Medicare Disadvantage

The future of Medicare is the central issue of our time.

By Ian Morrison

Everyone agrees that Medicare is a cause of projected federal budget deficits. But it is also a key symbol of what’s wrong with America according to the political right (a generous federal government entitlement program) and what’s right with America according to the political left (a tax-based, universal health insurance program for the elderly).

In politics, it’s game on for 2012 and beyond, as the candidates start campaigning in earnest (provided they still have a campaign staff, after they come back from summer vacation). Medicare will loom large in the political debate over the next two years, because it is at the core of the discussion on values, priorities and national economics. It also is the key battleground for the broader health care problem: how to develop a viable, affordable health care delivery system for an aging and economically diverse society.

The Basic Politics

Seniors go to the doctors and vote. That’s their major sources of recreation. Seniors hated Obamacare; indeed according to a Harris Poll, a substantial majority of those over 60 favor repeal of the health care bill. (Seniors could not figure out how cutting $500 billion from Medicare was not going to hurt them, even though it all came out of the hides of providers and other health care actors). Seniors’ deep dislike of Obamacare partly explains why 58 percent of voters over 60 voted Republican in the 2010 Congressional election (compared with the low 40 percents in the Reagan or Bush the Elder years).

Then came the Arab Spring and the Ryan Spring. The Arab Spring raised hopes of democracy in the Mideast, and raised gas prices in the Midwest, putting even more pressure on economically vulnerable aging baby boomers. The Ryan Spring brought forward concrete proposals from Republican leaders to turn Medicare into a voucher program where the value of the voucher rises only at CPI plus 1 percent, exposing seniors to cost escalation above that rate. Arithmetically it would pauperize lower-income seniors in short order, but it would contain the rate of growth in federal expenditures. The argument is that elderly consumers would put pressure on private insurers to find a better deal for them. Really?

The public reaction to the Ryan proposal has been mostly negative. A June Harris/Health Day poll showed that majorities of seniors over 65 (64 percent) and those between 50 and 64 years of age (56 percent) prefer to keep Medicare as it is now. Looking at the population as a whole, the Harris Interactive/Health Day poll shows a small plurality of the public is opposed to the voucher idea (28 percent oppose, 27 percent favor and 45 percent are not sure). However, opposition rises when the plan is described as a Republican plan. For example, an ABC News/Washington Post poll from June in which the plan was characterized as a Republican plan had 49 percent opposing, 32 percent supporting and 19 percent not sure.

Democrats, emboldened by a special election victory in a normally Republican congressional district in Upstate New York, are salivating at the opportunity of defending a popular, traditional Medicare program in the next round of elections. But simply defending traditional Medicare is not the same as fixing Medicare.

The Harris Poll found that 81 percent of the public believes that at least “some changes are needed to make Medicare affordable for the average American.” And the public has a clear preference for what that means: significant majorities or pluralities favor cuts in fees paid to doctors, hospitals and especially drug companies. They also favor having higher income people pay more for their Medicare benefits. They are much less interested in raising taxes to pay for Medicare, increasing out-of-pocket contributions for all or raising the age of eligibility.

While provider fee cuts seem to be a very likely outcome in a new era of austerity, they have their own risks in terms of political backlash from the special interests on one hand, and significant cost shift to private payers on the other.

The real key to fixing Medicare is to change the reimbursement and delivery system for seniors so that it is affordable as a universal tax-financed vehicle. (You may also argue that this is the central problem for all of health care, but let’s limit our discussion to Medicare for now.)

So how could that be done, in a way that might garner more than ideologically polarized support?

Here are some ideas to think about.

Patient Protection and Affordable Care Act Tools: A Long Time to Payoff

Embedded in the health reform bill are a series of tools to advance improvement in the long run performance of the Medicare program, in particular:

• accountable care organizations (ACOs);
• patient-centered medical homes;
• the CMS Innovation Center; and
• the Independent Payment Advisory Board (IPAB).

Most of these initiatives will have no measurable impact on Medicare finances in the short run, although a lot of hope was placed on ACOs.


Well, well, well, did the ACO thing ever fizzle on entry. Basically, the initial regulations said to participating providers that if you clear enormously high quality hurdles while substantially cutting your revenue for patients, then CMS will let you keep some of the revenue that you just cut. You are kidding, right?

(I hate to gloat, but the failure of the ACO regulations is that they violated a lot of Morrison’s 10 Laws of ACOs identified in a previous column: Chasing Unicorns: The Future of ACOs). [Haydn, please embed link to Ian’s previous column by this title.]

The ACO concept was supposed to stimulate the formation of more organizations like Mayo Clinic. Yet, Mayo Clinic and their kin have announced they will not participate. The broader enthusiasm in health care is equally curbed. The bar is set too high, the rewards are too low and it is all too much like hard work.

However, despite the lack of enthusiasm for the Medicare ACO Shared Savings Program, all across the country, hospitals are integrating with physicians to pursue accountable care aims. They just want someone in the payer community to give them some real incentives to keep going.

CMS has reached out in search of pioneers: these are Ninja-level provider groups who are battle-hardened to accept much greater risk and accountability (do not try this at home) on terms that are yet to be determined. It remains to be seen whether CMS finds some willing pioneers.

Perversely, those pioneers may end up joining a program right under CMS’s nose: Medicare Advantage.

The Ironic Rediscovery of Medicare Advantage

Smart hospitals are starting to evaluate whether Medicare Advantage might be a better vehicle for their efforts to integrate for accountability for Medicare patients. Those health care systems with a captive or friendly health plan might find it administratively simpler, less onerous in terms of quality and transparency, and more profitable to expand into the Medicare Advantage business.

After all, if you are going to all that trouble to meet the triple aim of better care for patients, higher performance for the population and cheaper per capita costs, wouldn’t you want to get the lion’s share of the premium saved by doing that hard work? Watch out for more to follow the early pioneers in the area, especially those providers who know they can beat quality and performance standards to earn back the Medicare Advantage bonuses for quality.

Health Plans also see opportunities to engage with the emerging ACO-ready provider systems in commercial contracts. There are numerous experiments from California to Minnesota where commercial payers (both Blues and others) are building ACO relationships with providers. It is but a small next step to integrate a shared saving Medicare Advantage deal with those contracts, which may be more appealing for hospital leaders than being in a direct relationship with CMS, under the intense scrutiny of the federal government.

Medicare Advantage plans are a hot property right now. Recent transactions have been at record high valuations, most recently Wellpoint’s acquisition (for $800 million) of CareMore, a niche Medicare Advantage plan based in California that focuses on the heavy user sub-population of Medicare recipients.

The CareMore valuation teaches us two key things. First, that in a world of risk-adjusted capitation, Medicare Advantage plans have an enormous incentive to seek out heavy users of care, if they know the secret sauce of managing those patients. Second, the secret sauce of managing heavy users looks a lot more like “social work and transportation services meets compassionate heavy duty case management” than it does the siloed, high-tech disjointedness that today characterizes care for most of the multiply co-morbid elderly.

We can solve our short-term Medicare budget crisis by slashing provider payment levels, but in the long run that will condemn us to a health care system of hamster care, where providers are on a treadmill of discounted fee for service.

Rather, we should build organizations and partnerships that embrace risk for the care of the elderly population. These sophisticated service businesses must combine cutting-edge information technologies, evidence-based medicine, and patient- and family-centered support systems to keep costs low and to keep us patients functioning, at the highest possible level, into our dotage. At least that is what I am hoping for: You had all better come through.