Mayes and Berenson on Medicare Prospective Payment
Medicare Prospective Payment and the Shaping of U.S. Health Care
By Rick Mayes, Ph.D. and Robert A. Berenson, M.D.
The Johns Hopkins University Press
From the Introduction
The biggest and most intense battle within the U.S. health care system during the past two decades has been over two interrelated questions: first, who will control the manner in which medical care is paid for, and second, how much will it cost? The primary argument of this book is that - contrary to conventional wisdom and whole libraries of books and articles that point to managed care as the biggest “change agent” in American medicine in the last twenty years - the private sector neither initiated this battle nor provided the critical innovation that transformed health care in the United States. Instead, it was Medicare’s transition to a prospective payment system (PPS) that triggered and repeatedly intensified the economic restructuring of the U.S. health care system. With prospective payment, “Medicare sets prospectively the payment amount (rates) providers will receive for most covered products and services and providers agree to accept them as payment in full,” according to the Medicare Payment Advisory Commission (MedPAC). “Thus, in most instances, providers’ payments are based on predetermined rates and are unaffected by their costs or posted charges.”
Medicare payment reforms have empowered the federal government, making it similar to health care systems in other Western countries. They have given the U.S. government control over the price of most medical care and ended the era - dating back to the 1920s - in which doctors and hospitals’ authority over medical prices and decision making went virtually unquestioned. The key to Medicare’s role as the leading catalyst for change in the U.S. health care system is the program’s immense size and influence. As the single largest buyer of health care and the “first mover” in the annual payment game between those who provide medical care and those who pay for it, Medicare invariably drives the behavior of medical providers and private payers.
From the Conclusion
We think that the Medicare program is well positioned to take on many of the most important stewardship responsibilities for the government, while continuing to serve as a crucial social insurance program for the more than forty-two million seniors and people with disabilities who depend on the program. Medicare’s prospective payment systems have created a stable funding base for the nation’s providers. They have led to important changes in how providers deliver care, producing improved quality and efficiency that have spilled over to better the care provided to Americans. Medicare can shape health care in other ways as well - such as improving access to care, expanding individuals’ protection against the cost of illness, and lowering administrative costs - if allowed to do so.
http://www.press.jhu.edu/books/title_pages/3463.html
And…
Medicare: Not Just an Advantage, But a Stacked Deck
By Rob Cunningham
Health Affairs Blog
January 24, 2007
Are private plans inherently more efficient than government? There is more than a little room for doubt. In a brilliant new book by Rick Mayes of the University of Richmond and the Urban Institute’s Bob Berenson, the success of Medicare’s prospective payment system in holding down cost growth is demonstrated convincingly — findings echoed in a recent Congressional Budget Office monograph.
http://healthaffairs.org/blog/2007/01/24/medicare-not-just-an-advantage-but-a-stacked-deck/
Comment:
By Don McCanne, MD
Getting health care spending right means balancing the need to provide adequate funding to ensure patient access to beneficial services, while limiting spending to covering legitimate costs and fair profits for the delivery system.
Mayes and Berenson have demonstrated that Medicare has been quite effective in this endeavor, whereas the private sector has largely limited its role to following Medicare’s lead. In fact, the private sector’s experiment with managed care demonstrated that they could achieve payment control only by distorting this balance, which impaired patient access and failed to establish compensation tied to legitimate overhead plus fair profit.
The efforts of the Medicare stewards to improve the payment system is and always will be a work in progress, as the current struggle with the Sustainable Growth Rate (SGR) demonstrates. The point is that a government system, as long as it is manned by people who believe in the legitimate stewardship responsibilities of government, will always strive for a system that ensures patient access by adequately funding an effective health care delivery system, while limiting waste. The inefficient, fragmented private insurance system can never do that, but can only add to the waste and inefficiency that has placed such a heavy burden on us.
As academic purists, Mayes and Berenson avoid the political minefield by suggesting that Medicare’s leadership can be advanced while maintaining the status quo of a social insurance program limited to seniors and people with disabilities. I’ll gladly step into that minefield. A tremendous amount of waste, inefficiencies, and inequities result from the dysfunctional private insurance system that follows Medicare’s lead only with an unbelievable amount of imprecision and evasion. We need to dump the private plans and continue to focus on financing reform that provides the best health care value for all of us.