Tags: Healthcare Reform | Government | Medicare | HCFA | physicians

Govt Meddling Leads to Medicare Inefficiencies

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Monday, 23 Mar 2015 09:43 AM Current | Bio | Archive

Discussion of the SGR, or Sustainable Growth Rate, can replace Ambien for the insomniac. Yet, understanding the origins of this failed policy is highly instructive in understanding the failure of government price controls in the Medicare system.
 
Costs within the Medicare system started to rise as soon as the program was instituted. This should have come as no surprise. Millions of seniors were handed an entitlement to medical services, which of course increased the demand for these services. Physicians were allowed to charge their “usual, customary, and reasonable” rates and did so.
 
Concern over rising costs led to various responses from the Health Care Financing Administration (HCFA, the bureaucratic precursor of the Center for Medicare and Medicaid Services), to rein in spending. These mostly took the form of price controls on physicians’ services.
 
On its face, this is stupid policy, as payments to doctors were between 10 and 20 percent of total program spending. Cuts in this sector couldn’t reasonably be expected to produce much in the way of savings.
 
In 1983, HCFA began a fee freeze on Medicare payments to doctors. This was extended through 1986. Total Medicare spending increased dramatically during this period. Why? Doctors, to compensate for the reduced fees for service, increased the volume of services provided. This churned the system with greater numbers of lab tests, prescription drugs, consultations, and hospitalizations.
 
In 1989, HCFA moved away from paying doctors based on their charges to the Resource Based Relative Value System, a socialistic construct that assigned dollar amounts to the myriad services provided by doctors. Balance billing of wealthier patients (not all seniors are poor) was severely restricted.
 
Non-participating physicians could only charge a bit over the Medicare “maximum allowable charge.” Since they were also penalized with a lower payment rate, this increased the physician Medicare participation rate. The net result was another big pay cut to physicians, which was again followed by a major increase in total Medicare spending.
 
In 1997, the Medicare Modernization Act introduced the SGR. The idea was to base Medicare physician fees on total program performance the prior year. If total Medicare spending were above a certain target (determined how?), payments to physicians would be cut, or frozen, in the current year.
 
But pay cuts to doctors predictably cause total spending to increase. The Medicare Payment Advisory Commission (MedPac) recently reported that from 2002 to 2012 Medicare spending on physician services per beneficiary increased by 72 percent. A 9 percent increase in rates during this period was dwarfed by the growth in volume of physician services, including lab tests (91 percent increase), imaging (79 percent increase), and other procedures (up 68 percent).
 
The explosion of services reflects another negative aspect of doctor price controls. Limiting the payment for an office visit invariably leads to more visits, and less time per patient encounter. This must result in loss of quality, and excessive reliance on testing, consultations, and hospitalization, all of which cost much more.
 
If SGR doctor pay cuts had been allowed to take place (and not blocked by repeated congressional "doc fixes"), doctors would now be getting paid pennies to see Medicare patients! Obviously, most doctors would have opted out of Medicare completely had this scenario been allowed to play out. The SGR is truly idiotic.
 
As it is, the net effect of pay cuts and freezes has been to force many physicians out of private practice, and into hospital systems. An article by Rob Lowes in Medscape (August 2013) reports that from 2002 to 2012, Medicare fee-for-service rates increased 9 percent, while the cost of operating a practice increased 27 percent.
 
What’s the solution? Since much of the current Medicare disaster can be traced directly to the effect of price controls, and direct payment of doctors through mandatory assignment, we should do away with these.
 
Congress should insist that all Medicare physician payments go through patients, and that physicians are free to charge whatever fees they deem reasonable and appropriate. This would include being able to provide care for free to a truly indigent beneficiary (a practice that is now illegal).
 
It would also empower patients to choose doctors based on quality and price, which will improve quality, moderate fees, and slow spending.
 
Since 1990, Dr. Amerling has been on staff at the Beth Israel Medical Center (now Mount Sinai Beth Israel) in New York. He served as director of Outpatient Dialysis from 1995-2012. Amerling is board certified by the American Board of Internal Medicine for Internal Medicine and Nephrology. He also is president of the Association of American Physicians and Surgeons. He has been published in many journals. For more of his reports, Go Here Now.
 
 

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RichardAmerling
Discussion of the SGR, or Sustainable Growth Rate, can replace Ambien for the insomniac. Yet, understanding the origins of this failed policy is highly instructive in understanding the failure of government price controls in the Medicare system.
Government, Medicare, HCFA, physicians
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2015-43-23
Monday, 23 Mar 2015 09:43 AM
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