Yes, We Can Make Medicare Better and Control Costs

After House Budget Czar Paul Ryan's kill-Medicare plan - which all but four Republicans in the House and 40 Republican senators voted for - became a major fail and lost Republicans a special election for a House seat they won just six months ago with 74% of the vote, Republicans are trying to retool their message on Medicare. The new big lie, in the corporate media as well as in Republican circles (funny how they always synchronize so well, don't you think?), is that Democrats don't have any plans on Medicare at all, and since left alone, the Medicare trust fund will eventually fall short of all its obligations, Democrats too want to end Medicare. But it is a dastardly lie.

Sen. Chuck Schumer appeared on Meet The Press this Sunday, making clear two things: If Republicans don't drop the Ryan plan immediately, it will legitimately be hung around their necks in 2012, and that the Democratic plan to effectively address costs within the system - e.g. by focusing payments on treating a patient for a particular illness rather than the current fee-for-service boondoggle for private hospitals and providers - to promote both better care and lower costs.



Let's focus on the Democratic proposal from Schumer's interview (from the MTP transcript):
Now, what do we propose? We have been proposing changes in Medicare for a while, but we believe in preserving the current system. Medicare delivers a very good product. Most people are very happy with the health care they get. It's just an inefficient system. And there are ways that you can change the way Medicare delivers things without cutting the benefits to individuals, and still save hundreds of billions of dollars. Anyone who has gone through the Medicare system knows the inefficiencies and duplications in that system because it's a cost-plus system. We began this a year ago, and the Republicans attacked us for it. They attacked us because they wanted a radical--now we know why. They want to radically changed Medicare.
This, right here, is the actual difference between Democrats and Republicans on Medicare. What's not in doubt is that the exploding costs must be addressed. The difference is that Democrats want to address it by ending boondoggles to providers, ending the unaccountable cost plus system, and focusing payments on care, not procedure. Republicans believe in cutting cost by cutting benefits for individuals. In other words, Democrats want to cut corporate giveaways, and Republicans want to end the system as we know it and turn it over to the private industry, simply passing the cost onto you.

So just what specific savings within the system are the Democrats proposing?
The core of the problem is basically two things: one, that providers get away with much too much, and many of them were given too many things. For instance, if Medicare negotiated the price of prescription drugs, was allowed to--Republicans prevented that from happening a few years ago--but negotiated the price of prescription drugs with the drug companies, we'd save over $100 billion. Second, if--there's something called duel eligibles. A senior citizen who's on Medicare and Medicaid, they used to--Medicare used to pay the Medicaid cost of the drug, much lower. Republicans said no, pay the Medicare cost, another 100 billion.
Is Chuck Schumer making these numbers up? Actually, by some accounts, Schumer is underestimating the savings. It turns out Medicare Pard D programs severely overpay, even for generic drugs!
Other federal programs, including the Department of Veterans Affairs (VA), are able to negotiate directly for lower prices, leading to billions of dollars in savings to taxpayers.

For instance, Medicare Part D plans spend 99.7 percent more than the VA for the generic form of the hypertension drug Norvasc, according to a 2009 report from the National Committee to Preserve Social Security and Medicare (NCPSSM), an advocacy group. For Lasix, the most frequently prescribed Part D drug, Medicare pays 64 percent more than the VA, the group reported.

Allowing Medicare to negotiate drug prices would save taxpayers up to $24 billion each year, NCPSSM found.
$24 billion a year, over a 10-year period is $240 billion in savings. The reason prescription drugs cost so much is not because pharmaceutical companies are at a bind and are cash poor. Price increases on prescription drugs have continued unabated despite huge and rising profits. Of course, some drug companies are doing important work, such as drug makers GlaxoSmithKline and Human Genome Sciences putting in the market the first lupus drug in 56 years, but in general, drug makers are spending considerably more on unproductive advertisements and trying to keep generics off the market. Every other industrialized nation, where government run health care systems negotiate drug prices, pays considerably less in drug costs than we do. Perhaps doing that here will not only save costs in Medicare but get pharmaceuticals to refocus their dollars in actually coming up with better drugs rather than spending billions on marketing.

The other prescription drugs savings point Schumer brings up is dual eligibility. For people who are dual eligible for Medicare and Medicaid, the government used to pay the Medicaid rate, which is considerably less than Medicare rates (which are not negotiated). There are different estimates on exactly how much it would save, but a House Oversight Committee investigation found in 2008 that taxpayers are paying up to 30% more for prescription drugs for dual eligibles in Medicare Part D compared to the rates they would have paid under Medicaid. It turns out that in this respect Schumer's estimate might be on the higher end, but combined, negotiated Part D drug prices and paying Medicaid rates for the dual eligible would easily save $200 billion.

The other concrete idea Schumer presented to reduce cost was as follows:
But here's the root of the problem. The root of the problem is it's a cost-plus system. When a--when you're sick, the doctor gets paid for each service, each prescription, each pill, each test. If you were to tell doctors you get a certain amount of money to treat Jim Smith, who has a certain form of diabetes, say $10,000, every study shows that you'd save hundreds of billions of dollars without cutting the benefits to people. That's what Democrats stand for. And the reason our Republican colleagues resist is they don't want the present Medicare system to be preserved.
We have actually started doing some of it already under health reform.
Here is how Medicare will save $120 billion over the next four years:
Health Care Delivery System ReformsSavings through 2015
Reforming provider payments — rewarding quality of care$55 billion
Improving patient safety — lowering hospital readmissions and hospital-acquired conditions$10 billion through 2013
Cracking down on fraud and abuse in the Medicare system$1.8 billion
Getting the best value for Medicare beneficiaries and taxpayers for durable medical equipment$2.9 billion($17 billion over ten years)
Reducing excessive Medicare payments to insurance companies$50 billion
As you can see, the savings come through accountability for hospitals, providers, and cutting out subsidy giveaways to private insurance companies. It is no surprise then, that the private insurance companies that manage Medicare Advantage programs fought tooth and nail to protect their giveaway last year. They failed. And it is no surprise now that private hospitals don't like these changes. What changes? Changes like establishing a per beneficiary spending, paying for quality rather than quantity, and this:
Under the new health law, Medicare will reduce payments to hospitals if too many patients are readmitted after treatment for heart attacks, heart failure or pneumonia. In addition, Medicare will cut payments to hospitals if they do not replace paper files with electronic health records, and it will further reduce payments to hospitals with high rates of preventable errors, injuries and infections.
Oh no. Accountability! Not good! Wuaaa! Hospitals want to frame it as the government unfairly making them pay for things that happen after a patient leave the hospital, but the fact of the matter is that hospital related illnesses and infections are on the rise, and given a cost-plus, fee-for-service payment model, hospitals have little incentive to reduce those. Hey, if someone gets an infection and returns to the hospital, they can just bill Medicare for more! The system the administration is proposing will force them to clean up their act. It will result in real cost savings in hospital spending, which account for a third of our national health care spending. But, it might cut a little into their insane profit lines. Boo hoo.

Oh, before we get Left Puritans swooping in and taking the Huffpo wires to tell us why this plan sucks, is not enough and a corporate surrender, I would like to mention that even Paul Krugman approves of this plan from the administration, saying that it is "part of what must be done."
The point is that this is what cost control looks like. Things like the Ryan plan, which just shift the cost of care onto seniors, are fake; this is the real thing.
Finally. Feels good to agree with Professor Krugman on something!

There's a reason why the Republicans don't want you to find out that the Democrats have a plan - and are implementing what can be implemented under health reform already. The reason is that their plan kills Medicare. Our plan strengthens it. Their plan ends Medicare. Our plan holds providers and drug makers accountable. They don't want you to get smart to this fact. Too bad for them.