Wednesday, June 25, 2008

A Flawed Defense of Medicare Advantage

If private Medicare is to be continued proponents had better make better arguments than Scott Gottlieb made on Tuesday's Wall Street Journal op-ed page.

Gottlieb is a former Bush Administration CMS official and is currently at the American Enterprise Institute.

The context of his arguments is that this week Congress is debating making cuts to the private Medicare Advantage program in order to pay for deferring a 10.6% physician fee cut that is set to begin on July 1.

A number of sources have estimated that Medicare Advantage plans are paid 13% more than traditional Medicare pays for similar seniors--the private fee-for-service (PFFS) product gets 17% more.

Since you can't access the op-ed unless you have an electronic subscription to the WSJ, here are his key points:
  • "The crucial question is where the controls [on our health care system] should be – with patients working through private plans or with government agencies. While private health insurance is imperfect, there's a misguided faith in Medicare's superiority that rests on flawed assumptions."
  • "First, there's a mistaken belief that Medicare is better staffed than private plans, and can therefore make better decisions about patients' clinical circumstances and the access to new therapies they should have. Yet at any time, Medicare has about 20 doctors and 40 total clinicians (including nurses) inside the coverage office, and fewer than a dozen in the office that sets the rates that doctors are reimbursed for the care they provide. Private insurers employ thousands of doctors, nurses and pharmacists, many experts in new technologies."
  • "Recent data from Price Waterhouse Coopers found that private plans spend roughly four times more than Medicare on "consumer services, provider support, and marketing," which includes money spent answering the telephone to adjudicate individual issues. Smaller health plans use one clinician for every 10,000 beneficiaries. Medicare would need 4,500 clinicians to keep pace."
  • "If Democrats have their way these plans could be in for big cuts. If Congress does nothing before July 1, doctors in Medicare will take a 10.6% cut in their pay. To stop that from happening Congress will likely raid Medicare Advantage and use the money saved by cutting that program to cushion the blow to doctors. What terrifies members is facing constituents over the July 4 break who will be upset about rising co-pays and uncertainty about their coverage. The question is how big of a bite the House and Senate will take out of Medicare Advantage. But cut they will, because Medicare Advantage plans enable competition that serves as a model for shaping Medicare into a privately run system."
Gottlieb's points can be summarized as:
  • Private Medicare spends more on its health insurance product than Medicare does and that makes it better.
  • If Congress cuts Medicare Advantage seniors will be mad.
His first point, that HMOs spend much more on "consumer services, provider support, and marketing" is tantamount to General Motors arguing it spends a lot more to build a Chevy than Toyota spends to build a Camry and therefore you should buy the Chevy. So?

The real question is just what do we get for the money spent--What's the return on investment in better cost and quality for the money our government spends on either private Medicare or the traditional plan?

If the HMOs really want to effectively defend Medicare Advantage they need to demonstrate value. Where is the industry data showing that after five years in this recent version of Medicare Advantage, and 20 years all told in the program, the private sector delivers a better cost/quality result?

Gottlieb's second contention, really a warning to members of Congress getting ready to vote, is that they risk upseting seniors in the private programs now getting lots of extra benefits because of the big private plan payments: "What terrifies members is facing constituents over the July 4 break who will be upset about rising co-pays and uncertainty about their coverage."

So he is arguing that Medicare Advantage plans should be paid more so the seniors in them can get better benefits? If seniors getting better benefits is a good idea why must that be confined to just the private plans?

The extra private Medicare payments (13% generally and 17% for PFFS) were intended to be a "prime the pump" strategy to get insurers and seniors interested in these plans in order that a sufficient market scale could be created to give the private strategy a chance to work.

Gottlieb now seems to be arguing in favor of a permanent private health plan entitlement. This isn't any different than the HMO trade association rolling out the NAACP last year in favor of continuing the extra payments indefinitely arguing extra payments for HMOs are a good way to provide better benefits for poor people.

What troubles me even more about Gottlieb's arguments is that he never makes a distinction between the mainstream Medicare Advantage products and the private fee-for-service (PFFS) version.

The PFFS products are too often a simple arbitrage of the Medicare payments system as a few health plans simply take advantage of the most generous payments never intending to build real networks. These "inch deep and thousand mile wide" players are just playing games with Medicare rather than really investing to create a better cost and quality outcome.

It is from these PFFS plans that the Democrats want to get most of the money Gottlieb is protesting. Just how does he rationalize these PFFS plans and the Democrats proposals with his contention that, "private plans spend roughly four times more than Medicare on consumer services, provider support, and marketing?"

I actually thought that Senate Finance Chairman, Max Baucus (D-MT), made the health plan industry a great offer this month that they should have taken. First, he did not propose making any significant cuts to the program. Most of his savings would have come from a requirement that the PFFS players would have to convert their programs to networks over a two year period--which is what the "prime the pump" strategy was supposed to be anyway!

Instead the health plan industry rejected that deal likely throwing the whole debate over to 2009 when the next President and Congress are likely to make even bigger changes--likely impacting more than just the PFFS players. If they had taken the Baucus deal, Congress might well have left the private Medicare program alone for a number of years more. Maybe not--but just what did the mainstream plans have to lose? Clearly, they would have resolved the most controversial part of the program.

One has to wonder just how long the mainstream health plan industry is going to protect the "inch deep and thousand mile wide" PFFS guys and in doing so putting at serious risk the standard Medicare Advantage program.

If the health plan industry is relying on Gottlieb to speak for them on why private Medicare needs to be saved, I'm not optimistic.

By the way, even House Republicans didn't buy Gotlieb's arguments--the House voted 355-59 yesterday to do the Baucus deal.

An updated Baucus/Grassley deal is pending in the Senate and I firmly believe there will be lots of health plan execs that will be wishing later in 2009 they would have taken the first Baucus deal and thrown the "inch deep and thousand mile wide" PFFS players under the bus in order to insulate mainstream Medicare Advantage when they had the chance.


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