Medicare Advantage Cuts Wrong Prescription for Improving Healthcare Efficiency

By Robert Margolis, MD, and Craig Frances, MD, for HealthLeaders Media, July 17, 2009
Wednesday, August 12, 2009

No physician would develop a treatment plan for a patient without first spending time to accurately diagnose the patient's condition. Misdiagnosis can result in debilitating outcomes for patients, while wasting valuable time and money. In its diagnosis of what ails the U.S. healthcare system, the Obama administration is at great risk of making a costly mistake by proposing cuts in a program that successfully addresses a core problem—the lack of coordinated care.

No one can dispute the facts about our failing healthcare system. We rank behind 27 other countries with respect to life expectancy. We have higher rates of infant mortality, age-adjusted mortality from cancer and cardiovascular disease, and deaths from controllable causes. We are 20th among 21 comparable countries in child well-being, and are last in healthcare system performance measures of access, safety, efficiency, and equity when compared with our global counterparts, including Australia, Canada, Germany, New Zealand, and the United Kingdom.

Despite these facts, our healthcare system costs $2.2 trillion per year—$650 billion more than it should cost based on our GDP and the close correlation between a country's GDP and its healthcare spending. Most of this overage occurs in settings where we more commonly have inappropriate provider incentives.

The physicians in our country are the engines of our healthcare system, but currently we are failing to create the right incentives for them to provide high-quality, cost-effective care. For inpatient care, most hospital providers are paid by episodes of care or diagnosis-related groups. By receiving a set fee for caring for a specific type of patient, hospitals and some affiliated providers bear some risk and are therefore encouraged to provide care cost-effectively.

As may be expected from these appropriately aligned incentives with providers, the U.S. does not overspend for inpatient care versus comparable countries. In contrast, outpatient care in the U.S. is predominantly a fee-for-service model, a system that rewards inefficiency with more pay for a higher number of visits, tests, prescriptions, and hospital admissions and even for complications, regardless of improvement in patient outcomes.

Given the wealth of incentives for providers to do more and the lack of incentives to create efficient systems of care, it is not surprising that we spend more than $400 billion for outpatient services—too much of it without demonstrable benefits.

An alternative to this inefficiency exists inside our own Medicare system. Of our 45 million Medicare beneficiaries, 10 million have enrolled in and are cared for as part of the Medicare Advantage program. Unlike the fee-for-service system that cares for the remaining 35 million beneficiaries, the MA program pays a set fee for the care of each beneficiary, caps what the government pays, and thus rewards efficiency.

Most importantly, the MA program has helped to provide an impetus for the formation of integrated healthcare delivery systems in many areas of our country. Because providers bear some risk related to poor patient outcomes, these integrated systems often invest in technology, measure and report quality, foster collaboration between medical specialties, and focus on prevention and disease management in order to limit costly outcomes, such as unnecessary patient hospitalizations.

Cost savings are not the only advantages of integrated care. Integrated systems permit physicians to compare themselves to other practitioners on managing patients with chronic conditions, such as diabetes or on the appropriate administration of screening tests. Physicians tend to be both data-driven and competitive, and these systems can produce quality improvements almost effortlessly.

Patients also report very high satisfaction ratings, are more likely to have a regular physician, are less likely to delay care due to cost, and are less apt to have difficulty accessing care than their fee-for-service counterparts.

The MA program also provides more benefits to beneficiaries overall—an average of $90 per member per month on average—in the form of reduced copays and deductibles compared with the fee-for-service system, and provides care to a higher proportion of vulnerable beneficiaries, including minorities and those of lower socioeconomic status.

Despite these facts, the Obama administration has targeted the MA program for reimbursement cuts, citing higher national MA costs than the fee-for-service system. These cuts will come directly out of the pockets of beneficiaries in the form of reduced benefits. These changes will encourage these currently satisfied members to rejoin the uncoordinated Medicare system with its rapidly escalating costs and its misaligned incentives, thus undermining the very incentives that have created coordinated care group practice. In addition, the mechanism proposed for the cuts does not account for the marked regional variation in relative costs between programs. In many counties, the MA system will be getting less than the fee-for-service system, despite increased benefits.

We are in the midst of a healthcare crisis partly due to the lack of appropriate incentives for providers to work together in truly integrated healthcare systems. Healthcare experts around the world tout coordinated care to be the single best way to improve quality. The Obama administration has acknowledged its importance and expressed a desire to implement mechanisms to effect care coordination.

However, there is no better system of care delivery than a fully integrated network of providers with a vested interest in delivering cost-effective, high-quality, and transparent healthcare. If our government takes the time to study the MA program, integrated delivery networks, and the best way to provide coordinated care, they will realize that the MA program is much closer to the cure than the disease for our ailing healthcare system.

Robert Margolis, MD, is the immediate past chairman of the board of the National Committee for Quality Assurance and is the CEO of HealthCare Partners, an integrated healthcare delivery system serving more than 600,000 patients across several states. Craig Frances, MD, served as chief medical resident at the University of California, San Francisco, has built several companies, and serves on the board of HealthCare Partners. They may be reached at RMargolis@healthcarepartners.com and cfrances@summitpartners.com, respectively.

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Coordinated Care Facts

In 2007, Medicare Advantage saved seniors nearly $90 per month or $1000 per year in out of pocket costs. An estimated savings of approximately $7 billion annually. Additionally, compared to traditional Medicare, Medicare Advantage plans can reduce out-of-pocket costs by up to $4,000 annually for patients with the highest healthcare needs.

Comprehensive Care: Patients receive integrated treatment plans, and expert case management and disease prevention strategies for the chronically ill.
Cost-Effective Care: Integrated medical groups are able to support investments in advanced healthcare information technology, tracking patient follow-through on treatment plans and patient outcomes, and helping to uncover health problems before they become catastrophic.
Accessible Care: Efficiencies within the coordinated care delivery model mean better healthcare for more seniors, including:
• lower out-of-pocket costs
• increased health services such as dental care, vision care and preventive care
• reduced hospitalizations
• increased prescription coverage
• higher overall satisfaction rates
• greater value for the premium dollar than any other healthcare delivery system

What’s At Risk

If Medicare reforms dismantle incentives for coordinated care, seniors will experience significant increases in out of pocket costs - at a time when many seniors have seen their retirement account’s decline by over 40 percent in value — and decreased quality of healthcare.

Downloadable Resources

California Association of Physician Groups Report: From the Point of Care - The Experience of California Physicians in the Medicare Advantage and Traditional Medicare Programs

The Organized Health Care Delivery System

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