Cost & Coverage on a Collision Course?

Posted by & filed under CGR Staff, Rochester Business Journal.

Kent GardnerMy 84 year-old mother has a bad back.  She’s way beyond surgery, and her doctors are just trying to manage the pain.  So every six weeks or so she goes back to the pain doc and he tries something else—a shot of cortisone this time, a nerve block the next, radio frequency ablation on the third visit (you’ll have to google it, I’ve got a word limit . . .).  There is always something else to try.

She’s weary of the pain and becoming convinced that her case is hopeless. Yet my frugal mother also worries about the cost—“I can’t believe that Medicare keeps paying for all of this.  I get these bills for thousands of dollars—but at the bottom, it says I owe $2.11.” As her son, I’m delighted that Medicare keeps paying and I hope that this process of trial-and-error eventually produces a solution.

Yet this highlights why health care is so darned expensive. There are three actors in this drama—the nice old lady who finds walking to the mailbox an ordeal, the doc who wants to help and gets paid to keep trying, and Medicare, a faceless cash machine that negotiates fees and pays the bills. Who wants to say, “Enough already. There’s nothing we can do for you.”?

President Obama seems to grasp the cost problem, asserting in March that “By a wide margin, the greatest threat to our nation’s balance sheet is the skyrocketing cost of health care.” The uncomfortable truth, however, is this:  We can only cut health care cost by cutting fees to health care providers or by providing less care. Three elements of the Obama plan target cost.

First, the President’s team has proposed an emphasis on health information technology (HIT), certainly a worthy and overdue effort—Obama and Newt Gingrich (of all people!) agree on this score.  But the prospects for HIT making a dent in the cost trajectory are slim and, frankly, distant. HIT will cost a lot in the near term.

Second, they are supporting a more influential Medicare Payment Advisory Commission.  MedPAC, originally created in 1997, would be empowered to impose changes on Medicare that could only be overruled by a two-thirds vote of Congress.  This opens the door to a process by which the nation’s largest health care payer (Medicare) would begin to manage care, something that doesn’t happen now.

In a June 1 New Yorker essay, Boston surgeon Atul Gawander starkly demonstrates this fact. He profiles McAllen, Texas, a community whose Medicare spending per capita is twice the national average. In McAllen, low Medicare fees haven’t stopped rampant health care cost inflation.

Gawande’s essay also mentions the Dartmouth Atlas of Health Care.  Dartmouth research demonstrates that more health care spending doesn’t guarantee better health care outcomes. If MedPAC is going to make a significant dent in our health care costs, it must be able to rein in the kind of spending culture Gawande describes in McAllen. It has to develop a mechanism for saying “No.” The lesson of the Dartmouth Atlas is that less care needn’t be poorer care—in fact, it may be better care. Just as people can get sicker when we do nothing, doing something also carries risk.  My mother thinks her back might have hurt less before she started getting treated for the pain—and she may be right. Moreover, many agree that the quality of care varies from provider to provider and from region to region.  We can cut costs by eliminating errors and by eliminating courses of treatment that will be unproductive or even damaging.

Third, the President suggests allowing the uninsured to buy access to the Medicare ATM machine. The principal difference in cost between Medicare and private insurance is the fees paid to providers.  Medicare declares fees; it doesn’t negotiate them. After decades of refinement, the Medicare fee schedule still satisfies no one. Most providers are convinced that they are underpaid (which some translate into moral authority to “game” the payment system by every means possible). Nonetheless, shifting a portion of the uninsured to Medicare will, in effect, cut fees to providers. Yet as the McAllen example illustrates, lower fees aren’t enough.  In fact, lower fees may actually backfire and drive higher overall cost. If MedPAC pushes Medicare into care management, it will have to add oversight. Medicare’s lean administrative costs will rise.

Presidential attention is also being devoted to expanding access to health care. We can all agree that access to health care should be treated differently than access to cable TV or restaurant meals.  The trick is expanding access to care without bankrupting the nation.

Here’s the political challenge:  Which do you suppose is more likely to gain traction in Congress and the nation, cutting health care cost or expanding health care access? The political force supporting expanded access to health care vastly outweighs support for cutting fees and/or cutting total care. The President’s proposals for cost management will have limited impact outside Medicare. Will MedPAC management apply to Medicaid? Do we empower cost control among private insurers or, as has been the case in New York, mandate broader coverage, e.g. mental health coverage, chiropractic care, etc.

I fear that history will repeat itself in the current health care debate: We’ll expand access but not have the political courage to restrain cost. There aren’t any easy solutions to this problem. We cannot tax ourselves enough to provide every American with access to every possible procedure and every possible drug. The conflict between scarce dollars and unending treatment options isn’t going away—in fact, advances in medical science guarantee that a condition with three treatment options today will have six tomorrow. A system without constraints will bankrupt us.

But don’t say no to my mother’s next treatment.  Her back really hurts.

Kent Gardner, Ph.D. President & Chief Economist
Published in the Rochester (NY) Business Journal June 19, 2009