More on Medicare & Medicaid

Medicare at 50: Medicare's long pull on medicine and the economy

As the government program turns 50, Medicare is facing problems of its own

President Lyndon B. Johnson signs the Medicare Bill on July 30, 1965 (Credit: The Harry S. Truman Library)President Lyndon B. Johnson signs the Medicare Bill on July 30, 1965 (Credit: The Harry S. Truman Library)

American healthcare has spent the last 50 years shifting from boom times to crisis and back, thanks in large part to the establishment of Medicare. But as the government program turns 50 itself, Medicare is facing problems of its own.

On July 30, 1965, Lyndon Johnson signed into law Title 18 of the Social Security Act, creating the federal Medicare insurance program for Americans 65 and older. Sitting next to him, and the first American to get a Medicare card, was 81-year-old former president Harry Truman, who at the end of World War II proposed a national health insurance program that would have functioned as a "Medicare for All."

LBJ died at the age of 64 in 1973, suffering a heart attack only a month after Truman died at age 88 and eight months before he would have got a Medicare card. By that time, the program was already huge, popular and influential in the U.S. healthcare system -- extending the lives and savings of seniors, driving healthcare to more than 7 percent of gross domestic product, funding graduate medical education, and advancing medical specialities like cardiology.

HIMSS20 Digital

Learn on-demand, earn credit, find products and solutions. Get Started >>

While not bringing universal coverage as sought by Truman and others before him, Medicare offered a "prudent, feasible and dignified way to free the aged from the fear of financial hardship in the event of illness," as Johnson said. It balanced the private and public, adopting and extending the prevailing Blue Cross Blue Shield "reasonable cost" payment model and hospital and physician care schemes, and avoiding the aspects of "socialized medicine" that the then highly-influential American Medical Association adamantly opposed.

[Also: Medicare at 50: 5 challenges for the future]

The preamble to Medicare's legislation erected a large wall between what the federal government could and could not do in the new social security program: "Nothing in this title shall be construed to authorize any federal officer or employee to exercise any supervision or control over the practice of medicine or the manner in which medical services are provided, or over the selection, tenure, or compensation of any officer or employee of any institution, agency, or person providing health services; or to exercise any supervision or control over the administration or operation of any such institution, agency, or person."

Doctors today might feel supervised and controlled by Medicare, Medicaid and private insurers. But around the notion of keeping government out of medical decisions while still paying for care, America's healthcare system evolved into the $3 trillion, 17 percent chunk of the economy that spends more per capita than any other country. Medicare and the healthcare system it helped create has led to a situation where healthcare companies, particularly hospitals, offer a reliable source of middle class employment but also consume larger-than-desired public and private budgets that threaten to crowd out investments in education, infrastructure and housing.

Many attempts at reform

In many ways, Medicare was early on and remains a success, said Stuart Guterman, VP for Medicare and cost control and Commonwealth Fund and a longtime staffer at what is now the Centers for Medicare & Medicaid Services.

In the 1960s, the "concern was getting people in the hospital when they needed to, because they couldn't afford it," Guterman said. While millions of middle class Americans had access to health insurance covered by their employer, seniors were spending their savings, relying on relatives or charity, or forgoing care.

"Increased hospital admissions was considered a success," Guterman said. Hospital discharges averaged 194 per 1,000 elderly in 1964. By 1973, that number had jumped to 350 per 1,000. Among other population health benefits, heart attack survival improved by 40 percent between 1965 and 1980, partly due to declines in smoking as well as increased hospital access.

Under Richard Nixon, Medicare started changing because costs were growing. In 1972, as Medicare coverage was extended to individuals under age 65 with long-term disabilities and end-stage kidney cancer, the first slight divergence from the pledge to never interfere with medical decisions came. A new group of Medicare Standards Review Organizations were created to review appropriateness of care, and the federal government was given the authority to conduct demonstration programs. Outside of Medicare the model of health maintenance organizations was born -- what would later become a dominant, highly profitable force driving the lamented "corporatization of medicine."

[Also: Medicare at 50: Advocates make case for lowering eligibility]

As Guterman recalled, "Medicare spending rose very rapidly," with national healthcare spending reaching 8 percent of GDP by the mid-70s and 10 percent by the early 80s. The rise of the hospital industry, including the for-profit players like Hospital Corp. of America and Humana, brought if not a surplus then the problem of overutilization.

"It became clear that maybe the hospital wasn't the best place for people who were sick," Guterman said. "By the early 1980, people found out that you could actually get sick from being in the hospital."

The "reasonable costs" system, paying doctors and hospitals prevailing charges, created a perverse incentive for the healthcare business to do more for Medicare patients, and exacerbated the fragmentation of the third party system, with different insurance coverage (or none at all) for different segments of the American population.

Reasonable costs "had no force for cost control and rewarded hospitals and physicians who did more things and cost more," Guterman said.

In 1982, Ronald Reagan signed the Tax Equity and Fiscal Responsibility Act, which added a Medicare hospice benefit and significantly changed reimbursement with a new idea and policy.

Medicare Part A, the hospital coverage, was converted to a per-case system, and a year later the inpatient prospective payment system was adopted. Under the diagnosis related group system, hospitals have been paid based on the relative average cost of treating a case in hospitals nationwide instead of the hospital's own costs.

With the DRG, the government said "we're going to set a price and change how we look at service and revenue centers and pay you more for more expensive hospital stays and treatments," Guterman said.

But the new payment system's lack of a sustainable, workable physician payment system -- Medicare Part B hewed to the fee-for-service mode -- coupled with the DRG's financial reward for complexity has created the modern problems Medicare and the rest of healthcare are still reckoning with.

"All along we've been paying for more complex services, and that sends a bad signal," said Guterman. While the country needs advanced, acute care, there remains a huge need for high-value primary care to help Americans live with chronic diseases and prevent their complications.

From 1986 to 1998, the number of Medicare beneficiaries receiving angioplasty to clear artery blockages rose more than 600 percent, from 1.3 per 1,000 to 8.4 per 1,000. Heart bypass surgeries nearly doubled, from 2.7 per 1,000 to 4.8 per 1,000 in the same period.

Today, many primary care physicians complain that they don't have enough time to spent counseling patients on lifestyle issues and controlling their conditions, like diabetes, which ends up leading to cardiovascular disease and requiring invasive treatment for advanced problems.

"There are lots of doctors who say they don't get rewarded for the stuff they should be doing," Guterman said. He thinks it's a good thing that the saga of the sustainable growth rate cuts for physicians has closed. But there's a lot more work to be done to make it easier for hospitals and physicians to collaborate and get paid for doing the right thing every time, whether it be admitting a patient or observing them remotely.

Like Healthcare Finance on Facebook

One of the challenges is figuring out what works and tracking it. There are probably around 1,500 different quality measures, Guterman said, and they're of limited value. "It drives doctors crazy," requiring significant time spent in record-keeping. "We need to figure out how to measure quality."

The good news is that there is time. "Reforms really have tended to increase and become more aggressive when Medicare gets close to insolvency," Guterman said. Back when the DRGs were created, in 1983, the Medicare Trust Fund was forecast to be insolvent by 1987. "Now, it takes us to the late 2020s, if not early 2030s."

Accountable care organizations present promise, but have also brought a lot of skepticism. One vehicle for long-term Medicare reform -- and one that can be provider-led -- may be Medicare Advantage, the privately-administered Medicare plans that have become both popular among seniors and profitable for large insurers thanks to the 2003 changes. With Medicare Advantage rates coming down under the ACA, health systems can take the chance to compete with private insurers and offer seniors their own plan with all of the same perks--free primary care visits, 24-hour-advice lines, dental and vision plans, diet and exercise counseling--that also lets hospitals and their clinicians get paid well for things that aren't particularly well-reimbursed in traditional Medicare.

If hospitals, physicians and insurers don't find a sustainable path forward, the government may step in to do so in one form or another. In 2017, under the Affordable Care Act, states can create their own universal health insurance policies, including adopting a single-payer system. The prospect of single payer at the state or national level remains unlikely for now, but another potentially disruptive cost control measure does loom in the the Independent Payment Advisory Board.

Tasked with finding savings in Medicare without affecting coverage or quality, the 15-member board will have fairly broad authority to craft and implement new Medicare policies and reimbursements unless Congress blocks the proposals within a brief time period and proposes similar savings elsewhere.

Twitter: @AnthonyBrino