August 2003
Transform Medicare Rather Than Reform It
Congress has an unprecedented opportunity to bring better benefits (including prescription drugs), higher quality, and more cost-effective care to Medicare beneficiaries. But that depends on whether leaders of the U.S. Senate and the House of Representatives can find politically acceptable solutions that provide a new vision for an old program. Is the Federal Employee Health Benefits Program (FEHBP) a good model for Medicare? How should a consumer-driven drug benefit plan be incorporated in the bill? How can technology be integrated more effectively to improve quality, safety, and efficiency, while resulting in a reduction of medical errors and costs? On August 12, 2003, an AEI conference addressed these issues.
Newt Gingrich
AEI
While all aspects of our lives have embraced a technological transformation, the healthcare industry is dramatically lagging. We can instantaneously withdraw cash from an ATM at any time of day, we can purchase airline tickets online with the click of a mouse, and we can buy gas for our cars with the swipe of a credit card. Yet prescriptions are still handwritten, medical records remain on paper, and billing companies take weeks to reimburse doctors. The consequences are steep. Between 48,000 and 98,000 people die each year from medical errors, which further cost our healthcare system billions of dollars.
The government can take the lead in transforming healthcare, and Medicare is the right place to start. The new Medicare bill must not frighten the current generation of retirees--it must guarantee continued access to traditional Medicare and offer a drug benefit to all our seniors.
In order to move Medicare into the twenty-first century, we must create an information system to meet the daily information needs of healthcare. This would also bolster our defense against biological threats and potentially capture the internal efficiencies found in banking and other industries.
Medicare must introduce incentives for the best modern practices in chronic disease management. This can produce not only longer, healthier lives but also savings in the billions.
The key to both improving quality and lowering cost is creating genuine choice in Medicare. The Federal Employees Health Benefits Program offers a variety of plan options and operates with minimal government interference so long as the plans meet certain benefit standards and are financially stable. If a similar model were adopted in Medicare, it could pay beneficiaries bonuses if the plan they chose were less expensive than traditional Medicare.
Fiscal accountability for people entering Medicare born after 1953 is a key tool for making Medicare financially feasible. This proposal will allow fifteen years to perfect risk adjustment methods that would encourage all plans (including traditional Medicare) to compete on the basis of better value rather than selecting healthy enrollees. That time is also needed to give baby boomers the opportunity to adjust to having choices and personal responsibility if they choose the most expensive plan available.
Medicare must work to bring rural America into twenty-first century information-rich health and healthcare by guaranteeing rural access to best outcomes and best knowledge.
Incorporating these measures into the Medicare bill will increase the amount of money available for the drug benefit and allow conferees to eliminate the donut of non-coverage. The drug benefit should be designed around a twenty-first century model using information technology that maximizes individual information, choice, and responsibility while providing best outcomes at lowest cost.
Walton Francis
Independent Consultant
Why should individuals lose the healthcare coverage they receive at age sixty-four when they turn sixty-five? Our healthcare needs and preferences by and large stay the same and so should our coverage. Medicare should make available a subsidy for individuals to use to remain in their plans or enroll in a new one of their choice. The current Medicare program forces our seniors into a vintage 1960 plan with a flawed part A and a drug benefit with a major coverage gap if one is available at all. Take it or leave it.
Other entitlement programs do not work this way. Until about forty years ago, the government would give poor people monthly access to food warehouses where it could monitor the bags of flour and cheese wheels it distributed. The current food stamp program trusts people to choose their own groceries at regular stores, and it works. It is simple, straightforward, cheap to administer, and does not relegate poor people to an alternative food distribution system. The government should not relegate people over age sixty-five to an alternative healthcare system either.
Implementing a Medicare voucher is completely feasible. In fact, it could begin immediately. It would not cost the government more, and the alternative option could coexist with traditional Medicare. Existing private plans would participate so long as they remained private plans and not agents of Medicare strangled by red tape. The government did not need to take over grocery stores to provide food stamps; it does not need to take over private health insurance to give seniors choice in healthcare.
There are two ways to save money in healthcare in the coming decades and neither is easy under traditional Medicare. The first harnesses market incentives to make individuals and insurance plans frugal purchasers. Research confirms the success of cost-sharing in decreasing unnecessary utilization and saving immensely on healthcare. We can achieve tremendous savings at no cost to our health. For example, early prescription drug coverage schemes flatly split the costs between plan and individual, which paid 75 percent and 25 percent respectively. This arrangement turned out to be inefficient, and plans have since moved to three- and six-tiered payment systems that make both patients and physicians think twice before blithely prescribing the more expensive drug. These designs have the potential to save between 25 percent and 50 percent of total health costs. Adopting this sort of market incentive to control costs is much more feasible in private plans. It would take an act of Congress, and perhaps even an act of God, to bring them to Medicare.
An alternative method to cut costs involves healthcare management. Health plans have major financial incentives to find new ways to improve the healthcare they offer. In Medicare, the incentives are less powerful because no one body has control over the whole action--pharmaceutical, hospital, and physician coverage areas are disjointed. Working with private plans is the only way to capture the rewards of sound and comprehensive management in Medicare.
Choice between plans will not destabilize Medicare. In FEHBP, where individuals have fifteen or twenty plan options, over 95 percent stay in their plans year after year. On the other hand, limiting the choice to only three plans, as the current Medicare proposal does, will cause instability and turnover.
Joseph Antos
AEI
Much of the Medicare prescription drug debate boils down to two simple questions: How much does it cost, and how much do I get? Congress is poised to enact an expensive drug program, one likely to cost much more than the famed $400 billion estimate. Seemingly everyone has a stake in it: seniors, future taxpayers, employers, pharmacists, Pharmaceutical Benefit Managers, health plans, drug companies, and perhaps soon, Canadians.
These many competing interests make a resolution in the conference committee particularly challenging. However, the drug benefit is also an unprecedented opportunity to promote better outcomes, reduce unnecessary spending, and give consumers more control over their healthcare.
Transforming Medicare involves three key moves. First, design a sensible drug benefit that is not overburdened with red tape. Second, mandate the best use of information and information technology to improve consumer choices and physician prescribing. Finally, any strategy must integrate and optimize health services, particularly for high-cost patients.
The most sensible Medicare prescription drug benefit would integrate drugs into comprehensive coverage offered by competing health plans. A stand-alone benefit might attract only those individuals with high drug expenses, but such a benefit is needed for traditional Medicare.
The only way to constrain drug costs in Medicare is to maintain cost consciousness among seniors. Deductibles and copayments tied to the purchase of drugs must be large enough to reward choosing low-cost alternatives but not so large that seniors do without necessary drugs.
While the House and Senate proposals solve the problem to some extent, their approaches are too complex and confusing. The donut and hole scheme puts a gap in coverage just when drugs become expensive. It also provides nearly free drugs to low-income enrollees, which blunts their cost sensitivity and would lead to the restrictions on access to drugs we see in Medicaid.
A better approach would push the bottom part of the donut up to eliminate the coverage gap. The government could compensate for the larger deductible by giving low- and middle-income people a cash subsidy in a Medicare drug account and allow higher-income people to put aside their own money for prescription drugs on a tax-free basis. Only if people are using their own money to pay for drugs will they be sensitive to costs.
Further savings are possible if individuals can comparison shop for their drugs using computer technology. Retailers could even bid for a person’s business like online airline reservation services do already. Plans could reimburse individuals a flat fee per drug or an amount equal to the cheapest option among similar drugs. While the details would determine the scheme’s cost-effectiveness, the new Medicare drug program should try any and all innovations that hold promise for cutting costs for beneficiaries.
Rick Ratliff
SureScripts
The technological potential for better and more accessible healthcare delivery is not theoretical. It is very much real and available. SureScripts was formed to link retail pharmacies to physician practices through electronic prescribing. In 2003, the number of prescription transactions in the United States will likely exceed 3.4 billion, and over half require communication between pharmacies and physician offices. More efficiently connecting the three primary stakeholders in the prescribing process--physicians, pharmacists, and patients--will save physician offices time and money, reduce errors, and improve the quality of care. It even has the potential to increase patient compliance.
Traditional prescribing routes are not only tedious but also threaten patient safety and the quality of care they receive. Valuable hours of physician, physician staff, and pharmacist time are lost each day to this needlessly slow process. Most physicians’ offices and pharmacies will be technologically connected and ready to participate in electronic prescribing in 2003. E-prescribing will be most successfully introduced in phases, moving from renewals to new prescriptions and eventually to future services.
Carolyn Clancy, M.D.
Agency for Health Research and Quality
Health information technology (IT) holds great promise for improving healthcare delivery. While computers are widely used in billing, IT tends to be less uniform on the clinical side. A recent study done by the RAND Institute captured the quality challenges our healthcare system faces today: just over one half of adults in twelve communities across the nation actually received the care their physicians recommended.
Chronic illnesses pose the greatest challenge to our system, highlighting coordination of care as a crucial objective. Information technology is valuable in assessing and arriving at the “right” measures, implementing them to improve quality, and collecting data more efficiently. IT can ensure safety, boost compliance, shift the focus of healthcare back to patients, and even increase our preparedness in the event of bioterrorism. Still, in the words of Darrell Royall, “Potential is what you have when you haven’t done it yet.”
At the Brigham and Women’s Hospital in Boston, Computerized Physician Order Entry (CPOE), one of many pioneering technologies, decreased preventable adverse drug events by 17 percent, saving $480,000 each year. Nationwide CPOE implementation could save each hospital between five and ten million dollars annually. Other technologies, such as automated medication dispensing systems and bar coding, have demonstrated similar promise in improving quality of care and substantially reducing costs. A major challenge in introducing these technologies is determining who will recoup the savings they achieve.
An obstacle to implementing health IT is the coordination of multiple vendors that operate within a hospital--distinct lab and pharmaceutical systems, for example. Also, physicians will only adopt the technologies if they are easy to use and efficient. To respect the privacy of personal health information, new strategies in data collection must be clearly regulated and transparent.
Question & Answer
When asked if the conferees would reach a decision on the prescription drug bill, Newt Gingrich replied that a bill signing ceremony this fall was almost inevitable. He is confident that it will be a remarkably good bill and pass in both the House and Senate by large margins.
Tom Miller from the Cato Institute asked the panelists what incentive the baby boomers would have to change plans rather than stay in traditional Medicare. Newt Gingrich responded by highlighting the choice and efficiencies of an FEHBP-style program. In the long run, it would cost less than a bureaucratically controlled, centralized system riddled with inefficiency. If Medicare plans could return 75 percent of the savings to beneficiaries, then naturally, seniors would migrate rapidly. People do not have to be forced into a good buy.
Joseph Antos commented on the lessons of the 1997 Medicare + Choice legislation. The real question is whether the baby boomers will have the opportunity to buy themselves out when times get tough in healthcare. If Congress does not leave the door slightly ajar, discontented baby boomers could cause the unraveling of Medicare.
AEI research assistant Ximena Pinell and intern Priya Agarwala prepared this summary.
