Oct 30, 2015

Interview Transcript

Dr. Jones: Happy birthday, Medicare. This United States federal health insurance program turns 50 years old this year. I'm Kyle Bradford Jones, family physician at the University of Utah School of Medicine, and we're discussing that next, coming up on The Scope.

Announcer: These are the conversations happening inside health care that are going to transform health care. The Health Care Insider is on The Scope.

Dr. Jones: Medicare is the federal health care insurance program for those who are 65 and older, as well as those who have significant disabilities. And it was signed into law in 1965 by President Lyndon Johnson. Now, there had long been seen a need for this because those who are elderly tended to be more poor, they didn't have as many resources, as well as with the disabled. And private insurers didn't want to take them on, simply because they were sicker and they had more cost.

So today, after 50 years, there are about 50 million beneficiaries, and it accounts for about 20% of total US healthcare costs. Now, how Medicare works, is it covers about half the cost of its beneficiaries and the rest is either out of pocket by the patient themselves or paid for through a supplemental insurance program, which is very common among seniors. Now, there are four parts to Medicare: A, B, C, D. A pays for hospital and hospice, tends to have lots of costs. B, medical insurance, and this basically pays for the clinic visits and the tests, as well as for all the services performed. Part B is general medical insurance. It pays for clinic visits and tests and services performed on an outpatient basis.

Part C is what's called Medicare Advantage Plans and this was started in the 1980s where private insurance companies are paid by Medicare to administer the program. And this includes about one-third of those who are on Medicare. This has been a little controversial simply because it costs more to pay private insurers to provide the benefits and so there is this ongoing question of, "Does it save money in the long term?" or, "Is there better quality of care received for these people?" And Part D came about in 2003 and it covers prescription drugs. Surprisingly enough, it's been one program that has saved money. It's cost less than has been expected, which is obviously unusual. One of the reasons is because there are so many plans and different options that it seems like seniors sometimes have difficulty being able to choose a program that works best for them.

Now, Medicare has been controversial from the beginning, mainly among politicians, as well as physicians and hospitals. However, it's long enjoyed significant public support. Physicians initially fought it, especially the American Medical Association because they were worried that Medicare would use its market power to lower cost and reimbursement. However, a compromise was reached and what happened is that Medicare reimbursed physicians and hospitals for what was billed. The doctors set their own prices and that's what Medicare paid. So as you can imagine, cost increased, the number of for-profit hospitals popped up because they now had a guaranteed profit base.

This also contributed to price differences everywhere, among different specialties, different types of clinic environments and geographic regions. And this is something that actually continues today. Private insurance was doing this at the same time and so, as you can imagine, cost increased dramatically. So in the early 1980s, there were some efforts to try to decrease the cost. There was what was called "diagnosis-related payments" or DRGs, where payments for a given hospitalization for a given diagnosis were given. So, for example, if a patient had heart failure and they were admitted to the hospital, that meant that the hospital and the physician received a blanket payment no matter what services were given, no matter what tests were run, no matter how long the individual was in the hospital.

The next step came in the late '80s, which is what is called "relative value scale." Now, according to the economist Huey Reinhart, this would better be called a "relative cost scale" because it doesn't actually measure value. But what happens is it prioritizes and sets specific prices for certain procedures and services. And so the prices are provided by what's called the Relative Value Update Committee, or called the RUC. And this has also been very controversial. They have been criticized because it's completely made up of physicians who decide how much they're going to get paid. Not only that, but it's mainly filled with surgical specialists and so procedures and surgeries receive higher reimbursement than other areas of medicine.

All of these things have contributed to our current model of payment in the United States called "fee for service," which is basically where physicians and hospitals get paid for what they do. Doesn't matter what type of quality or value they provide. And this, again, has contributed to a significant increase in cost.

So, what is Medicare doing now to change some of this? A couple of things that have come about in recent years that are increasing are what are called "bundle payments," as well as value-based payments. So bundle payments are similar to the DRGs except it's a blanket payment for what's called an "episode of care." So, for example, if you are receiving a knee replacement, it pays for the surgery, the hospitalization, your stay in rehab, your physical therapy afterward. And so it's not just the hospitalization, but for all the care that is required for that specific episode.

Also, the value-based payments. So by the end of 2018, 50% of all Medicare payments are going to be in a number of different value-based models and so they're going to look at the value of care provided and the value that it provides to the patients and to the overall system. Multiple private insurers are also moving in this direction.

Now, one of the big questions for Medicare is, "Is it sustainable going forward? "Are we going to be able to pay for this?" It's always been based on younger workers being able to contribute so as to pay for the current beneficiaries, but with the baby-boomer generation, that is becoming more difficult. There are multiple estimates for how long we'll be able to afford Medicare. The current biggest estimate is that by the year 2030, we may not be able to pay for it anymore. However, health care costs grow slower under Medicare than they do under private insurance. And the estimates for value-based care would prolong its ability to cover beneficiaries. So these things are the positive aspects that are moving Medicare to the right direction.

So while Medicare has been somewhat controversial throughout its 50 years, it has actually shown a history of innovation and adaptation. Time will tell if it continues to act as a leader in health care.

Announcer: Be a part of the conversation that transforms health care. Leave a comment and tell us what you're thinking. The Health Care Insider is a production of TheScopeRadio.com, University of Utah Health Sciences radio.

Sign Up for Weekly Health Updates

Weekly emails of the latest news from The Scope Radio.

For Patients