Fixing Medicare

The Medicare Modernization Act of 2003 was supposed to bring the Medicare program into the 21st century. It was going to ensure that good health care was a reality for both America’s elderly and its disabled citizens. It didn’t succeed.

The 45 million Americans who are enrolled in Medicare are certainly far better off than the 47 million Americans who have no health insurance at all. Some of them are better off today than they were before the MMA was passed since they now have a prescription drug benefit. In fact, for those elders who are in good health, Medicare is a model program: designed in 1965 to cover acute, time-limited illness, it does that very well. The problem is what Medicare does not do so well. It does not provide coordinated and preventive care for those with chronic illness; it favors institutional over home care; and it offers excellent end of life care only to the minority of patients willing to forgo hospitalization and palliative treatment and to enroll in hospice. And Medicare has no good way to control costs.

When the first of the baby boomers turns 65 in 2010, Medicare costs are expected to reach 3.3% of GDP; they will jump to 6.3% of GDP in 2030 and reach a staggering 8.4% in 2050. Forget all the concern about Social Security—it’s the Hospital Trust Fund, which pays for Medicare Part A, that is on track to go bankrupt. The latest report from the Trustees, hot off the press, projects this will happen by 2017.

What Medicare is best at is treating a disease like pneumonia: the patient gets sick quickly, is hospitalized for at most a week, and then goes home with a prescription for a few days’ worth of oral antibiotics. But Medicare patients today have multiple chronic conditions: the 21% of Medicare beneficiaries with 5 or more chronic diseases account for 68% of all Medicare spending.

Patients with chronic medical problems need a very different model of care. They need a coordinated, integrated approach. Right now one of the few ways to get this kind of treatment is through the Program for All Inclusive Care for the Elderly (PACE), a program for the frailest of the frail--elders who are dually enrolled in Medicare and Medicaid and who are impaired enough to qualify to live in a nursing home to boot. PACE has been very successful not only in keeping such patients out of the nursing home but also at keeping them out of the hospital, while providing high quality care. But the model for addressing chronic disease in the MMA was not the capitated PACE program, but rather “case management,” typically provided by an outside agency that does the medical equivalent of trying to direct traffic by phone rather than through the physician’s office. Not surprisingly, these programs have in general been a disappointment.

Because Medicare is geared towards treatment of acute illness, it is built on hospital-based care, not community care. In 2007, 30% of Medicare spending went to hospital treatment. Much smaller chunks went to skilled nursing facility (SNF) care (5%) and to home care (4%). And there are incentives for patients to be treated in institutions rather than at home. For example, patients must spend three nights in a hospital before going to a SNF, even though some simple problems such as pneumonia could easily be treated in the SNF. Similarly, there is an incentive for patients to move into a nursing home—and be covered by Medicaid—rather than to receive care at home.

One of the jewels in the Medicare crown is its hospice benefit. Enacted in 1982, the hospice benefit allows patients with a prognosis of 6 months or less to receive intensive services focusing on their comfort, care which in 95% of cases is delivered at home. The program has gotten excellent marks from families in satisfaction surveys and in formal research studies.

Hospice grown dramatically: between 2000 and 2007, the number of Medicare certified hospices increased by 41%, and the number of hospice patients doubled from 513,000 to one million. But the problem with Medicare hospice is that it forces patients to make a diabolical choice. In order to qualify for the home care services most patients want at the end of life, they have to agree to forgo treatments that can offer significant palliation. Contemporary medicine can enhance the quality of life for many patients with advanced disease through relatively non-invasive treatments such as oral chemotherapy or blood transfusions. But the reimbursement structure of the Medicare hospice benefit—a fixed per diem rate—simply does not allow for these treatments.

How can Medicare do all these things—and continue to provide acute medical care? Providing additional benefits seems like the last thing the Medicare program should do: the costs of the Medicare program have already been skyrocketing, partly due to the growing number of older individuals, but to a much larger extent due to the insatiable American appetite for health care and the introduction of new, expensive technology. Fortunately, the reality is that while Medicare is failing to provide a variety of services that are critically important for older patients, it is simultaneously providing an enormous amount of care that is useless and in many cases even harmful. In fact, when Medicare patients with a heart attack, hip fracture, or colorectal cancer were followed over a five year period, those living in parts of the country with higher spending on medical care experienced higher mortality.

Medicare routinely pays for burdensome, expensive treatments for patients at the end of life. Similarly, it reimburses physicians and hospitals generously for diagnostic tests and procedures of dubious benefit. And it pays for costly medications and treatments when cheaper, equally effective treatments exist. How can Medicare move from today’s reality, in which it fails to provide all kinds of care it should offer and systematically encourages the use of all kinds of care it should not?

In terms of chronic disease, the secret to success lies within the PACE program, which provides coordinated care within a capitated system. HMOs got a bad name in the 1990s, but the truth is that only when an integrated health care system operates within a fixed budget that we can expect to see appropriate allocation of resources. With respect to new technology, which is the principal driver behind escalating costs in the Medicare program, the trick will be to stimulate innovation without allowing technology to diffuse unchecked.

One solution is to allow cost effectiveness analysis to enter into CMS reimbursement decisions, not as the sole criterion, but along with other ethical principles such as preferential treatment for the most vulnerable. Finally, to provide good end of life care to all Medicare patients who die, not just those who currently opt for hospice, many of whom enroll in the program within days or even hours of death, we need to create a new benefit. This would provide much of what is currently available through hospice but allow for some hospital care and many palliative treatments in exchange for forgoing the most expensive types of care such as major surgery and ICU care.

The current discussions of health care reform have appropriately emphasized the importance of universal access. And right now those over 65 do have access through Medicare—though median out-of-pocket health spending as a percent of income has been rising for older individuals, going from 11.9% in 1997 to 16.1% in 2005, potentially jeopardizing access. But Medicare deserves significant attention as well, both to quality and costs, two goals that are sometimes in conflict. The good news is that truly modernizing Medicare—paying attention to the most important health needs of older individuals and focusing on care that works—can actually improve quality while constraining cost.

This article also appeared in the new Hastings Center Blog, the Health Care Cost Monitor.