More on Policy and Legislation

Policy researchers rethink Medicare's value proposition, structure

With Medicare enrollment and spending set to grow in the coming decades, the program needs to better spread risk and incentivize value and also needs a better statutory definition of cost-benefit considerations, researchers argue in the latest issue of the New England Journal of Medicine.

Policy proposals for making Medicare more efficient are usually critiqued on how long they extend the Medicare trust fund's life, how they impact Medicare's share of U.S. GDP, or whether they increase burdens for seniors or hospitals.

But reforms should also be evaluated based on how well they balance financial protection for seniors and incentives for smart healthcare consumption, write health economists Katherine Baicker, from Harvard, and Helen Levy, from the University of Michigan.

Currently, Baicker and Levy write, Medicare's performance as an insurance program balances risk and consumption rather poorly, and offers only limited protection against financial risks for beneficiaries, without caps on out-of-pocket spending for the basic Medicare Part A.

That's probably why 90 percent of Medicare beneficiaries purchase or obtain supplemental insurance, through retiree health benefits, Medicare Advantage or Medicaid. And yet that, Baicker and Levy argue, has likely left many Medicare beneficiaries over-insured, and in turn led to unnecessary and costly care. Citing the landmark RAND Health Insurance Experiment, Baicker and Levy write that low copayments often lead to the consumption of more care, at least some being of little or no benefit.

"Having little or no cost sharing may lead enrollees to consume low-value care and drive up the cost of Medicare for everyone," they write.

Amid the various proposals for Medicare reform that have emerged over the years, some have been based on good ideas and some have missed the mark, Baicker and Levy write. The Simpson-Bowles Commission, the Congressional Budget Office and the Medicare Payment Advisory Commission have made similar proposals that included capping out-of-pocket expenses while restricting supplemental coverage without beneficiary cost-sharing.

Both measures would go some way towards incentivizing high-value care, the authors write; yet they remain controversial. The Medicare Catastrophic Coverage Act of 1988 capped beneficiary out-of-pocket spending and also placed a tax on Part A beneficiaries, and it was repealed a year later amid anti-tax opposition.

[See also: Proposed lawsuit will alter home health Medicare reimbursements]

In another New England Journal of Medicine article, Tufts Medical Center clinical and policy researchers Peter Neumann and James Chambers examine the incredibly vague Medicare statute that bars the federal government from paying for health services and devices that "are not reasonable and necessary for the diagnosis or treatment of illness or injury." 

The Centers for Medicare and Medicaid Services has struggled to interpret what exactly "reasonable and necessary" means, and political interest groups, muddled court rulings and evolving medical technologies have made the statute even more perplexing.

Medicare's "decisions to cover and pay for medical technology can have profound consequences for patients' access to therapies, physicians' treatment options and the fiscal well-being of the program," Neumann and Chamber write.

CMS has tried to implement evidence-based regulatory frameworks, only to face political and industry pressures. In 1989, the agency proposed -- and soon withdrew -- a regulatory definition of "reasonable and necessary" as safe, effective, non-investigational, appropriate and cost-effective, and it 2008 it reversed a decision to limit coverage of coronary computed tomographic angiography, even though independent reviews found the technology came with risks of harm and questionable benefits .

And so, Neumann and Chamber write, the agency has tried to work within the vague statutory language to find value-based models, and it's struggled there too. "It's ironic that as CMS launches value-based purchasing programs for providers, it is unable to apply value-based purchasing for technology. Moreover, circumstances have forced the program into a disingenuous conversation about medical technology as it attempts to address its fiscal predicament while pretending that costs do not matter."

Neumann and Chambers argue that Medicare should be guided by the available clinical evidence, and that, with little success so far, perhaps a legislative fix is in order. University of South Carolina law professor Jacqueline Fox has proposed amending the original Medicare statute to specifically give CMS authority consider costs openly. Another option is amending the statute in the model of the 2008 Medicare Improvements for Patients and Providers Act, which permitted CMS to consider outcomes and benefits in covering preventive care.

Given that Medicare is projected to become insolvent in a decade, Neumann and Chambers write, perhaps the post-election climate will allow for some reform.

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