By Robert F. Coulam, Roger D. Feldman and Bryan E. Dowd
Journal of Health Politics, Policy and Law, August 2011
Abstract
The Medicare program faces a serious challenge: it must find ways to control costs but must do so through a system of congressional oversight that necessarily limits its choices. We look at one approach to prudent purchasing – competitive pricing – that Medicare has attempted many times and in various ways since the beginning of the program, and in all but one case unsuccessfully due to the politics of provider opposition working through Congress and the courts. We look at some related efforts to change Medicare pricing to explore when the program has been successful in making dramatic changes in how it pays for health care. A set of recommendations emerges for ways to respond to the impediments of law and politics that have obstructed change to more efficient payment methods. Except in unusual cases, competitive pricing threatens too many stakeholders in too many ways for key political actors to support it. But an unusual case may arise in the coming Medicare fiscal crisis related in part to the prices Medicare pays. At that point, competitive pricing may look less like a problem and more like a solution coming at a time when the system badly needs one.
What is to be done?
* Recognize that competitive pricing is one part of fixing Medicare’s urgent fiscal problems
* Consider ways to divide provider opposition or buy it off
* Be aware that some bidding models might face fewer legal and political problems than others
* Cultivate political leaders to support competitive bidding as policy
* Compensate losers, at least through a transition period
* Give beneficiaries and providers time to adjust
* Strengthen the administrative and legal resources available to CMS in competitive bidding struggles
* Revise the legal framework to narrow the grounds for challenges
* Combine competitive pricing with mechanisms to increase quality
http://jhppl.dukejournals.org/content/36/4/649.abstract
Comment:
By Don McCanne, MD
The authors of this article supporting competitive pricing for Medicare were funded by a grant from the American Enterprise Institute, an organization “committed to expanding liberty, increasing individual opportunity, and strengthening free enterprise.” It is interesting to read why they believe that previous efforts to introduce competitive pricing failed, but what is even more interesting is their list of proposals for action that might accomplish their elusive goal.
Medicare uses administrative pricing to determine payments. Prices are set by performing analytic calculations, using historical claims data. The goal of conservatives has been to use competitive pricing instead, a competitive bidding process to obtain the lowest prices. Although conservatives contend that competition will always provide the lowest prices, in fact, the top-down administered pricing by Medicare has been much more effective in controlling health care prices than has competition of private insurance plans in the private sector.
Regardless of the evidence, the conservatives have a ideological belief that competition must be more effective, and we can prove that by displacing administrative pricing with competitive pricing – showing that it really works. So let’s look at their proposals for introducing competition as a means of expanding liberty and strengthening free enterprise. In examining their proposals listed above, the concepts are the same, only the rhetoric is changed:
* The first and most important point (according to the authors) is that we must accept without question the ideology of competition as the means to fix Medicare’s urgent fiscal problems, while implicitly totally rejecting government administrative pricing. The political process is to be driven by ideology rather than policy science.
* Using the finest principles of market competition, we must use devious methods to divide the opposition of health care providers, or, failing that, simply buy them off. Just don’t call it a bribe since that term is offensive to free market purists.
* Make sure the bidding models are rigged to circumvent legal and political barriers.
* Cultivating political leaders to support competitive pricing is now much easier since the Supreme Court decided that the transfer of massive amounts of cash is a protected form of free speech.
* Compensating losers through a transition period is a euphemism for the “so-sorry-but-that’s-the-way-competition-works” gratuitous comment to the losers who face financial ruin. Market purists would never give cash rewards to the competition that they just beat out.
* Giving beneficiaries and providers time to adjust need not be a separate policy since it is automatic – the time between when they are informed that they lost their insurance or their provider contract and the date of the actual termination.
* Strengthening the administrative and legal resources available to CMS in competitive bidding struggles is just what markets are all about – swindle the patients and providers by diverting more health care dollars to yet more administrative waste.
* Revising the legal framework to narrow the grounds for challenges will be a cinch since they already have a Supreme Court that will protect their marketplace excesses.
* Combining competitive pricing with mechanisms to increase quality – the old measuring-and-monitoring-quality trick wherein they pretend that it is the middleman insurer that creates quality rather than the dedicated health care professionals.
In reading this long article, I could understand why these AEI-funded authors were making excuses for the previous failed experiments in competitive pricing, but I have to admit that I was astonished when they gave us this list of reasons why we should never even remotely consider adopting competitive pricing in the Medicare program. That was very thoughtful of them.