A New IOM Report Reveals Why Medicare Costs So Much (Hint–It’s Not Just the Prices)

George W.  Bush is 67. Chances are Medicare paid for the stent operation that I describe in the post above.  For years, medical researchers have been telling us that this procedure will provide no lasting benefit for a patient who fits Bush’s medical profile.   Nevertheless, in some hospitals, and in some parts of the country, stenting has become as commonplace as tonsillectomies were in the 1950s.

Location matters. Last month, a new report from the Institute of Medicine confirmed what Dartmouth’s researchers have been telling us for more than three decades: health care spending varies  across regions. More recently, as Dartmouth’s investigators have drilled down into othe data,, they have shown that even within a region, Medicare spends far more per beneficiary in some hospitals than in others.

In a recent Bloomberg column, former CBO director Peter Orszag notes that “Because this variation doesn’t appear to be reliably correlated with differences in quality, the value [that we are getting for our health care dollars] seems to be much higher in some settings than in others.” He asks the logical question: “What is causing this and what might we do about it?”

Some health care analysts claim that as a nation, we spend far more on health care than any other developed country because we over-pay for everything—from statins to surgery. (A landmark article that appeared in Health Affairs in 2003 put it this way “It’s the Prices Stupid!” )

Others put more emphasis on overtreatment. Up to one-third of Medicare dollars are squandered, physicians like Dartmouth’s  Dr.  Elliott Fisher, Boston surgeon Atul Gawade and former Medicare director Dr. Don Berwick argue.  As Fisher puts it, “hospital stays in the U.S. may not be as long as in some other countries, but more happens to you while you’re there.” (Note: the authors of “It’s the Price’s Stupid” also point out that care in the U.S. is “more intensive.”)

I agree that both theories are true: We have managed to devise a health care system where we both over-pay AND are over-treated. The  Institute of Medicine report that came out at the end of July supports this thesis.

              The Difference between Medicare and Commercial Insurers

The IOM report reveals that both Medicare and commercial insurers are spending about 40 percent more per patient in some areas and in some hospitals than in others. “This has persisted over decades;” Orszag observes.  “Regions that spent the most in 1992 tended to remain big spenders in 2010.”

But, he adds, “There is one important difference between Medicare and commercial insurance, the Institute found, and that is in the causes of spending variation. With commercial insurance, spending is higher in some areas because of markups — that is, the difference between the charge for a service and the cost of providing that service.

“Seventy percent of the variation in commercial spending was attributed to differences in markups, which in turn probably reflect local differences in market power among hospitals and other providers relative to insurance companies and beneficiaries.”

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Health Insurance and Tax Breaks: New Rules for the Self-Employed

If you, your spouse or an adult child is self-employed, no doubt you already know just how expensive insurance is in the individual market.  Moreover, you know how difficult is to find comprehensive coverage when you’re buying your own insurance.  For example, most policies don’t cover pre-natal care, or child-birth– a huge problem for young women.

But under the Affordable Care Act everything changes. Beginning in January, you will be able to purchase a policy in your state’s Exchange—a one-stop marketplace where you can shop for plans. They will be easy to compare because all policies sold in the Exchanges must cover “10 essential benefits”  including pre-natal care, maternity, dental and vision care for children, rehab and mental health care.  There will be no no co-pays for preventive care and the deductible does not apply.No matter how much care you or your family need, there will be a cap on your out-of-pocket expenses of roughly $6,000 for a single individual or $12,000 for a family. (These rules apply to anyone buying their own insurance in the Individual Exchange, whether they are self-employed, unemployed, or work for an employer who doesn’t offer affordable, comprehensive health benefits.)

                                 Lower Premiums, Subsidies

In the Exchange, you will automatically become part of a large group, and as a result, premiums will be lower than the premiums you would papy today for similar coverage.

 Moreover, depending on your income, you may be eligible for a subsidy. For example, a 30-year-old couple with joint income of $45,000 would receive a subsidy of roughly $2700 and wind up paying $4,000 a year for comprehensive coverage that includes free preventive care. (This is a national average)  

 What You May Not Know about Health Insurance and Tax Deductions

You probably are aware that if you are self-employed and buy your own medical, dental or long-term care insurance, you can deduct premiums for an individual or a family plan on your income tax.

But did you know that if:  

You Have Children under 27, you also can deduct premiums you pay for  them–even if they are no longer your dependents?  

 You or  Your Spouse Receive Medicare, the IRS has now ruled that you can deduct Medicare premiums for Parts A, B, C and D?  This is in addition to the deduction for insurance that you or your spouse buy in an  Exchange.

                              How Much Can You Deduct?

To calculate your allowable health insurance deduction, take your self-employment income, and subtract the 50% deduction for self-employment taxes. Then subtract any retirement contributions made to SEP-IRA, SIMPLE-IRA, or Keogh plan. The remainder is how much you can deduct for health insurance expenses.

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A Doctor Confides, “My Primary Doc is a Nurse”

Last week I interviewed a doctor who told me that his primary care doc is a “physician assistant”  who has been trained to deliver primary care.   He said it casually, dropping the fact into a long conversation.

Dr. David Kauff is an internist at Seattle’s Group Health Cooperative (GHC), an organization that has a fabulous reputation–both among patients and among physicians—for its primary care program.  One reason is that at Group Health, doctors, physicians assistants and nurse practitioners work together in teams. “The success of our model is based on the fact that everyone in this together; we are corralled by a common purpose,” says Kauff, who also serves as GHC’s  Medical  Director for Practice and Leadership. 

I’ll be writing more about Group Health Cooperative in a few days.

 In this post, I would like to focus on the growing role of Nurse Practitioners (NPs) and Physician Assistants (PAs) as clinicians.  NPs are registered nurses who have gone on to earn a master’s or a doctorate. Some specialize in areas such as anesthesiology, pediatrics (pediatric nurses) or Ob-Gyn (certified nurse-midwives). NP’s can run clinics; some run their own practices.     

By contrast, physician assistants (PAs) don’t usually work alone. While physicians may not be on-site, typically doctors oversee their work.  

PAs are formally trained to provide diagnostic, therapeutic, and preventive health care services.  They take medical histories, examine and treat patients, order and interpret laboratory tests and X- rays, and make diagnoses. In many cases, they did not begin their careers as nurses. They may have been  paramedics, respiratory therapists, or emergency care technicians (EMTs) before becoming PAs.  

Currently, 17 states, plus the District of Columbia, let nurse practitioners operate independently.  In 33 states regulations vary. As this map  reveals, in some places NPs are not allowed to prescribe medication. In others, they may have to consult with a physician when treating patients.

It’s worth noting that NPs enjoy greater freedom in the Northwest, the Upper Middle West, and Northern New England (areas that some healthcare reformers refer to as “Canada South” because these states are in the vanguard of reform) as well as in the Southwest, where many NP’s started working in group practices, and they went out and established their own clinics. Nationwide, about 6,000 nurses operate independent primary-care practices.                                               

                                              Why Physicians Object

Today, 14 states are debating whether NPs should be allowed to practice on their own.  Many emphasize the difference in education and years of training. Though in truth, the length of training is not so different. Becoming a primary care doctor requires four years of medical school plus three years of residency. A nurse practitioner  attends nursing school for four years, then spends two to three years in graduate school, depending on whether he or she is getting an M.A. or a Ph.D. (In 2015, all nurse practitioners will be required to earn a Ph.D.) 

Most NPs also have nursing experience. At the University of Michigan, for instance, the average candidate admitted to the NP program has 7 years of hands-on experience as a nurse.  But while the number of years spent training are not so different, as I explain below, traditionally ,the nature of that training has been very different.   

Doctors say that they are worried about patient safety. “I see it as physicians being true to their oath “  Dr. Adris Hoven, president-elect of the American Medical Association recently told Marketplace Health Care’s Dan Gorenstein.   Hoven insists that doctors are “not threatened” by NPs.  “At the end of the day what they want to do is deliver the best healthcare possible.”  

Dr. John Rowe, a professor of Health Policy and Management at Columbia’s School of Public Health, doesn’t buy the argument.  As he points out, nurse practitioners are already working without primary care doctors: “The fact is this is going on in 16-17 states,” he told Gorenstein, “and there is no evidence that it’s not good for the patient.”  A recent Health Policy Brief from Health Affairs and the Robert Wood Johnson Foundation backs him up: “studies comparing the quality of care provided by physicians and nurse practitioners have found that clinical outcomes are similar.”

At the same time, Rowe understands why doctors are uncomfortable. “The physicians feel they have something special to offer,” he explains. “And being told there are individuals who are less well trained can do it as well as they could is a very difficult lesson for them.”                                    

When I last wrote about nurse practitioners, back in 2010, one physician/reader (“Sharon M.D.”) was exceptionally candid on this point:

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Expanding Medicaid Is Not Enough–Making Medicaid A Federal Program

 Note to readers—please read the post below, “Pulse—More Stories from the Heart of Medicine” (which includes “One More Child Left Behind”) before you read this post.

When I read “One More Child Left Behind,”  all I could think of was how much Aaron’s arm must have hurt during the more than 24 hours that he didn’t receive treatment. I also imagined how frightened and bewildered the six-year-old must have been as he heard his mother and grandmother talk, and realized that they couldn’t persuade a doctor to help him.

This story was published in 2009—one year before the Affordable Care Act was passed.  The ACA extends Medicaid to millions. But even under reform legislation, many children like Aaron will not receive care. This is because Medicaid now pays an average of 34% less than Medicare for exactly the same treatment.

Why on earth would we pay doctors and hospital less to care for poor patients than we would pay them to care for the elderly?

Lower Medicaid fees are part of the legacy of racism. (I write about this in Money-Driven Medicine.)  When the Medicare and Medicaid laws were passed in 1965, Southern Congressmen refused to agree to laws that would pay doctors who treated the poor as much as they reimburse physicians who care for older patients.

At the time, relatively few African-Americans living in the South were over 65.  Most died long before they would be eligible for Medicare. Yet many African-Americans were poor, and would qualify for Medicaid. This is what disturbed Southern legislators. They wanted to make sure that healthcare remained segregated.    

Even under Reform, Specialists Who Treat the Poor Will be Under-Paid   

Medicaid rates vary widely by state, but on average, according to the Kaiser Family Foundation, the new program will offer PCP’s a 73 percent raise This should open doors for millions of Medicaid patients. In some states that have been paying the lowest rates, the hike will be much higher. (See this map) The ACA guarantees raising Medicaid reimbursements for primary care for just two years (2013-2014). But I expect this program will be extended, although increases may be modified. Once begun, it will be very hard to justify ending it.

At the same time, specialists who care for Medicaid patients will continue to receive about 1/3 less than when treating seniors.  As a result, even under the ACA a great many Medicaid patients will be hard-pressed to find a specialist willing to see them.
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Obama to Boehner: “John, I’m Getting Tired of Hearing You Say That”

This was President Obama’s reply, during fiscal cliff negotiations, when House Speaker John Boehner declared, for the umpteenth time, that “ The U.S. has a spending problem.” 

I can understand the president’s irritation. How could anyone believe that we have a “spending problem?’

Look around. Consider the state of our bridges, our roads and our crumbling inner city public schools. Are we spending too much on the nation’s infrastructure?

Next, think about unemployment. During this recovery we have lost 750,000 public sector jobs.  Republicans are intent on “starving the beast” (of government) and as a result Washington has not given states the financial support they need continue delivering public services. Across the nation, public school teachers have been laid off in droves, while class sizes increase at unprecedented rates.  Does this sound like government spending run amuck?

One in five American children now lives in poverty. Seventeen million children find themselves in homes where they can’t be sure of getting enough to eat.  (a.k.a. “food-insecure households.”)  At the end of the month, many kids go to bed hungry because the government Food Stamps program (now known as Supplemental Nutrition Assistance Program, or SNAP)  gives families less than $1.50 per person per meal. Are we being overly generous?

During the past two wars, we sent millions of American men and women to Iraq and Afghanistan –many went back for repeated tours. In some cases, their bodies were not  broken–but their minds were.  Now 1.3 million Vets seeking mental health services are told they must wait of 50 days before getting treatment.   A recent government report suggests that 22 Vets die by suicide every day – about 20 percent of all Americans who kill themselves. Are we spending too much on healthcare for Veterans?

Let me suggest that we don’t have a spending problem. We have a revenue problem. Current federal revenue levels are at their lowest levels since the 1950s. 

                      How Anti-Tax Pledges Have Weakened the Nation

In a recent post, Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities, nailed it: “The tax system doesn’t raise enough revenue.  And that’s not just the recession; it’s also tax policy and anti-tax pledges  . . . The system has become less progressive, with the largest declines in effective tax rates at the top of the income scale.

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Obama’s Proposals For Medicare — Do They Go Far Enough? Will They Become Law?

Not long ago, I wrote about the Center for American Progress’ (CAP’s) “Senior Protection Plan” —a report that aims to rein in Medicare “by $385 billion over ten years without harming beneficiaries.” In that post, I suggested that CAP’s proposals might well give us a preview of the “modest adjustments” that President Obama had said he would be willing to make to Medicare.  At the time, I highlighted three of CAP’s recommendations:

– increase premiums for the wealthiest 10% of Medicare beneficiaries (raising $25 billion);

– insist that drug-makers extend Medicaid rebates to low-income Medicare beneficiaries (saving $137.4 billion);

– prohibit “pay for delay” agreements that let “brand-name drug manufacturers pay generic drug manufacturers to keep generics off the market” (saving $5 billion).

Last week, in his State of the Union address, President Obama embraced the first two:  “Already, the Affordable Care Act is helping to slow the growth of health care costs,” he noted. “The reforms I’m proposing go even further. We’ll reduce taxpayer subsidies to prescription drug companies and ask more from the wealthiest seniors.”  (In time, I suspect that the administration also will call for a ban on those decidedly seamy “pay for delay” deals.)

“On Medicare,” he added, “I’m prepared to enact reforms that will achieve the same amount of health care savings by the beginning of the next decade as the reforms proposed by the bipartisan Simpson-Bowles commission.” The commission called for reducing Medicare spending by roughly $350 billion over 10 years–  a sum that is not far from CAP’s $385 billion target.

Are These “Adjustments” Too Modest ?

These may seem like small numbers. But keep in mind that this is on top of the $950 billion that the Affordable Care Act (ACA) saves by squeezing waste out of health care spending, while simultaneously raising new revenues. Of that $950 billion, some $350 billion comes in the form of Medicare savings achieved by:

–  Pruning over-payments to private sector Medicare Advantage insurers– $132 billion  

–  Containing Medicare inflation by shaving annual “updates” in  payments to hospitals and other large facilities by 1% a year for ten years, beginning in 2014– $196 billion

– Cutting disproportionate share hospital payments to hospitals that care for a disproportionate share of poor and uninsured patients over 10 years beginning in 2014 – $22 billion.

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Join the debate on “Reining in Medicare Costs without Hurting Seniors”

The January 26 post below (“How to Rein in Medicare costs without Hurting Seniors“) has drawn some 43 comments (including mine, as I responded to readers). I thought of turning a couple of my replies into posts, but then decided it might be more interesting for you to read them in the context of what other readers said.

I would love to see more readers participate in this thread. Comments are still open.

It’s a lively thread that takes on a number of third-rail issues: Does Medicare spend too much on pricey cancer drugs, end-of-life care and brand name hospitals?

 Should we try to spend less on end-of life care? Many say “Yes,” but Zeke Emanuel (a medical ethicist and oncologist who was part of the Obama team during the president’s first term), says “No.” I link to a column where he notes that “It is conventional wisdom that end-of-life care is an increasingly huge proportion of health care spending. . . Wrong. Here are the real numbers: end-of-life care (not just for the elderly, but for all Americans) accounts for just 10% to 12% of  total health care spending. This figure has not changed significantly in decades.”

He goes on to suggest that while we probably can’t make end-of-life “cheaper,” we can make it “better . . .  Here are four things the health care system should do to try to improve care for the dying, even if they won’t save money.”

A number of readers comment on what is driving Medicare spending. Is it “patient expectations,”  “doctors’ fear of litigation,”  “regulations that dictate nurse-staffing ratios,” “practice patterns that doctors learned long ago,” or is the biggest problem “promotional efforts by manufacturers?”

Other questions come up: Does anyone really have any idea how much Medicare will cost in 2022?  By then will Medicare have begun negotiating with drug-makers and device-makers for discounts on drugs (the way the VA does now, saving 40%)?  How far will Medicare go in using medical evidence to decide what to cover?

One doctor/reader points out that in his field Medicare has begun to refuse to pay for procedures when research shows that they are not effective. He and another reader agree that in this way Medicare can provide “political cover” for private sector insurers who will follow Medicare’s lead.

We also discuss the deficit, and whether we should be trying to address the deficit now — or wait until the recession ends and unemployment falls. Also, is the deficit already dissolving as CAP suggests? 

And is the deficit our biggest problem? On this question, you will find links to Paul Krugman, Peter Orszag (who analyzes the slow-down in health care spending over the past three years as a “structural change, not just the result of the recession) and Ezra Klein,

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How to Rein in Medicare Spending Without Hurting Seniors

In his Inaugural speech, President Obama renewed his commitment to safety nets:  ”Medicare and Medicaid and Social Security–these things do not sap our initiative, they strengthen us.

Yet last week, he signaled that he is “open to making modest adjustments to programs like Medicare.” Should seniors brace for bad news?

No. There are many ways to cut Medicare spending without drawing blood. It’s a matter of using a scalpel, not an axe, to trim the fat.

Not long ago, the Center for American Progress (CAP) unveiled a Senior Protection Plan that would do just that, revealing how we could reduce Medicare spending by $385 billion without harming beneficiaries.”

The administration pays attention to CAP. Recently Bloomberg News described CAP as “the intellectual wellspring for Democratic policy proposals, including many that are shaping the agenda of the Obama administration.” This suggests that the report’s proposals may offer a preview of “adjustments to Medicare spending” that the president would consider.

How would CAP save $358 billion without rationing benefits or shifting costs to middle-class seniors? The report focuses on squeezing waste out of the system. Waste doesn’t help beneficiaries.

During recent fiscal cliff negotiations, Democrats and Republicans agreed to adopt four of CAP’s proposals, and I suspect that, over time, we will see more of its recommendations become part of the reality of health care reform.

Recently, I interviewed CAP president NeeraTanden and Topher Spiro, CAP’s managing director for health policy. I was impressed by how their practical approach differs from conservative strategies for slicing “entitlements.”
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Health Wonk Review-The Holiday Edition

On this last holiday week-end, I hope many of you will have the time to read  the  newest edition of Health Wonk Review, a round-up of some of the best health care posts of the past two weeks.

This time Lynch Ryan hosts HWR on  Worker’s Comp Insider. . The posts raise provocative  questions:

Did the LA Times Sensationalize Blue Cross of California’s rate increases?

Why doesn’t President Obama require that CMS negotiate for drug discounts –a move that would take us $200 billion closer to a cliff-avoiding deal?

[My guess is that this will happen sometime this year. Back in April of 2011 Naomi published a HealthBeat post suggesting that Obama had put the idea of letting Medicare negotiate prices back on the table].

How do commercial insurers evaluate physician quality?

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U.S. Media Loves “Fiscal Cliff” Metaphor; The Economist Recognizes that It’s An Imaginary Line in the Sand

In the U.S., pundits cannot resist the fiscal cliff metaphor: it’s colorful, punchy and easy to understand. It’s just two words long. What’s not to like?

It’s not true.

The metaphor assumes that if Republicans and Democrats fail to reach an agreement on the budget by the end of the year, the U.S. economy falls over a cliff,  crashes, and burns.  The “cliff “metaphor complements the equally imaginative “iceberg metaphor” that some fear-mongers use to portray the deficit. (Think Titanic) 

It’s all a bit more complicated than the metaphors suggest.

What few conservatives mention is that the deficit has already begun to dissolve:  since 2009 the deficit has fallen from 10% of GDP to 7% in the fiscal year that ended on September 30th.  By historic standards this is still enormous, and must be addressed. But  the numbers demonstrate that, over time, we can reduce the deficit without renting the nation’s safety nets.

As for the cliff, there is no precipice—just an imaginary line, drawn in the sand, as Republicans and Democrats play “chicken.”

The Economist understands all of this. The lead story in the most recent issue focuses on the “cliff” and points out that “worries” about what will happen if we go over that precipice are “understandable”  but “overblown.” The “risk of economic catastrophe is minimal.” Any damage would be short-term. 

I don’t always agree with the Economist: the UK publication has its own sometimes eccentric slant on things. But on the whole, it is a thoughtful publication—well-researched and fact-checked.  Moreover, in this case, distance may give the Economist a perspective on the problem that some in the U.S. lack.

                                   Exaggerating the Threat to the Middle-Class      

Yesterday’s New York Times suggests that if we cross that line in the sand, an already beleaguered the middle-class will suffer great hardship, and this “Complicates Democrats’ Stance in Talks.” 

The analysis suggests that Democrats don’t dare just stand back and let Bush’s tax cuts expire– as they will if party leaders don’t reach a settlement by year-end: “Only a small handful of policy voices on the left are making the case for the tax cuts to fully expire. In part, that is because the economy is still growing slowly, and tax increases have the potential to weaken it.” But it is also because “If the two parties fail to come to a deal by Jan. 1, taxes on the average middle-income family would rise about $2,000 over the next year. That would follow a 12-year period in which median inflation-adjusted income dropped 8.9 percent, from $54,932 in 1999 to $50,054 in 2011.”

This assumes that once we miss the January 1 deadline, tax hikes for the middle-class would become permanent—which, of course, is not true. Talk about how much more a family would pay over the course of 2013 falls somewhere between hyperbole and hysteria, ignoring what everyone knows:

If the Bush tax cuts expire, Democrats will presumably simply propose to restore them in January for those [families] earning less than $250,000,” the Economist observes, “daring Republicans to block them.” 
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