Here’s Why Reforming Medicare Spending Is So Difficult
Policy + Politics

Here’s Why Reforming Medicare Spending Is So Difficult


In a United States Senate bitterly divided along partisan lines, senators have come together on not one but two points of rare agreement: First, members of the Senate Finance Committee all agree that Medicare drug costs must be brought under control. Second, they tacitly agreed during a hearing on Tuesday, nobody wants to take the political risk of implementing a major change that might actually help reduce spending.

The hearing was meant to examine a proposal by the Centers for Medicare and Medicaid Services to reduce the amount it reimburses healthcare providers for medicines, in part to eliminate a perverse incentive that could encourage doctors to prescribe more expensive medicines rather than cheaper alternatives that are just as effective.

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Under the current system, Medicare Part B generally reimburses doctors and hospitals based on a formula that calculates the average sale price of a drug and then adds six percent on top of that cost. In the case where a new, more expensive drug and an older, cheaper medication have the same or similar effectiveness, that creates an incentive on the part of providers to prescribe the more expensive option, simply because six percent of a larger number means more income for them.

CMS is proposing a broad demonstration project that would change that pricing structure in an effort to reduce the financial incentive to prescribe more expensive therapies when cheaper ones will do the job.

However, messing with Medicare is politically fraught, as Dr. Patrick Conway, the acting principal deputy administrator for innovation and quality and chief medical officer of CMS was reminded when he turned up to testify about the plan Tuesday.

Chairman Orrin Hatch (R-Utah) left no doubt about where he stands on the proposal, saying it would “radically alter the ways in which Medicare pays for drugs and biologics treatments that physicians prescribe and administer to patients in the outpatient settings that are covered under Part B.... I believe this experiment is ill-conceived and likely to harm beneficiaries. It is an overreach on the part of CMS that, in my opinion, goes beyond the agency’s statutory authority, extends nationwide, and requires all Medicare Part B providers to participate.”

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Plans to change reimbursement rates naturally get healthcare providers riled up about the potential loss of income. But the announcement of a generalized framework that will cover thousands of different treatments also leads naturally to concerns about the effect it will have on specific therapies for specific disorders -- each of which has its own advocacy network staffed with attorneys and lobbyists ready to pounce at any suggestion that treatment options may be changed.

Hatch went on to note the massive response from interest groups that the CMS proposal generated. “Almost immediately after the proposed demonstration was released, we received a letter from over 300 stakeholder organizations asking for our help in getting CMS to withdraw the proposal. These organizations included: The Arthritis Foundation, the Caregiver Action Network, the Immune Deficiency Foundation, the Lung Cancer Alliance, and the National Alliance for Mental Illness.”

Sen. Ron Wyden of Oregon, the ranking Democrat on the panel said that reducing the use of certain higher-cost medications, some of which can be administered in a doctor’s office, “might unintentionally drive seniors toward hospitals” which could increase different costs and would be far less convenient.

Sen. Charles Grassley (R-Iowa) went further, accusing CMS of proposing an “ill-conceived experiment” and suggesting that the sort of change being proposed amounts to conducting medical research on an unwilling population of patients.

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For his part, Conway tried to assure the panel that CMS has the interests of patients at heart. The fact that there is a 20 percent cost-sharing requirement for many Part B recipients, he reminded lawmakers, means some face crushing medical bills when they are prescribed unnecessarily expensive therapies.

The plan, he said, would include an expedited appeals process for patients and providers to address individual cases where the new system creates an unintentional bad outcome for particular patients.

But the Finance Committee, which has oversight authority over CMS, was not moved. “One of the most difficult things to do in Congress is unite Republicans and Democrats on a topic,” said Sen. Tim Scott (R-SC.) “And this demonstration project has done a very good job.”

CMS has the authority to continue moving toward implementation of the project, but choosing to do so in the teeth of heavy opposition from its congressional overseer invites the kind of future trouble that generally makes Washington bureaucrats weigh their options very carefully.