it’s a Republican idea,” Hatch said, adding that the program has been effective and should not be ended.

Burgess agreed, arguing that Medicare Advantage plans have delivered value to beneficiaries. The higher rates were instituted to ensure that health care providers entered less profitable markets, including rural areas, so that those beneficiaries had access to Medicare coverage.

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