Jane Orient, M.D., is in the private practice of medicine in Tucson, Arizona. She is also an associate in internal medicine at the University of Arizona College of Medicine.
Recent changes in Medicare make it difficult for patients to retain control over their own medical care.
Fear that the Medicare trust fund may be bankrupt by the 1990′s—about five years from now—has been used to justify a number of changes in the program. As a result, the day of reckoning may be postponed for a few years longer. But the changes in medical practice might be permanent.
In the name of “cost control,” Medicare has changed the payment mechanism. Some payments have decreased, and some have increased. But the amount of the payment is far less important than the method for determining it. The stated issue is cost—the real issue is control.
In the original act that created Medicare, Public Law 89-97, July 30, 1965, Congress disavowed any intention of controlling medicine: “Nothing in this title shall . . . authorize any Federal officer or employee to exercise any supervision or control over the practice of medicine . . . or the compensation of any . . . employee of any institution . . . providing medical services.”
But as the Medicare carte blanche for expensive services had its predictable effect of skyrocketing expenditures, the folly of the promise of no controls became apparent. Restrictions on the types of covered services were tightened, and the patient deductibles were increased. These measures were perceived, correctly, as a reduction in benefits• Yet the patient and the physician still made the choice about which services would be purchased• Medicare only decided on the reimbursement.
Recent changes, called mandatory assignment and prospective payment, are of a fundamentally different type. The diminution of benefits is not so obvious, but the threat to freedom of choice is far greater. Under these schemes, the check to the “provider”—the physician, hospital, or other agency—is signed by Medicare (or another third party), rather than by the patient. Usually this apparently subtle change is greeted with relief by patients, who no longer have to worry about the amount written on the check. That worry may be replaced by more serious worries about the quality and availability of services, as we shall see. The person or agency that signs the check is the one with the greatest degree of control over the provider.
“Assignment” means simply that the patient and physician agree that the physician will be paid directly by the insurer (Medicare, Aetna, Blue Cross, etc.) If a physician “accepts assignment” on a Medicare claim, he has agreed to work for Medicare’s fee. Medicare will pay 80°70 of what it determines to be the reasonable fee (based on the code assigned to the procedure, the doctor’s past charges for that procedure, and other factors), and the physician is supposed to bill the patient for the remaining 20% (the “coinsurance”) and no more. Sometimes, physicians waive the 20%—especially if the total fee was inflated to start with. Medicare has now threatened to cut the fees of physicians who routinely fail to collect the coinsurance, assuming that the fee must have been inflated.
If the physician does not accept assignment, then the patient is responsible for paying the bill and for collecting from his insurer whatever reimbursement he is entitled to. Most physicians are willing to wait until the patient receives the insurance check, and to negotiate the fee in cases of hardship.
Under the Deficit Reduction Act of 1984, two classes of physicians were created, “participating” and “nonparticipating.” (The constitutionality of this act has been challenged. Litigation sponsored by the Association of American Physicians and Surgeons is pending in circuit court.) Participating physicians sign a contract with the government, agreeing to accept assignment for a// Medicare patients. Nonparticipating physicians may choose to accept assignment or not, on a case-by-case basis. Once he accepts assignment, the physician may not bill for any portion of the bill that Medicare disallows, but collects from the patient the copayment for the fee that is allowed. About 30 percent of physicians have elected to participate. A proposal to make 100 percent assignment mandatory for all physicians treating Medicare patients has been defeated in the Congress.
From the patient’s point of view, the participation arrangement might seem ideal. No forms to fill out, no money to pay except for the nominal copayment, and no worry about whether or not the services will be covered. The doctor and his staff take care of all those details. The participating doctors are listed in a little book published by Medicare, and influential groups of senior citizens reinforce the idea that these doctors are the “good guys.”
The second innovative “cost containment” method is prospective payment. That means that a predetermined sum is paid to take care of whatever needs happen to come up. The sum may be determined by capitation—so much per head—as in many HMOs (Health Maintenance Organizations). The government is considering ways to encourage more Medicare recipients to sign up for HMOs.
Another type of prospective payment is by the diagnosis. All hospitals now bill Medicare under the DRG (Diagnosis Related Group) system, receiving what is allowed for a particular diagnosis, regardless of how much it costs to take care of the individual patient. Insurance companies, such as Blue Cross, are extending the concept to non-Medicare patients as well. Although so far prospective payment by diagnosis is used only for hospital services, various plans are under study for applying the method to physicians’ fees also. This idea appeals to insurers because it makes their payments more predictable. The risk of overly large costs must now be assumed by the providers of the service, rather than by the insurance company.
Assignment and prepayment seem to make the patient’s life so much easier. But the incentives that they create have already had unintended consequences.
Although the “good guys” are not collecting much money directly from the patients, it would be a mistake to think they are not getting paid. Since people tend to do more of what they get paid for, and less of what they don’t get paid for (all other things being equal), it’s important to wonder just what the third parties are interested in rewarding.
With assigned claims, the activity that actually results in the payment is the submission of a properly prepared and coded claims form. If all the right blanks are filled in, and if the service is one that Medicare approves of, then a check arrives in due time.
Some things do not appear on the claims form, because they are not important to Medicare. But they just might be important to the patient. For example: 1. How much time did the doctor spend? 2. Was the evaluation thorough, or cursory? 3. Was the diagnosis correct? 4. How much did the treatment help?
In other words, Medicare pays for preparing forms, and the doctor makes more money by being more “productive”: by “processing” more patient visits into coded forms. Medicare does not pay for spending extra time with patients, an activity which conflicts with the demands of high productivity. Doctors who do more complete, time-consuming evaluations, and who do not require the patient to come back frequently, are financially punished.
Getting Paid for not Providing Care
Prospective payment works a little differently. The “providers” get paid the same amount, regardless of how much is done for the patient. So, in effect, they get paid for not doing things. The hazards of prospective payment for medical services are really no different from the pitfalls of paying in advance for other things—such as used cars, dancing lessons, or unexamined bags of diamonds.
While the “providers” have incentives to do less under prospective payment, the consumers have the incentive to demand more, in order to get their money’s worth. To be sure that patients don’t get more service than they are entitled to, every prospective payment system has a UR (Utilization Review) department. UR’s job is to deny services that they feel are “unnecessary” although a doctor and a patient have requested them. What are the qualifications for that job? According to a newspaper advertisement for a UR clerk at a major HMO, the applicant must be a “high school graduate or equivalent,” have good “communication skills,” and be able to “work in a fast-paced environment” and to “prioritize duties.”
Hospital Utilization Review has become much more stringent since the DRG system went into effect. And most hospitals now have to get permission from Medicare (called “precertification”) for most kinds of admissions. Otherwise, the patient’s stay will not be covered.
Here are some actual experiences with UR:
• A surgeon wanted to operate on a patient for a hiatus hernia—the stomach bulging up into the chest. The clerk wanted to know how big the hernia felt. Obviously, she didn’t know the difference between a hernia into the chest and the “rupture” that makes a lump in the groin.
• An elderly man with Alzheimer’s disease became dehydrated and unconscious. His gastrostomy, the opening into the stomach through which he received nourishment, was not working properly. Medicare decided on a “retrospective denial,” that is, they announced that they would not pay the bill, after the patient had already been admitted to the hospital. The patient was sent home by ambulance—still in a coma—and died a few days later. The decision was eventually reversed, and the brief hospital stay paid for, but only after a lengthy appeals procedure. Although treatment in the hospital would not have greatly prolonged this patient’s life, it would have eased his family’s burden during his last days.
• A man called the doctor about his ailing wife, and was told that precertification would require several days. He insisted on taking her to the hospital by ambulance anyway, and she was found to have pneumonia and a bowel obstruction. In several days, she would have been dead.
• Cataract surgery is now supposed to be done in an out-patient setting. Medicare denied a claim for a very elderly patient who lived alone in a small town 50 miles away, who was blind in one eye, and unable to see with the other eye for a few days after surgery.
Most doctors could tell a few horror stories like these. Of course, there is also a “quality assurance” committee, which works right alongside Utilization Review. The doctors who do quality reviews don’t get paid for it, and if they find a potential problem, it is usually just “trended.” Some record is kept, and more reviews may be done. However, the UR doctors are paid, and if they find a problem, the patient may be on his way home in an ambulance. And UR is much easier to do. Anyone can see what was done for the patient by reading the chart. But the chart doesn’t list all the things that the patient didn’t receive.
Bureaucracy Controls Medicine
Ironically, although the high cost of medical care is used to justify the changes in reimbursement and the accompanying regulations, nobody knows yet whether they will save any money.
If they do save money, it will not be by reducing costs, which are increased by regulation (already about one- fourth of the hospital bill is due to the costs of complying with regulations). UR clerks and their “physician advisors,” computer operators, and clerks to code the DRGs must all be paid. The only savings will be reduced expenditures-meaning simply that fewer medical services will be rendered.
Or at least that fewer unprofitable medical services will be rendered. Under DRGs, the hospital is reimbursed for the average cost of caring for a patient with a particular diagnosis. Some patients cost the hospital less than the average, and the hospital is supposed to make a profit on them. They are called “winners.” Patients with expensive illnesses for which Medicare pays too little are called “losers.” Hospitals, in order to survive, are supposed to “manage the case mix.” That means to bring in more “winners,” and somehow to keep out the “losers.”
In addition to some doctors and hospitals, others are making profits from Medicare. Manufacturers of computer software are making lots of sales to help the hospitals manage the complex DRG system. Certain medical equipment is heavily advertised because of its hefty profit margin—such as chair lifts, which go for $1500. “Home health services”—which are said to be less expensive than hospital services—are springing up to do only those things that Medicare covers. They may not be interested in supplying a low-cost homemaking aide if that’s all the patient needs. But they would be happy to send a high-cost physical therapist, occupational therapist, social worker, and nurse (providing that the patient is “certified” to “need” several such services). Medicare pays $44 for a house call by the nurse, and about $22 for a house call by the doctor.
All of these “providers” are following the normal human inclination to take the job that pays best. And those generous people who do things that actually lose money—like doctors who make house calls—will soon be out of business. They are “inefficient,” to use the popular term.
But don’t patients want the most “cost-efficient’ ‘health care.* Maybe not.
For bad diabetic foot ulcers or poor blood supply to the foot, the most cost-efficient treatment is probably to amputate the leg. Prolonged hospitalization for meticulous nursing care and high dose antibiotics don’t always save diabetic feet—and they always do cost a lot of money. Bypass operations to bring a new blood supply to the foot don’t always work and are also very expensive. The best interests of society would be served by spending the money where it would do more good.
The patient, however, might have a different opinion. He might place such a high value on his leg that he’d be willing to mortgage his house to pay for an operation that might save it. And if he’s in real financial difficulties, he might even find a surgeon to donate his services, because it is so much more rewarding to save a foot than to amputate one.
An indemnity insurance plan also pays by the diagnosis, and might allow just enough for the amputation—but the patient would be free to use that payment to defray part of the cost of the more expensive treatment. In contrast, under the DRG system, the amount allowed by Medicare is all that can be charged, if the hospital provides a more expensive treatment, it just loses the money, whatever the patient’s willingness and ability to pay. The patient who wants a noncovered service in a hospital that has a Medicare contract (as nearly all do) could renounce his Medicare benefits altogether, but would then have to pay the entire amount himself, not just the excess amount.
The control of medical services cannot be divorced from the payment mechanism. As the payment has become more and more remote from the service and the patient who receives it, the “providers” become less responsive to the choices and preferences of the patient, and more constrained by the requirements of the payers. To correct for the distorted incentives, punitive controls are instituted, increasing costs and creating still more problems.
If a patient assumes responsibility for paying his own medical bill, he takes the risk that the service will not be covered by his insurance. Assignment or prepayment frees him from that worry, but substitutes the risk that the service will not be available to him. For example, in Canada, he would be certain that his CT scan would be covered, but in some areas the waiting time for an “urgent” CT scan is about six months.
Under assignment or prepayment, it appears that providers have assumed the risk of not being paid for their work (or even of losing money) if costs turn out to be high. However, the reality is that patients are being sent home, even in a coma, when the payment runs out.
The responsibility for paying medical bills can be shifted. However, the control over medical decisions must eventually be transferred along with it. The person who signs the check is the one who does the utilization review.
Whom will you choose to control your medical services? The government? An insurance company that hires high school graduates to do UR? A doctor who is being paid by the head? An ethics committee? A hospital that is deeply in debt?
Those who would prefer to keep the controls in their very own hands must understand the ominous implications of the current changes in insurance, starting with Medicare, however benevolent they may appear.