A few weeks ago, I received a newsletter from the American Medical Association that featured a page one story about proposed Medicare cuts. It described how, each year for the last 8 years, Congress budgeted drastic cuts in Medicare’s physician fee schedule, and how each year the AMA bravely stood up to Congress and won those cuts back.
Some background is in order. A few years ago when Congress revised the Medicare law, it encoded in the new statute a formula that annually calculated Medicare physician reimbursement based on the growth of medical spending. Under the new formula, if spending under Medicare grew faster than GDP (Gross Domestic Product), the budget would be automatically cut. If it grew less than GDP, reimbursement would stay the same, or grow slightly. This change was intended to be an incentive for physicians and hospitals to control costs. If doctors become more cost-conscious, they get more money. If they continue on their reckless ways of yore, they get less. Simple, old-fashioned carrot and stick.
Unfortunately but predictably, this approach has failed. Over the last 8 years, healthcare costs have soared, and the heavy fist of the new formula has come down in the form of increasing budget cuts. And each year, at the last moment, Congress has voted to reverse this cut to the Medicare budget. According to the AMA newsletter, this is what the cuts look like and what the actual change was after Congress reversed the formula:
Proposed Cut Actual Change
2002 -4.8% 4.8%
2003 -5.7% 1.7%
2004 -4.4% 1.5%
2005 -1.7% 1.5%
2006 -4.4% 0.0%
2007 -5.0% 0.0%
2008 -9.9% Not known
The formula is one of the dumbest things I have ever seen in the insurance business; and believe me, the health insurance business can be pretty dumb. This law fixes Medicare expenditures not to need, or to the development of new technology, but to a statistic, the Gross Domestic Product. It is automatic and mindless, and leaves no room for common sense, judgment, or human need. Imagine if your salary were dependent on something arbitrary, like the price of natural gas or the average temperature of San Francisco Bay each December. What do the medical needs of millions of retirees, or the economic realities of practicing medicine have to do with the GDP? If you have a heart attack during a recession (when GDP is falling), I guess cardiologists will have to use swizzle sticks to prop open left main coronary arteries instead of stents.
There are ways to encourage doctors to be more cost efficient. Giving them a salary cut every time medical costs rise faster than the price of rice is not one of them.
And anyway, it hasn’t worked. Medical costs continue to outstrip GDP growth regardless of the threat of cuts. This is not a surprise. What doctor is going to choose to use a cheaper antibiotic to treat a patient with pneumonia because it will affect the Medicare reimbursement formula? There are too many billions being thrown around in Washington for any one doctor to think saving a few hundred here or there will change the big numbers. As the Chinese say, in an avalanche, no snowflake feels responsible. Or as I say, you can’t convince somebody to eat fewer beans by arguing that flatus contributes to global warming.
Cuts in Medicare are a very big deal. Medicare is the single largest insurer in the United States. Many doctor’s offices and hospitals depend heavily upon it. For some hospitals, this year’s proposed 9.9% Medicare cut could wipe out their operating margins. For individual doctors, this is less true, but even so, the expectation that the single biggest insurer will cut reimbursements every single year puts enormous pressure on a clinic. Medical clinics, like all businesses, face constantly rising prices. Rent goes up; electric bills, health insurance costs, employee salaries, and the cost for medical supplies all rise. The only way to contend with rising costs and falling revenue is to reduce services. That means worse healthcare.
One may wonder: Why can't doctors simply raise their own prices? Ah, this is the diabolical genius of Medicare. Because Medicare is run by the federal government, and because the federal government can write any law it wants, Congress forbids doctors from charging patients more than the fee schedule specifies. A doctor can go to jail for charging more than the feds say he is allowed to. The horrible beauty of Medicare is that once a doctor accepts a Medicare patient, he or she is legally bound to accept the fee schedule generated by the U.S. government. A doctor takes what Medicare gives, or he breaks the law. That may sound amazing to non-medical ears, but it is the truth.
Given this, perhaps a doctor could adjust to the situation by simply taking fewer Medicare patients, or by taking more private insurance carriers. Unfortunately, this does not work as well as you might think. As any doctor can tell you, a large number of HMOs tie their own fee schedules to Medicare’s schedule. A typical provider agreement between a doctor and an insurance company will explicitly set prices as a percent of Medicare rates. In other words, a plan might reimburse at 80, or 100, or 110 percent of Medicare. So when Medicare drops its fees, everyone else’s payments drop also. Even doctors who take no Medicare whatsoever are profoundly affected by Medicare cuts.
This is why I find it so funny that people believe U.S. medicine is privately run. The government is the biggest provider, and all the private companies base their prices on what the feds offer. Every year, Congress fixes prices for the entire healthcare industry when it makes out its budget. Medicare publishes its fee schedule, and everybody, and I mean everybody, adjusts their prices accordingly. It is perplexing that no one seems to notice this.
Every year, we go through the same dance. The Medicare formula spits out a pay cut for doctors. And every year, the AMA and other physicians’ organizations roar in opposition, rally an army of lobbyists, and start twisting arms. Congress restores the cuts in the last week of the fall session, and everyone goes home satisfied.
Why the charade? Why not just fix the formula and be done with it? In fact, this has been proposed . . . annually. Both the AMA and numerous members of Congress have recognized the problem and vowed to fix it. And then they don’t.
I wonder if they ever will. Political problems fuel debate and conflict — and lobbying efforts. Political people make a lot of money and accumulate a lot of power in a fight. Sometimes it is more advantageous to mine a political problem then to solve it. Where, for instance, would feminism would be if it did not have abortion to get hot about? Where would the religious right be without school prayer? People donate money and effort when they are angry about something. When a problem is solved, they go home, and take their checkbooks with them.
Now, I am not saying that the medical establishment has deliberately manufactured this controversy. But when a political problem persists for years and years even though the solution is simple and obvious (fix the formula), we are led to a question: Who benefits from the status quo?
Congress and the White House are beneficiaries. Healthcare is fast becoming the largest item in the federal budget, and the government is under great pressure to keep costs down. Every year, the White House introduces a work of fiction, the annual budget, and its biggest lie is a large Medicare cut that everyone knows will eventually be taken out. Congress eagerly signs on, because it too can sell fiction better than reality. Arm-in-arm, Congress and the White House tout these low numbers as proof of fiscal responsibility. Then, at the end of the year when doctors are getting really anxious about these cuts, Congress swoops in at the last moment and removes them. Doctors get their money, and Congress slips this budget increase under the carpet unobserved.
The game also serves the AMA nicely. Every year, I get a triumphant letter explaining how the dastardly politicians tried to cheat doctors of their due, but the AMA, your AMA, saved the doctors from certain ruin. It then warns us that the formula has not been changed and it will need even more money to fight the good fight next fall. We the ignorant salute their courage and write them a check.
Having tallied the winners, who are the losers? The patients, of course. This annual battle over inches in the healthcare field expends energy that could be spent on the big picture. When doctors prioritize fixing the physician’s line-item in the Medicare budget, they push issues like indigent care, Medicaid, rising costs, and the Medicare drug plan to the back. There are only 24 hours in a day, after all, and politicians, after they have gone to battle to restore the Medicare cuts, can then say that they had done their duty for healthcare. A lot of sweat is expended, and at the end of the day we have the same broken system we had last year. Once again, ask the question: Who benefits from the status quo? The usual suspects: Pharmaceutical companies, private insurance companies, the AMA, conservative groups, and anyone else with a vested interest in opposing healthcare reform.
Some would protest that I an alleging a conspiracy. Not at all; no conspiracy is needed. In politics, and in society, unrelated groups will often find each other common cause, or in mutually beneficial opposition. I believe these types of mutually beneficial stand offs have occurred between teachers’ unions and conservatives over high-stakes testing, between feminists and the religious right over abortion, between doctors and lawyers over medical malpractice. (Doctors benefit because they can divert attention from deficiencies in modern medicine by blaming it all on tort law. Lawyers fool the public into thinking patients benefit from large jury awards when it is really the lawyers who make most of the money.) These types of for-and-against coalitions form quite naturally. If I am walking down a road and a bus pulls up that is going the same way I am going, I get on. I didn't plan the bus route, but if it benefits me I will use it. No conspiracy is necessary.
So, I think, this annual battle will recur like the seasons. Every year, the money will be taken out to please the public. Then, it will be slipped back in under cover of darkness. And everyone will be happy, except that they will gripe, because griping satisfies everyone that they are doing good when they are really doing nothing.
And the general health of America will erode a little bit more each year, the rock dissolving under each little drop.