Physicians will be getting coal in their stockings from Uncle Sam come Christmas, 2006. It looks like Medicare reimbursement will be cut by 4.6% for 2007, just in time for those holiday credit card bills.
For several years, these cuts have been mandated to take place on the first of the year as part of Medicare’s legal requirement to maintain expenses under a “sustainable growth rate”, or SGR. Up till now Congressional action has prevented the cuts from taking place, but the budgetary constraints on Medicare growth are likely to force Congress’ hand.
While that is bad enough, this is by no means the end of the bad news. According to California Healthline, the potential cut “represents the first in a series of reductions that will decrease reimbursements by 34% over the next nine years, during which time physician costs likely will increase by 22%.”
The cuts are a result of calculations by CMS based on 2005 increases in utilization of minor services and increased prices. Not surprisingly, the major driver was utilization.
Price fixes are a blunt instrument, but an effective one, at least for the Feds. While these cuts will reduce Federal expenditures, they will undoubtedly lead to higher costs for private payers, as physicians shift costs to their group health patients.
If this continues for many more years, we will have private payers and their insureds subsidizing more than 50% of the cost of Medicare patients.
Sounds like nationalized health care…
What does this mean for you?
Priivate payers’ costs will increase as physicians seek to recoup lost income.
The Washington Post published results of a study that indicate a generally modest level of satisfaction with Part D among enrollees. According to the Post, “Three-fourths of Medicare beneficiaries enrolled in the drug benefit say paperwork to sign up was easy to complete, and almost two-thirds say the program saves them money…”
I’d just point out that seniors are pretty sharp consumers, and the ones who signed up for Part D are likely those who did the math to figure out the cost-benefit.
This is called adverse selection, and is the main reason the program will not be successful over the long term. Simply put, the ones who sign up are the ones who will get more in benefits than they will pay in premiums.
Matt Holt’s Fierce Healthcare points out that the Post erred in stating that 29 million had signed up for Part D – this number actually included all seniors with some form of drug coverage from Medicaid, Medicare Advantage, or other sources, and grossly overstates the actual enrollment – which is about 30% of eligibles.
Also of note is this stat – among all seniors surveyed, (those with and without Part D coverage), 41% approve of the benefit and 45% don’t. Leaving aside the health policy issues of Part D, it sure does not look like a political win for the current Administration.
I noted a couple weeks ago the problems pharmacies in Texas have been encountering with Part D – slow pays, no pays, missing information, higher staffing costs, and the like. Now word comes that California pharmacies seem to be suffering the same side effects of Part D.
The news comes from the Sacramento Bee (free registration required), and was triggered by reports of a home-delivery pharmacy shutting its doors, at least in part due to payment problems associated with Part D. According to the Bee;
“In a CPA (California Pharmacy Association) survey about Medicare Part D, 55.8 percent of independent pharmacies said the drug program’s timing of payments has created a “significant negative financial impact” on their business.”
Ohio pharmacies, especially the independents, are also experiencing financial troubles they attribute largely to Part D. While many of these issues were recognized early this year, the financial impacts are only now really starting to be felt.
The independents don’t have large chains’ financial backing nor buying power; this will make it very difficult for those in anything less than excellent financial shape to survive while Part D is sorted out. As independents account for 43% of all pharmacies, this is no small issue.
The good news is few eligible seniors have signed up for Part D. This presents us with an interesting picture – the success of a program designed to get more drugs to more people may well have killed off many independent pharmacies.
Only in Washington could they have come up with something so creatively destructive.
It’s not often the President of the United States does health benefit plan enrollment meetings, so Bush’s recent national tour touting Part D stands out as one of the more unique moments in health benefits history. But this is more than an interesting factoid, because Bush’s speaking tour came about because of the dismal enrollment rates seen to date. And with the enrollment period ending in less than two months, it does not look like things will get much better.
While the President touts the enrollment of 25 million seniors into the program so far, 20 million of those had coverage before the program started. That leaves a total of 23 million seniors eligible for enrollment – out of which 5 million, or less than 22% have taken the plunge.
As I’ve been saying all along, any voluntary benefits plan with participation under 70% is in trouble – so Part D looks to be in big trouble.
If enrollment stays slow and low, Congress may well have to extend the enrollment period. While Bush has said that is a non-starter, he also threatened to veto any Congressional action on the Dubai Ports deal. This turned out to be a hollow threat, and with Congress increasingly independent of the White House, and Republicans seeking to salvage anything from the ashes of Part D, an extension could well be in the works.
(Bob Laszewski was the first to characterize Bush’s role in enrollment meetings)
The law of unintended consequences continues to dog the much-maligned Part D program. So far, seniors and states have been depicted as the primary victims of the program’s operational, structural, and marketing faults. Now there’s news that the program’s impact on pharmacists is resulting in political fallout for the White House.
The New York Times reported yesterday that a (free registration required) group of pharmacists from Texas met with White House political boss Karl Rove to voice concerns about Part D. While their complaints include the additional time required of pharmacists to explain the program to seniors and advise them on which of the myriad offerings works best for them, by far the more significant issue appears to be the financial fallout.
Pharmacies’ problems include slow payment by Part D vendors; lower reimbursement rates; extra labor costs incurred while (free registration required) pharmacists wrestled with administrative nightmares; and the cost of free scripts given away to seniors lost in the bureaucratic mess.
According to a pharmacist in California: “It’s really bad and it’s been a disaster for us…Our reimbursement rates have gone down. Medicare Part D has really hurt us.”
While the administrative and operational issues look to be solvable, the reimbursement issue will not go away. Pharmacists are discovering that in many cases their reimbursement under Part D is less than it was under Medicare, making Part D significantly less attractive. And that comes on top of a reduction in Medicaid drug dispensing fees that went into effect last year.
According to the pharmacists from Bush’s home state, these problems have combined to push many pharmacies, especially the mom-and-pops, to the financial brink. The result is these independent business people, many of which have been ardent supporters of the President, feel victimized by the program. Bush’s recent comment that “It’s not immoral to make sure that prescription drug pharmacists don’t overcharge the system” further alienated pharmacists.
The winners in Part D look to be big pharma, PBMs, managed care firms, and employers. In addition to taxpayers, seniors and pharmacies, losers may include the President and his allies on Part D.
Reports out of Washington indicate Pres. Bush’s plans to expand HSAs by increasing the amount individuals can set aside tax-free are not gaining much traction on Capitol Hill. Sen. Chuck Grassley (R Nebraska) and other Republicans are not in favor of the move.
This is not Bush’s only problem related to health care. Some 60 House Republicans have refused to back the Bush Medicare budget cuts, breaking wiith the President despite calls for fiscal prudence. One wonders if election year politics has anything to do with this. Actually, there’s no wondering.
Republicans, faced with a President with historically low approval ratings (well, pretty close to historical lows) look to be scrambling for cover – and with seniors particularly upset with the GOP over the Part D mess, a cut to Medicare would increase their problems.
The situation on the Hill makes CMS Director McClellan’s recent pronouncements about adding HSAs to Medicare (Part G?!) somewhat…puzzling? Faced with concerns about both HSAs and Medicare among their own party leaders, why is McClellan floating this trial balloon? One can only imagine the reaction among seniors who have been tearing their hair out over Part D. If we thought Part D was complicated and hard to explain, I can’t wait to see our nation’s political leaders on a bus traveling around talking to seniors about HSAs.
What are these people thinking? Or rather, are these people thinking?
What does this mean for you?
Politics in an election year can be good and bad – killing the ill-conceived HSA expansion while not addressing some of the real concerns with Medicare are two great examples.
Jason Shafrin at Healthcare-Economist.com has provided a brief timeline of the development of Medicare in the US.
Jason’s blog is quite good; heavy on the policy side (no surprise there) with several excellent summaries of data-rich topics such as price elasticity of employer-based health insurance.
I recommend it to fellow policy wonks.
There are lots of moving parts, political agendae, and battling priorities in the pay for performance movement, and it is getting even complicated-er. Today’s announcement by the AMA that it will produce metrics for assessment of physician quality (registration required) is a clear indicator that financial motivations have, at least temporarily, outweighed physicians’ measurement phobia.
There are two distinct but closely related and very powerful forces at work here – one financial and the other political. Financially, the key issue is concern among docs that these “quality indicators” will be used to reduce reimbursement. And that fear is not unfounded. One has to look no further than the latest Federal budget proposal and the annual battle over the mandatory reduction in Medicare physician fees to understand that the phobia has a solid foundation in reality.
Politically, Bush’s pronouncements in favor of consumerism as the solution to the health care cost crisis have painted him into a corner. Critics (myself among them) have noted many problems and challenges (read near insurmountable obstacles) with this approach, chief among them its breathtakingly na
Director of the Center for Medicare/Medicaid Services Mark McClellan was up on Capitol Hill yesterday testifying on Part D, conveying the message that all was going better, improvements were being made, and the cost of the program was lower than anticipated.
When one remembers that McClellan is the brother of White House press secretary Scott, his facile comments and ability to re-interpret reality are more understandable.
I’m reminded of the comments whispered to me by the mother of the young lad named “most improved” at a youth football dinner: “he was so bad at the start of the season that just running without falling down was a huge improvement”. While the Part D program is nowhere near running, and has yet to even advance beyond the crawling stage, it is likely to improve. That’s the good news. The bad news is the fatal flaw of adverse selection, discussed here ad nauseum, but still eluding the denizens of Capitol Hill.
One highly contentious issue continues to be the law preventing HHS from negotiating directly with pharmaceutical companies on drug prices. According to ABC News; Sen. Snowe (R ME) and what a great name for a senator from Maine…
“questioned the way the program was working and pushed for legislation that would allow the government to negotiate for better drug prices. The initial legislation included no such provision, an omission that at the time was seen as a boon to drug companies.
Snowe and Sen. Ron Wyden, D-Ore., have drafted bipartisan legislation that would give government the power to negotiate prices.
“I can’t imagine why we’d spend $700 billion on this benefit and not allow the secretary to maximize the taxpayers’ money,” Snowe said.
A June 2005 CMS Office of the Actuary report estimated there would be a total of 36.8 million enrolled in Part D in fiscal year 2006. Thus HHS Sec. Leavitt’s stated goal of 28-30 million enrolled in Part D by the end of 2006 either reflects an updated guesstimate or indicates the previous goal is now viewed as unreachable, or perhaps both. (remember almost 22 million seniors were automatically enrolled in Part D on 1/1/06) Especially when one recalls that the calendar year has three more months than the fiscal one.
As Bob Laszewski points out, historically the big enrollment date for employee benefits and health plans has been January 1. With all the hype, publicity, politicians-on-the-road-show circuit and marketing leading up to that date, and with that date well behind us, it looks very doubtful that enrollment numbers will even come close.
The well-publicized enrollment mess surely has not encouraged seniors to jump into a plan that had already confused them.
So, despite the taxpayer funding 75% of the costs of the program, millions of dollars in advertising and strong support from elected leaders (sell, some of them at least) and six weeks into the program, we have enrolled a grand total of less than 4 million into the voluntary program.
Not exactly a ringing endorsement of a privatized health care plan based on competition in the private sector.
What does this mean for you?
Bad news for advocates of national health insurance provided by private payers. That was me too, but I’m not nearly as convinced today as I was this time last year…