Fifty Years of Medicare The Good and the Bad

The Good of Medicare

July 30, 2015, marked the fiftieth anniversary of Medicare. President Harry Truman first enunciated the need for health insurance for the elderly. President John Kennedy was working on a plan before he was assassinated. Medicare was enacted in 1965 during the Lyndon Johnson administration. The bill was signed by Johnson in Independence, Missouri, the home of Harry Truman who became the first person enrolled in Medicare.

I started practice in 1963, a year and a half before Medicare began. I recall a patient about 65-years-old who came to my office with chest pain. I hospitalized him at a private hospital. He had a myocardial infarction from which he recovered. Several months later he again came to my office with complaints of chest pain. His major concern was not his chest pain but that he had run out of insurance and could not afford private hospitalization. I arranged for him to be admitted to St. Louis County Hospital. In those days when patients had no insurance they were admitted to a ward service at St. Louis City or St. Louis County Hospital. Medicare was a godsend for patients like the one I just described.

For the first twenty to twenty-five years Medicare worked well with regard to cost to the taxpayer and the quality of care rendered to patients. Journalist Steven Brill showed in a landmark Time magazine article how Medicare brought under control the main driver of high health care costs-the hospitals.¹ In contrast to private commercial health insurance companies, Medicare accomplished this feat with very low administrative costs.

The Fee-For-Service (FFS) method of payment under which Medicare operated during this time allowed doctors to act as advocates for patients. Doctors were able to give patients enough time during office visits to express all of their complaints and concerns. The quality of care was good. Until the 1990s most patients were satisfied with Medicare and almost all physicians accepted Medicare.

The Bad of Medicare: Medicare Advantage, Medicare Acountable Care Organizations, and Medicare Part D

Medicare Advantage

A revolutionary change in Medicare occurred in 1973, during the Nixon administration when the federally-backed Health Maintenance Organization (HMO) Act was passed. This law provided grants and loans to HMOs and required employers with 25 or more employees to offer federally certified HMO options if they offered traditional health insurance to their employees. This law gave HMOs access to the private health insurance market and ultimately to the Medicare population.²

This law is, in my opinion, the primary cause of America’s problems with cost and quality in health care. The bill was supported by both Republicans and Democrats as a strategy to lower rising health care costs. This was a cruel joke because health care costs in the United States at that time were not out of control and were similar to costs in other Western industrialized democracies.

Caught on Tape

The ostensible reason for introducing HMOs into health care was to lower costs. The real reason was to increase corporate profits. This is borne out by an excerpt from the Nixon tapes in a transcript of a 1971 conversation between President Richard Nixon and his aide, John D. Ehrlichman, that ultimately led to the HMO act of 1973. There are some gaps in these tapes:

Nixon: … “You know I’m not too keen on any of these damn medical programs”

Ehrlichman: ... “Edgar Kaiser is running his Permanente deal for profit...And the reason that he can do it…I had Edgar Kaiser come in…talk to me about this and I went into it in some depth...All the incentives are toward less medical care, because…the less care they give them the more money they make”

Nixon: “Fine...”

Ehrlichman: …“and the incentives run the right way...”

Nixon: “Fine...” ³

This excerpt neatly sums up the purpose of HMOs from its earliest origins. Nixon told his friends who supported and initiated this law that they could make a lot of money from HMOs. And HMOs have lived up to this expectation in spades. It also explains why health care costs are now so much higher in the United States than in other industrialized nations. Health care costs in the United States were about the same as other industrialized democracies until the 1980s. Then managed care and HMOs took off and so did America’s health care costs.

Figure 1 clearly documents this. Health care per capita spending in the United States was about equal to other OECD (Organizations for Economic Cooperation and Development) countries like Canada, the United Kingdom and Switzerland, etc., until about 1980. Then the graph shows a steep rise in health care costs in the USA compared to other countries, which has persisted to the present day. This steep rise coincides with the advent and takeover of the USA health care delivery system by commercial and Medicare managed care.⁴

Figure 1.

In the 1980s and 1990s corporate managed care stepped in and “fixed” a system that was not broken. In an Orwellian twist, Medicare policy makers now blame FFS for the high cost of health care despite the fact that standard Medicare which is also known as Medicare FFS annually costs the American taxpayer about $14 billion less than Medicare Advantage, which is Medicare’s managed care commercial private for profit plan.⁵ It has been estimated that Medicare subsidies to Medicare managed care insurers over the past three decades have amounted to over $280 billion.⁶

Blaming FFS for the high cost of health care is nonsense. Yet everyone involved in health care today, including not just government bureaucrats, policy makers and self-serving insurance cartels, but Congress, hospitals, academics, practicing physicians, residents, medical students, and the general public, all believe this nonsense. Albert Einstein reputedly said any nonsense can attain importance by virtue of its being believed by millions of people.

Medicare Advantage plans are growing and constitute about 30% to 40% of all Medicare enrollees. The public likes them because they get freebees like spectacles, some drug benefits, and gym memberships, and enrollees often do not have to buy a supplemental policy. However, when patients have a serious illness, nursing home and rehabilitation benefits are usually less than in standard Medicare FFS benefits.

Consumers are mainly concerned about how much they pay out of pocket - not what it costs the government and ultimately the taxpayer. So they think that Medicare Advantage is a good deal. The big health insurance companies like UnitedHealth Care and Humana love Medicare Advantage because it is their most profitable product. The corporate executives who run these insurance plans often complain about getting the government out of their lives, but they have no qualms about gouging the government and ultimately the American taxpayer so long as they can make a good profit. Medicare Advantage is a prime example of corporate welfare. The insurance company executives have taken to heart Nixon and Ehrlichman’s message about how profitable HMOs can be, “the less care you give them the more profitable they can be.”

Accountable Care Organizations

Accountable Care Organizations (ACOs) are the newest government program designed to lower health care costs under Medicare. The easiest way to understand ACOs is to acknowledge that they are just another form of HMO using capitation instead of FFS. Fee-For-Service again becomes the scapegoat for high health care costs even though, as noted above, Medicare FFS on an annual basis is $14 billion per year less expensive than the Medicare HMO, Medicare Advantage. Under ACOs doctors and hospitals will be financially rewarded if they meet certain goals or benchmarks. This is called “shared savings.”⁷

The most controversial aspect of ACOs is that doctors will be at financial risk. Financial risk pits the financial incentives of physicians against the medical interests of patients. The more physicians do for patients the less they get paid. The less doctors do for patients the more they get paid. The physician is no longer the patient’s advocate. These financial incentives violate the Hippocratic Oath which states:

“I swear…that I… will follow that system which, according to my ability and judgment, I consider for the benefit of patients, and abstain from whatever is deleterious…”

These perverse financial incentives were tried in the 1990s under the old gate keeper HMOs. Younger doctors probably don’t remember gatekeeper HMOs. Under this system the primary care doctor acted as a “gatekeeper” for ordering tests and procedures. For the short time gatekeeper HMOs were in force they did lower health care costs. However when the public found out what actually was going on with their health, i.e., some doctors were padding their own pockets by denying needed care, their fury knew no bounds.

This is best exemplified in the 1997 movie “As Good as It Gets,” starring Jack Nicholson and Helen Hunt. In the movie Helen Hunt, a single mother, voices her dissatisfaction in no uncertain terms with an HMO’s treatment of her son’s asthma. When she says that she is going to obtain the services of a good non-HMO doctor, spontaneous cheering and applause broke out in movie houses all across the nation. These spontaneous public outbursts to “As Good as It Gets” were as bad as it gets for the HMO industry. That movie like no other event signaled the end of gatekeeper HMOs.

I thought that the perverse financial incentives involved in gatekeeper HMOs were gone for good. But I was wrong. The insurance companies apparently never give up on their assumption that doctors are no different from Wall Street traders and that their behavior in treating sick patients can be controlled with financial incentives. Now the same financial incentives they used with gatekeeper HMO are back again under ACOs but with a new name: risk contracts. Because of the bad publicity they received with gatekeeper HMOs the insurance industry wants to conceal its role in developing risk contracts from the public. This is revealed in a recent document released by the American Hospital Association: “One lesson learned from the HMO experiment noted earlier is that providers and patient communities will not accept a system with medical management from the insurance entity. Consequently there has been an emphasis on physician leadership even when the sponsoring entity, in terms of contracting and investment, is considered the hospital.”⁸

What this means in plain English is that now the government and third party insurers with the acquiescence of hospitals and some physicians are going to impose through ACOs physician financial incentives which the American public overwhelmingly rejected in the past. Physicians, unlike insurance companies, are still trusted by the public and they have been chosen to assume a leadership role in ACOs.

This new form of rationing care won’t work because ultimately the public will find out what risk contracts really are and again will reject them as they did with old gatekeeper HMOs. And when the trial lawyers find out about them, watch out. It won’t be the hospital or insurers or CMS that gets sued. It will be physicians. When a CEO of a hospital network was explaining how risk contracts work to a group of doctors a physician asked, “What if I get sued?” The CEO’s response was, “Deal with it,” which is another way of saying “it’s your problem, not mine.”

There is another lesson to be learned about this unholy alliance between commercial health insurance companies and hospitals. In the so-called competitive free market under which our health system operates, hospitals and insurance companies are supposed to be competitors. Now, under ACOs, they are colluding to promote risk contracts. I believe this is a flagrant example of ‘crony capitalism.’

By law under Medicare, commercial insurance companies are allowed to skim 20% off the top for administrative costs. And the hospitals will take their cut for administrative and other costs, too. This leaves physicians holding the bag rationing health care to patients. If they don’t, their income will suffer. Despite all of the positive hype put-out by CMS, hospitals, and insurance companies, ACOs like all HMOs in the past, will fail in their mission to lower costs. HMOs and capitation have been studied since the 1970s. They have never lowered health care costs. And they never will.

Quality of Care

What about the quality of care in Medicare today? The government, through CMS, is using its new gimmick - the electronic health record (EHR) - to measure “quality” through the Physician Quality Reporting System (PQRS).⁹ This is being done in all three modes of health care delivery: Fee-For-Service, Medicare Advantage, and Accountable Care Organizations. Supposedly, by checking boxes on patients’ blood pressure, weight, exercise, smoking cessation, cholesterol, LDL, hemoglobin A1C, etc., quality is improved. And physicians are rewarded financially if they check all the boxes correctly. It’s as if physicians were not discussing these issues with patients before these EHR metrics were introduced. This payment model for improving quality does not take into account that many, if not most patients, are non-compliant with their physicians’ recommendations no matter how many boxes are checked.

Quality of care should be equated with time spent with patients - not box checking. This is especially true in elderly patients with multisystem diseases who have many concerns and need time to express them. I know of an internist who works for Kaiser Permanente, a staff model HMO, who must see 30 patients per day. He is allotted 10 minutes for each patient. He comes home ever y night to spend several hours going over lab tests and doing other medical related work. This is not quality care. He advised his children not to go into medicine. In the brave new world of managed care and government edicts, the physician, a once proud professional, has been transformed into an assembly line worker.

Medicare Part D

Medicare Part D is the Medicare drug program passed by Congress. It might be considered an example of padding the bottom line of the pharmaceutical and insurance companies at the expense of Medicare beneficiaries and ultimately the taxpayer. Part D does not allow Medicare to directly negotiate drug prices with health plans as it does with the Veterans Administration. Veterans pay much less for pharmaceuticals than Medicare beneficiaries. Medicare members must pay a price for drugs that is a result of negotiations between drug companies and insurance plans. As a result the cost of drugs to a Medicare patient may be up to 80% more than what a veteran pays for the same drug.¹⁰

One of the coauthors of this giveaway bill was Representative Billy Tauzin (R-La.), Chair of the House Commerce Committee. After the bill was passed, Tauzin quit Congress and took a job as chief lobbyist for Big Pharma at $2 million per year. The head of CMS at the time, Thomas Scully, defended the giveaway and deliberately understated the cost. He then returned to the private sector and resumed his career as a health care lobbyist. One Congressional representative called it the worst example of lobbying at the expense of the public interest in her 25 years as a member of Congress.¹¹ Medicare pays physicians directly. Why should the pharmaceutical companies be paid differently? Doctors would be paid far more than they are today if they were allowed to negotiate their reimbursements from Medicare with insurance companies. Right now the doctors can’t negotiate and are forced to accept Medicare reimbursement on a “take it or leave it” basis.

Conclusion

If the government, through CMS. was serious about lowering Medicare costs and improving quality, it would stop focusing on physicians and blaming FFS for all of the ills of our health care system. Instead of relying on Medicare Advantage and ACOs, it would eliminate them entirely. The Federal government should also cut out the insurance company middle men in Medicare Part D and purchase drugs directly from the pharmaceutical industry for its Medicare beneficiaries. And of course the hospitals, the main driver of high health care costs, must be reined in. As noted above by Brill, only Medicare has the power to lower out-of-control hospital charges.

None of this is likely to happen, at least in the near future, because our dysfunctional Congress is dominated by the special interests that profit from maintaining the status quo. The non-partisan Congressional Budget Office (CBO) predicts that the Medicare Trust Fund will run out of money in 2030 or in about 15 years.¹² A true financial crisis might force the government to make some of the necessary changes described above. Whether the government and the American people have the will to make these changes remains to be seen.

Biography

Arthur H. Gale, MD, MSMA member since 1976, is a Missouri Medicine Contributing Editor. He practices Internal Medicine in St. Louis.

Contact: agalemd@yahoo.com