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Medicare

Medicare Bill

I was disappointed by Congress’s vote to override the President’s veto of the Medicare bill. Congress has shown an unwillingness to change the program’s path and take on the important task of entitlement reform. I wrote more about this in the following op-ed, which ran in The Washington Times:

Yesterday, the president vetoed a Medicare bill that columnist Paul Krugman calls "enormously encouraging for advocates of universal health care." The battle lines could not be clearer. Any member of Congress who believes in the free market or who takes seriously the need for entitlement reform should vote to sustain the president's veto.

The primary objective of the bill is to prevent a scheduled 10.6 percent reduction in physician payments under Medicare. No one objects to fixing this problem. We support fully reimbursing physicians at pre-reduction levels and fixing the fee schedule formula. Doing so is sensible and unobjectionable — we only wish that it didn't have to be done year in and year out.

What is not sensible or unobjectionable is the rest of the bill, which hurts both taxpayers and Medicare beneficiaries. Driven by election-year politics and a strong ideological preference for government-run health care, Democrats in Congress have loaded this bill with provisions that undermine consumer choice and, worse, pave the way to still more government control of Americans' personal health-care decisions.

First, the bill undermines the very successful Medicare Part D prescription-drug benefit. Part D works when seniors have plenty of choices so that drug plans and companies must compete for their business. Over 85 percent of Part D enrollees say they are pleased with their plans. Average monthly premiums have come in below expectations for three years running, and overall costs have been $150 billion less than originally estimated.

But the Democrats' bill would require the secretary of Health and Human Services to force Part D drug plans to cover all drugs within certain "protected classes" of drugs — for example, all statins used to control cholesterol. This would mean that drug plans could no longer use the threat of exclusion from the formulary to negotiate the lowest possible price for drugs like Lipitor and Zocor. The provision is a windfall for certain drug makers, but a hard pill to swallow for beneficiaries and taxpayers.

The provision would also give drug makers and other special interests a powerful incentive to lobby to have their drugs included in protected classes. Part D would become politicized, and government bureaucrats would begin deciding which drugs will be covered, instead of allowing the free and informed choices of American seniors and the competition of the free market to decide the matter.

Second, the bill lays the ax to the popular Medicare Advantage program, which gives seniors the option of receiving their care through private health plans. Medicare Advantage offers more choices and better care than government-run Medicare, often including preventive screenings that can save them money and help them avoid serious health problems later. It is especially popular with low-income beneficiaries. In fact, 49 percent of Medicare Advantage beneficiaries earn less than $20,000 per year, and many live in rural areas where doctors accepting Medicare patients are hard to come by.

The bill, however, would eliminate many of the options that make Medicare Advantage so popular and would force about 2.3 million Americans from their preferred private plans to the standard government-run Medicare, according to the Congressional Budget Office.

Third, the bill aborts a major money-saving reform for consumers and taxpayers — by effectively killing a new program for the purchase of durable medical equipment (DME). Since the 1980s, Medicare has been paying for DME according to a government-fixed fee schedule. The reform opens Medicare purchases up to competitive bidding. This program is already underway in 10 areas, and it's already saving Medicare and its beneficiaries 26 percent on average. Annual savings are estimated at $1 billion when fully implemented.

I can't explain why some members of Congress think that is a bad deal, except that some seem to believe it's always better to have government set a price, however high, than for the market to decide the matter. The bill would kill the contracts Medicare has already signed with DME suppliers. Adding insult to injury, it would also require my department to spend Medicare Trust Fund money to pay for any damages resulting from the cancellation of those contracts.

When Congress votes again this week on the deeply flawed bill, what is at stake is far more than whether the president's veto will be upheld. What is at stake is whether our country lives under a system focused on one-size-fits-all coverage and price-fixing, or whether it embraces free-market incentives, competitive bidding, and consumer choice.

If we want a health-care system that promotes value — that promotes the highest quality care at the lowest possible prices — Congress simply must do better.

Medicare Blog 7: Committing to the Course and Paddling Hard -Part 2

This will be my last post in the blog series on my comments to the Medicare Trustee's Meeting, held on March 26, 2008. I have used the metaphor of canoeing whitewater rapids to explain the disaster that lies ahead on our current course and how safety depends on repositioning the boat. Yesterday, I explained how important it is to make "value of care" rather than "volume of care" the most rewarded virtue in health care. Today, I will explain how Medicare Parts A and B can be changed to allow competition to drive change and how change can avoid an intergenerational struggle.

Make Medicare Parts A and B, more like Medicare Part D.

In addition to changing the incentives from volume-rewarding to value-rewarding, the Medicare Part D Prescription Drug Program provides a good example of how better transparency and competition can drive change. It has not only ensured that seniors get the drugs they need, it has also demonstrated that seniors can use an organized marketplace to drive quality up and cost down.

Today, 90 percent of those who are eligible have drug coverage; satisfaction rates are high, and the cost is almost 40 percent below the original estimates. While there are several things that have contributed to the drop, a big one is the power of a competitive marketplace. Prices are determined through competition. The cost of the benefit is transparent to consumers and they can choose the benefits that meet their needs.

If the Medicare Part D structure were applied to Medicare Parts A and B, it would revolutionize the entire system. Imagine a physician practice investing resources to monitor and track patients with chronic conditions. They might if the program provided beneficiaries with information on the quality-of-care and their dollar savings if they used more effective providers. It would drive quality up and cost down.

Each generation needs to do its share.

My father and mother are on Medicare. They worked hard all their lives and have done well. My dad likely earns more than my 30-year-old son I told you about earlier. My son is struggling to buy a home, support his family, save for the children’s college fund, and buy his health insurance. Yet, my son has taxes drawn from each pay check to subsidize my parents’ health insurance.

Medicare can be made more efficient by rewarding value and shifting to a Part-D-like competitive model of delivery. However, what remains the most important obstacle is rebalancing the generational obligation.

This is a classic public policy decision that has to be faced. It is unreasonable to think Medicare can be sustained unless this is changed. If we start now, the change can be made over time and with genuine fairness. We can avoid an intergenerational economic struggle from which both sides suffer. Promises to today’s and future beneficiaries to provide coverage of health care must be kept, but not at the expense of future generations.

Medicare is indeed drifting toward disaster, but we know what to do. Matt Knot’s river advice is the key: “Start positioning your boat well ahead of the danger, commit to a course that averts the problem, and paddle hard.”

Every generation of Americans has overcome challenges to secure our nation’s role as the world’s economic leader. I believe solving the health-care puzzle is this generation’s challenge. It will require change.

In a global market there are three ways to approach change. You can fight it and fail; you can accept it and survive; or you can lead it and prosper.

We are the United States of America; let us lead.

Medicare Blog 6: Committing to the Course and Paddling Hard -Part 1

So far in my blog series, I have talked about the serious imperative our nation has to change the course of Medicare.

I also discussed several parts of a political construct that would allow political action. Now I would like to frame up, at a high level, what a solution should look like from my perspective.

A Medicare System that would be solvent through the 21st Century would have three characteristics. First, value-of-care would replace volume-of-care as Medicare’s best-rewarded virtue. Second, Medicare parts A and B would operate like Part D. Third, each generation would carry its share of the load.

In Medicare, our most expensive patients are those with multiple chronic diseases. The combination of ailments compounds to magnify each other. The same is true with Medicare. Medicare has three chronic ailments that are defeating the system.

The first, I call Silo Syndrome: each medical action is paid for separately. That provides little opportunity or incentive for coordination among providers and it often results in bad referral decisions, sloppy hand-offs, duplications, fraud, and poor quality of care. The result is inappropriate care and unnecessary cost.

Medicare needs to use its power as the nation’s biggest payer to change this. It’s not only wasteful but it encourages unnecessary care and expensive medical mistakes.

The second category is Quality Indifference: doctors, hospitals and other medical providers are paid at the same rates for low-quality or high-quality performance. Physicians who take measures that prevent acute flare-ups of chronic conditions are paid no more than those who don’t. Skilled nursing facilities that prevent unnecessary re-hospitalizations are paid the same as those that don’t.

In fact, poor quality is often rewarded. When patients contract preventable hospital infections, costs skyrocket and in most settings, the hospital profits from it. Not only is our current system quality-indifferent, we reward poor quality!

Patients deserve to know the quality of the care they receive according to standards set by the experts. The information should be transparent, and most of all, we should reward quality.

This leads naturally to the third category of Chronic More: there are no mechanisms or incentives for controlling the volume and intensity of care. Not for the patient or the provider. The entire process rewards volume.

Doctor and hospital incomes rise as more units of service are ordered. If those units are more costly, they generate even more revenue.

It is the same for a patient. Our current payment system provides no means for a patient to know the cost and little reason to care.

These volume incentives need to be treated with strong doses of information transparency and by building incentives for high quality, efficient care directly into our payment structure. A variety of policies would force these changes, and luckily the infrastructure of quality metrics and strategies for rewarding value are available. It just takes Congressional action.

In my next entry, I will explain how changing Medicare Parts A and B to be more like Part D can drive quality up and cost down. I will also elaborate on how each generation can do its share to ensure benefits for future generations.

Medicare Blog 5: Positioning the Boat and Avoiding Disaster

Last night, I posted a brief entry about my conversation with Ted Kennedy, and today I am returning to my series on Medicare. In this series of blog posts, I am using the metaphor of navigating whitewater rapids to describe the dilemma of the Medicare problem facing our nation. I concluded my post yesterday by stating that if we are to avoid the disaster of Medicare insolvency by 2019, we needed to change our course in a way that will affect the entire health care sector.

There is a very close relationship between Medicare and the balance of the U.S. health sector. Medicare is such a powerful payer; the rest of the sector has based their billing and reimbursement mechanisms on Medicare.

I believe the key to health-care reform in our nation is Medicare reform. Successfully changing Medicare will trigger the rest of the health care sector to follow. That would be better news if changing Medicare were not so politically and bureaucratically complicated.

Since I am speaking in my capacity as a Trustee of the Social Security and Medicare Trust Funds today, it is important to acknowledge that this job is about sounding the alarm. I hope I have made clear to you just how alarmed I am and how alarmed we should all be. There is serious danger here.

It troubles me that this matter is not receiving more attention in the Presidential candidates’ discussions. The next President will have to deal with this in significant part. In fact, if they don’t deal with it, our opportunity to apply Matt Knot’s strategy of repositioning early and paddling hard is lost.

So, given the strong possibility this won’t get fixed in the next 266 days, I would like to add some general advice on the creation of a political construct for action and a general strategy to solve the problem. I want to add, these are not being presented as Administration policies or proposals. I take complete responsibility for them as a Trustee simply laying out my thoughts.

In our country we maintain special facilities called “Level Four Laboratories” for handling lethal biologic agents. It would be unreasonable to expect anyone to handle lethal bio-agents without special protection.

To members of Congress, fixing entitlements like Medicare is lethal. Persuading them to accept the inherent risks will require a system of special political protection. Without it, Congress is unlikely to ever deal directly with Medicare’s problems.

In an era where Election Day marks the beginning of the next campaign season, the degree of bipartisan statesmanship needed to solve the entitlement problem will be hard to come by. It will require what I call a partisan eclipse — a brief moment of time when political planets align to create an opportunity.

Partisan eclipses are often brought on by a crisis or national emergency. They can also happen in the vortex of a political storm. There are moments during certain election cycles when both parties feel mutually at risk of being the minority party.

During the final weeks of the 2006 election for example, it was not clear whether either party would win control of both Houses of Congress. Both parties were competitive but neither had the benefit of certainty. While the situation presented intense partisanship on most issues, it also represented a rare moment of opportunity for leadership.

What if leaders of both parties in Congress had met privately and acknowledged that while they could not agree on how to fix Medicare, they could agree that the approaching Medicare insolvency had to be dealt with. Both would likely be motivated by an understanding that it was in their party’s long-term interest because solving such a problem would be especially costly in political terms to the party in power at the time the dilemma matures.

I grew up in a family of six boys. My mother would often resolve disputes over the remaining portion of a dessert by requiring one brother to cut the pie and the other to choose the first piece. The equilibrium of uncertainty created an elegant self-enforcing fairness.

What if Congressional leaders used this political equilibrium of uncertainty to define a process not for themselves, but for a Congress and President to be elected years in the future? What if that legislative process they agreed on was so scrupulously fair and bi-partisan that either party would be willing to proceed even if they were not in the majority? A partisan eclipse will occur in the future and it should be used to provide political protection and a viable path forward at a future date.

The legislation resulting from the partisan eclipse must incorporate another practical principle: separate commitment-making from pain-taking. The bill should establish measurable trigger points for action. For example, if Medicare currently constitutes 3.2% of GDP, when the government actuary declares Medicare expenditures to it to have exceeded 4% of the GDP, a special decision-making process would be triggered.

The special process could resemble the one Congress has used successfully for military base closure. A special bipartisan committee was established to assemble a proposal. The proposed plan is submitted to the President for review. Within a time certain, the President is required to approve or disapprove the entire plan. Once the President approved a plan, it was submitted to Congress, where they could not amend the proposal, but were forced to vote the proposal up or down within a specific time frame. It worked.

It would be critical that the law enabling this special process also include one other provision. If either the Congress or the President fails to act, a series of default provisions must be triggered which solve the problem. Without A default trigger, Congress will not act. Senators Judd Gregg (R-NH) and Kent Conrad (D-SD) have offered bi-partisan legislation creating a special legislative process.

Finally, there is a group of budget estimating tools referred to as scoring conventions that are used universally across the federal government. Many of the tools Congress will need to reform Medicare will involve significant behavioral changes and require investments that the current scoring conventions would count solely as expenditures. In an age when the power of investment and productivity are the keys to success; the federal scoring conventions overvalue the status quo while undervaluing the investments that could transform it. Many have called for these to be modernized. I add my voice to that chorus.

We are beginning to understand how to reposition Medicare to avoid the dangerous rapids of insolvency, but we must commit to the course and paddle hard if we are to achieve a Medicare System that can be sustained through the 21st Century. Tomorrow, I will conclude this blog series by outlining the characteristics of a system that can be supported through future generations.

Medicare Blog 4: Learning from the Experience of Others

This week, my blogs are focused on Medicare and the serious crisis we face in coming years. The thoughts in this series will be submitted as part of the minutes of the Medicare Trustee's Meeting. In my last post, I outlined the current course for Medicare as it is drifting toward disaster.

Would it be a stretch to say 20 years hence, we would likely have accumulated a substantially larger national debt than we have now; and that a significant portion of that debt would be in the hands of foreign capital sources? Again, that’s our current course.

What will the impact be of continued trade deficits, and new global competitors who spend a fraction of what we do on health care, yet produce similar or better big picture health results?

We factor continued growth into our scenario like it is certainty. Without continued investment from private and public sources, our prosperity would be taken away.

Other nations, of course, have scouted out the river. I was in Singapore in April 2008. Their health care system consumes four percent of their gross domestic product. Rather than a Medicare-like government system, they require citizens to save. Incidentally, the Singaporean life expectancy is slightly longer than it is in the United States.

I would simply ask this question. If you were considering between an investment in two organizations and one spent four percent on health care with no future liability and the other spent 16 percent and had trillions of dollars of unfunded obligations, which one would you be most interested in?

In the late 1990s, I was Governor of Utah, and went to Argentina to develop trade relationships. I met various Ministers of the Argentine Government who, at the time, were proposing some aggressive and controversial changes. Among these was an attempt to transition their country away from a constitutionally protected pension system, their version of entitlements.

I remember thinking, “These are the most courageous political leaders I’ve ever met.” I soon found it was not just courage. They were compelled.

At the beginning of the 20th Century, Argentina was one of the wealthiest countries in the world — wealthier even than the United States. Over the next 50 years, successive governments constructed, and then expanded an ever-generous system of social benefits, nationalized industries, and created a vast and bloated public administration. Yet protectionist policies and a failure to invest in innovation in agriculture and other key industries meant the world economy began to change while Argentina’s didn’t. Its productivity suffered. But the country kept on spending, content and confident it was better-off than its neighbors.

As it turns out, Argentina had been operating for many years on money borrowed from the financial markets and organizations like the World Bank and the International Monetary Fund. By the 1990’s, the mortgage outstripped the country’s ability to pay. Creditors told Argentina, “no more, unless you fix your entitlements.”

Frankly, Argentina had started down the path of reform late, and once the government started, the political pain was too much—the nation could not sustain it. The government developed a solid monetary policy, but could not change its fiscal or spending practices.

A few years later, Argentina was in political turmoil with a rapid succession of governments, a currency in free-fall, and a rapid spike in unemployment. The country teetered on the verge of civil unrest. Why? Because Argentines had put off hard choices for so long that they were forced to make change too quickly, and they simply didn’t have the political strength to do it.

It seems inconceivable that the United States of America, the strongest economic power in human history, the land of the free and the home of the brave, could ever be in a situation like the one Argentina faced a decade ago. But, is it?

Let’s think on a horizon of 20 years.

Is it hard to conceive of a severe productivity dip in the United States as labor markets become more sophisticated in nations like China, Vietnam, India, and Brazil? They are increasingly competing not only with our manufacturing sectors, but also with our more dynamic knowledge sectors.

Is it really difficult to imagine world credit markets saying to the United States of America—as the world did to Argentina: “Given your lack of action in dealing with your deficit and the entitlements causing the problem, we are beginning to lack confidence in you.”

When we talk about the metaphoric torrent we are navigating, it is much more than just Medicare, of course. The massive burden we are feeling is created by a full 16 percent of our Gross Domestic Product rushing through a single sector of the economy.

We need changes that can affect this entire sector we call health care. Tomorrow, I will share what kind of changes might be possible to reposition Medicare and avoid the whirlpool effect that awaits us.

Medicare Blog 3: Scouting the Rapids - Part 2

I have started a series of blogs on the Medicare problem facing our country, using the metaphor of navigating whitewater rapids. Last week, I began "scouting the river" by discussing the current course and the generational divide, between workers and their parents and grandparents, that awaits us in the future.

I have a son who is 30. He and his wife are just beginning their household. They have one young daughter and another baby on the way. They are in many ways becoming a typical American household. This is a wonderful thing to see as a parent, but I worry about our national economic future; I worry about our growing generational divide.

Let’s consider what their generation’s economic prospects look like over the next two decades. The typical household is going to see its health-care spending basically double in the next twenty years—from 23 percent to 41 percent of total compensation. At the same time, we are going to nearly double the share of federal spending that goes to pay for Medicare, from 13 percent to more than 23 percent. We are going to do this while the number of working people per Medicare beneficiary is sliced nearly in half, from four to two-and-a-half.

That is clearly not a rosy scenario for growing young households like my son’s. These working families will argue, “My generation did not agree to this arrangement. This is happening at a time when my own health care is unaffordable. I have children who need food and clothes. I’m struggling to make ends meet. Seniors need to either have lower benefits or pay more of the cost themselves.”

In fact, they will insist, “We are the ones with the heavy burden. Government needs to help us more so we can continue to work and enjoy the benefits our parents did.”

But their parents and grandparents will have legitimate worries too. They will argue, “I did my time. I paid into the system. I have a legal entitlement for health care, and the government has a moral obligation to provide it. I know the demographics have changed, but that isn’t my problem.”

In fact, seniors will argue, “Health-care costs are so high, my Medicare premiums, co-pays and deductibles are eating up almost half of my Social Security check. You need to help us more, not less.”

The problem is: both will be right. The problems we see today with Medicare have the power to pit these parents and children against each other in an intergenerational economic struggle where each side will suffer.

Frighteningly, we will see that competition for resources play out much like another economic tension we are already experiencing. Our choices about social investment—in infrastructure, education, national defense—are being reduced as mandatory spending crowds out discretionary spending. In the last two decades, we’ve gone from half of our national spending being discretionary to only 38 percent. In four years, it is projected to be down to less than one-third.

We are seeing mandatory health-care expenses crowd out other government spending—just as we are going to see health-care spending crowd out non-health-care spending in American households.

By now the current has grown so much that we are being sucked down into the hydraulic whirlpool again and again, with little surface time for air. The debris is piling up, and we may not have a way out.

We may not have a river guide like Matt Knot to navigate Medicare, but we can anticipate what is forthcoming and make efforts to change our course. In my next entry, I will share what I have learned from other nations that have scouted the river.

Medicare Blog 2: Scouting the Rapids - Part1

Yesterday, I started a series of blogs on Medicare. The thoughts in this series I will be submitting as part of the minutes to the annual Medicare Trustee's Meeting, which was held March 26th. In my last entry, I introduced the metaphor of navigating the dangers of whitewater canoeing and addressing the tenuous future of Medicare.

Disaster is not inevitable. If we act now, we can change the outcome. In health care, the core problem is that costs are rising significantly faster than costs in the economy as a whole.

Health care has done exactly that my entire life. When I was born, it was four percent of the economy. When my son was born, it had doubled to eight percent. When my first Grandson was born two years ago, it had doubled again to 16 percent.

Every piece of evidence shows the trend continuing. The problem is beyond the fact that medical cost growth is faster than that of any other part of the economy. Our problem is also demographic. Our population is aging and as we age, medical expenses grow.

Today, 12 percent of the population is 65 or older. By 2030, nearly 20 percent of us will be seniors. There is nothing we can do to change that.

We have made a decision in our society that the cost of seniors’ health care will be borne primarily by younger people who are still working. When that decision was made, it was assumed there would always be a fresh crop of earners to support the health care of their parents. That is not proving to be true. The demographic reality is there are diminishing numbers of workers per senior. This ratio will decline rapidly once the “baby boom” generation reaches Medicare eligibility age starting in 2011.

Higher and higher costs are being born by fewer and fewer people. Sooner or later, this formula implodes.

The real urgency of this problem starts between now and 2019 when the Medicare Hospital Insurance Trust Fund is projected to become insolvent. There is no backup plan in the law to ensure that hospitals continue to be paid when the Trust Fund is depleted.

Congress will not be able to sit idly by and allow the Medicare program to become insolvent—they will be forced to take action. They will have the old familiar choices of raising taxes, cutting benefits to seniors, or imposing reduced payment rates on health-care providers. Some of these choices represent the ugliest of political dilemmas, pitting a generation of workers against their parents and grandparents.

I will pick up here tomorrow and share the likely perspectives of the generational divide as I continue to scout the river on our current course for Medicare.

Medicare Blog 1: Drifting Toward Disaster

I want to begin a series of blog entries about the promise our nation has made to provide health care to our seniors. I am going to be critical of our current course. I don’t want to see us fail. To keep this commitment requires change.

Time is running out. Medicare is drifting toward disaster.

I am a trustee of the Medicare Trust Fund. On March 26, 2008, I attended what will likely be my last annual spring meeting of the trustees. Our primary business was to issue a report to the people on the condition of the Social Security and Medicare Trust Funds. The report is based on work by government actuaries.

In the Treasury conference room we use, there is a wall clock that has been there since 1873. At one time, the clock was actually hooked to the Western Union telegraph line, which calibrated the exact time on a regular basis.

This year, Rick Foster, the chief Medicare actuary, sat in perfect alignment between me and the clock. As Rick gave his report that the Medicare Hospital Insurance Trust Fund was projected to be insolvent in 2019, I could see time passing with each swing of the clock’s pendulum: tic, toc, tic, toc.

I’m not sure if that caused what I am going to describe to you, but as I listened I felt the weight of this responsibility pressing on me. When the report was finished, the final page of the report was passed around for our signatures.

It felt like the moment required more than just signing my name and moving on to the next appointment. This is serious business involving trillions of dollars and the lives of hundreds of millions of people.

As much as anything, the weight was a blend of responsibility and selfish panic. I realized that when the actuaries’ forecast matures—and it will—somebody is going to say to me, “Weren’t you a Trustee of the system for four years? What did you do to address the problem?” Somehow, the response “I signed the report each year,” just doesn’t feel adequate. Though the truth is, that’s about all the authority the Trustees are given.

Just before the vote to accept the report, I asked the Secretary of the Treasury, Hank Paulson, the managing Trustee, if he would keep the record of the meeting open because there were some things I felt a need to say. He agreed.

I have composed my addition to the minutes. Beginning with the paragraphs below, the contents of my blogs over the next several days will be submitted as part of the minutes for the March 26th meeting.

I have constructed a metaphor in my mind that is useful in describing our dilemma with the Medicare entitlement program, which I will share with you today.

Whitewater canoeing at the championship level is high adventure and comes with serious dangers. My friend, Matt Knot, is an instructor and guide on the Gauley River in West Virginia.

There are treacherous places in whitewater country. Canoers call them hydraulics. They are given descriptive names like “Hungry Mother” or “Lunch Counter” that dramatically communicate danger.

Hydraulics form when water pours over an obstacle such as a rock. Unwary canoeists get sucked into them and can be trapped in one place by the force of the current. They are instantly overwhelmed and dragged under by the whirlpool effect created.

Matt says when you go into a hydraulic, everything gets very dark as you are pulled deeper. Water circulates the boat back to the surface and then drags it down again, over and over. Survival depends on keeping your wits, waiting—and hoping—to be flushed out the bottom.

Some thrill-seeking river runners find the experience of navigating a hydraulic exhilarating. However, the worst hydraulics are known as “keepers.” Boaters become victims when they get sucked down into a hydraulic, and instead of being tossed about and flushed out from the bottom, they get mired in a jungle of debris.

This is an important point to remember: it is not just the hydraulic that brings fatal consequences; it is the combination of the hydraulic and debris beneath the surface.

Matt teaches students to anticipate. He calls it “scouting the river.” Scouting is more than looking ahead. It’s listening for the roar and sensing when the current is pulling you toward a dangerous place.

Here’s the second important point. Safety comes only in foresight and avoidance. Matt says, “You have to start positioning your canoe well ahead of the danger, commit to a course that avoids the dangerous area, and then paddle hard.”

I’m sure it is obvious to you that the river in my metaphor is the growing obligation our nation has to pay for the health care of our senior and disabled citizens. Medicare’s liabilities have grown from a mere trickle 40 years ago into what Matt Knot would call “Class 5 rapids.” As new streamlets merge, it is becoming a raging torrent—more demanding and dangerous with each successive day.

The Medicare Trustees Report does a good job of “scouting the rapids.” But a nation that does not act on the warnings the report contains is no different than a canoeist ignoring evidence of hydraulics in the river ahead.

Over the next several days, I want to draw on this metaphor to describe the dangerous financial realities to which our current course leads. I hope you will take the time to read the entire series.

Value-Driven Health Care Interoperability

I thought you might be interested in a brief report on our progress related to electronic health records (EHR). They are a critical element in making the health care system become value-based.

Just having electronic health records isn’t enough. The systems have to be interoperable. Interoperability means that different computer systems and devices can exchange information.

Three years ago, there were 200 vendors selling electronic health record systems but there was no assurance that the systems would ever be able to share privacy protected data in interoperable formats. Since then, we have made remarkable progress.

An EHR standards process is now in place, and we are marching steadily towards interoperability. We created the CCHIT process to certify products using the national standards and it is functioning well. More than 75% of the products being sold today carry the certification.

In addition, a National Health Information Network will start testing data exchange by the end of the year and go into production with real data transmission the year after.

The number of hospitals and larger physician practices employing electronic medical records has grown. However, we continue to have a serious challenge with small- to medium-sized practices where fewer than 10 percent of these practices currently have health IT systems.

The primary reasons for low adoption rates among small practices are predictable: economics and the burden of change.

We are experimenting with different methods of changing the macro economics of reimbursement so that small practice doctors share the financial benefits.

We are also beginning a pilot program that provides Medicare beneficiaries with personal health records.

Finally, HHS is signaling that in the near future, payers like Medicare cannot reimburse doctors at the highest level unless they can interact at the highest level of efficiency.

A good example of this is e-prescribing. The software exists in nearly all pharmacies and in many doctors’ offices. It saves money and lives. It’s time to fully implement e-prescribing.

I’m hoping Congress will give HHS the ability to establish e-prescribing requirements as part of Medicare legislation in June of this year.

Learn more about Value-Driven Health Care.

Single Price Health Care

I often talk about the need to make “value of care” rather than “volume of care” the best rewarded virtue in health care. I want to elaborate on what I mean in using the word value.

A couple of days ago, I listened to a consumer report on CNN evaluating hybrid cars. The reporter was discussing an independent evaluation someone had conducted to determine the relative merits of several models. They had created criteria to hold each car against as a means of measurement. Then the price of each one was compared. The car that scored the best quality at the lowest cost was determined to be the best buy, or best value.

Given the proper information, consumers should be able to make similar comparisons on health care. Until recently, little information has been available for use by consumers. That is changing. Great effort is now being made to evaluate the quality of services a patient gets in different settings.

It takes both quality and price information to determine value. The problem in determining price is that the billing system is simply insane.

I’ve tried to imagine using the way we bill health care in any other part of the economy. To continue the automobile analogy, let’s just speculate on what would happen if we transformed the automobile industry to adopt the health care pricing structure?

The dealer would say to a customer, “We don’t really know the price and we haven’t got a way for you to compare this car for quality but we know you need it, so come in and we'll give you the car.”

Then about three weeks later, the customer would start getting bills. There would be a bill from the people who made the car’s body. Another bill would arrive from the transmission people. Everyday more bills would arrive from seat makers, the paint people, and the folks making the sound system.

Then when the bill from the dealer comes, there would be a charge for time spent in the show room, a separate charge for the salesman’s office with a $27.90 cent item for the coffee you drank while there.

Gratefully, they don’t sell cars that way. All those costs are packaged and managed by a car company. Consumers get one price they can understand.

Some of my friends in the practice of Medicine will find my analogy troubling, pointing out that health care and a car purchase have significant differences. Okay, the analogy isn’t perfect, but let’s not miss the point.

The way we price health care cannot be understood by a human being of average intelligence and limited patience. And I think it’s also time we began to challenge the assumption that health care is all that different from other things consumers buy.

For many common procedures and conditions, consumers should be able to ask for and receive a firm, single price, and expect providers to stand behind it. Such a system would promote coordination and accountability and allow apples–to-apples comparison.

It can be done. Last year, Medicare paid for 255,000 knee operations. Incidentally, we paid for 95,000 heart bi-pass operations and 95,000 lung cancer treatments. Believe me. When you pay for 255,000 of anything, you know what medical supplies, services, procedures and facilities somebody getting a knee operation is going to use; and so do the medical providers who perform them.

I believe HHS has a responsibility to push the envelope on this. We will soon publish information on top Medicare procedures by cost and volume as part of an efficiency measurement roadmap for the department. Medicare is also developing a demonstration that would establish bundled payments for hospital-based episodes of care.

Participating hospitals would be able to competitively bid for episodes, then savings would be shared with beneficiaries who choose hospitals providing services at below the per episode rate.

This not only holds the potential to improve quality and reduce costs by encouraging physicians and hospitals to work together, but also encourages more informed consumer decision-making.

Hospital Compare

Over the past few months I have repeatedly said we need to make health care more value-driven. Of course, what I mean is that patients need information that helps them make better health care decisions. Specifically, comparative cost and quality of the care they purchase.

Friday (March 28) I unveiled a new Hospital Compare Web site. It will make it easier for consumers and their families to get accurate, practical information when they need to evaluate their local hospitals.

Take a look that it. I would appreciate getting your reaction. (Hospital Compare Web site)

The site assembles basic quality information collected from 2,500 hospitals and compares a series of quality measures, not only indicators of quality, but also price.

Look up hospitals in your area. Some of the data won’t surprise you much, other parts will. In your comments, I’d appreciate hearing if you were surprised in any way about the comparative quality of hospitals in your area.

This is a significant step forward, but my aspirations are higher in terms of the quantity, quality and accessibility of data. During the press conference announcing the release, I said if this were a video game it would resemble the first game I ever played, Pong, more than state-of-the art software like Nintendo’s Wii game. However, we’re making progress fast.

It is my expectation that hospitals all over America will be looking at how they compare and plotting strategies for improvement. People want to provide quality, but they need to know how they compare as a measure. The release of this data and its continual improvement will spur improvement.

So, tell me what you think.

Social Security Trustee Meetings

I wrote yesterday in anticipation of going to the Spring Trustee meeting of the Social Security System. I promised a little more commentary today, after the meeting.

We met in the Secretary of Treasury’s conference room. The meeting did not include the public trustees, because the appointments expired and none have been confirmed yet.

Once again, we listened to reports from the actuaries and administrators of the Social Security Trust Funds. I will link to the materials that were released.

The bottom line is that the system is not sustainable and has the potential to become an increasingly large (prosperity altering) problem for our country. The Medicare Trust Fund is broke in the first few weeks of 2019. That is almost a year sooner than last year’s forecast.

I will confess to frustration over the fact that the repeated warnings and Trustee reports seem to have no impact on Congress. I agree with so many others who have said this is the biggest long term threat to our national prosperity. I am disappointed entitlement solvency has not become a matter of discussion in the Presidential campaign.

I decided while sitting at the table that I want my strongest and clearest expressions of concern to be recorded for history. I formally asked the Chairman to leave the record of the meeting open so I can prepare a piece containing my thoughts and recommendations. It will take a couple of months to complete, but I’ll put it on my blog upon sending it to the Secretary of Treasury as part of the record of the meeting.

Aging

While serving in the President’s Cabinet, I reside in Washington D.C. area. However, I still consider Utah my home, and we gathered there over the weekend for a wedding celebration.

Before returning to D.C., my wife and I attended church at the congregation where we have attended since our late twenties. We have attended there for more than twenty five years.

As you might imagine, in the four years we have been gone, there are lots of new people. The place was bustling with new families. However, it was a chance to greet a number of people I haven’t seen for a while, including a charming collection of people who are now in their eighties and nineties whose lives are affected, nearly every day, by the programs of HHS.

One of them is Lowell, whom I met nearly 30 years ago just after he retired as a high school music teacher. He is now 94 years old and still hauls his vibraphone (electric xylophone) around in the back of his pick-up truck so he can play for audiences at senior centers and nursing homes. He told me he always asks his audience, “anybody here older than me?” There are fewer and fewer who can answer yes. Lowell still plays the piano in church and routinely jazzes the hymns with a little spontaneous riff that makes even the most somber worshipper grin.

Another favorite of mine is Lee, a retired business man who went to the office until just a few years ago. He just turned 95. He and his wife lived in our neighborhood for more than 65 years. Once he told me he paid $6,500 for his charming little cul-de-sac home. That was another era. His wife is gone now and I sense things are hard. I said, “Lee, it’s good to see you.” He smiled and said, “Well, I can’t see who you are; my eyes are about gone.” Later, he told me he has a machine that allows him to magnify the newspaper and mail so he can see it on his television. He called it “a life saver.”

There is a wonderful couple who live right across the street from us. He was a respected high school counselor and community leader until he retired. I don’t recall her career, but in post retirement they did missionary work in Mongolia and then volunteer work for many years. They are now walking the lonely and hard path of Alzheimer’s disease. She is the heroic caregiver along with a daughter. He still smiles at me, but I know our friendship is stored in a part of his brain that is no longer accessible. He relies on others to guide his steps. What great people; what a devastating disease.

It was good to see Renee and LoVinia sitting together; they often do. Both lost their husbands many years ago. Lovenia is a stylish woman and a long time teacher, similar in age to Renee. I won’t speculate on their exact age but I will confide that Renee complained to me that the Senior Games she enters each year no longer has a tennis bracket for her, and she has to play with the younger 85 year-old’s group.

Renee said, “but I still win.”

I appreciate that we live in a nation committed to see that people who struggle with the ravages and riggers of age have the health care they need. They have spent their lives contributing and now deserve to be treated in respectful and dignified ways.

As I talked with my friends, it occurred to me that when I first got to know each of them, they were in their sixties or seventies. Twenty five years passed so quickly.

During those years, things have changed for my wife and me too. Twenty five years ago our children were toddlers. Now they are adults with children of their own. In a similar amount of time, I’ll be dealing with the difficulties of age that challenge my friends and my children’s generation will be running Medicare.

What will Medicare be like then? Can my generation count on it to be there for us?

Today I will be attending a meeting of the Medicare Trust Fund. Reading the briefing papers causes me to worry. When the meeting is over, I’ll write more of my thoughts.

More on Medicare

Not long ago, a reader commented, “don’t you have more important things to do than write a blog.

I have much to do, but I enjoy writing and appreciate the comments you make. However, the person raising questions about my blog time may feel better because I haven’t posted for a while. My absence was not intentional but last week was a whirlwind. Hopefully this week will be better. I’m actually traveling for a couple of days. I’ll be in Georgia, Kansas, Utah and Nevada. Nights in hotels seem to be good for my blogging regularity.

I want to stay with a Medicare theme today. In my last posting, I mentioned a “trigger” contained in the Medicare Modernization Act of 2003 which requires Medicare Trustees to notify Congress and the President if more than 45% of the Trust Fund comes from general revenues, two years in a row. That happened last year.

The warning “triggers” provisions of law that call for the President to send Congress legislation to bring the percentage back under 45%. Last week, the President delegated that responsibility to me and I sent actual legislation to Congress, which has a duty to act within a short time.

I’m pleased the provision is there. We need to respond. While I have little optimism the Congress will act, it is important to keep the discipline of a warning voice and the expedited procedure should at least generate some debate.

The proposal is solid. I’m simply going to link you to information about it (letter transmitting legislation to speaker of the House; summary of legislation). Remember there are two problems we’re dealing with. The big one is Medicare going broke in 2019. Frankly, responding to the trigger does little about that.

The second problem is the one the trigger is focused on. The problem is we are using more and more regular tax dollars, those usually used on other parts of the budget, to pay for Medicare. So, if you worry about education, you should worry about Medicare. Because, Medicare will get its money before education does. Likewise, if you want good roads, you should worry about Medicare. If you think medical research is an important priority, you should be worried about Medicare. Health care costs paid by the federal government are eroding our capacity in other important areas.

Claims Data from Medicare

The proposal I made last week is also relevant in another way. A couple of commenters asked about a lawsuit involving the use of Medicare claims data by people outside of government.

Brian Klepper said: “On Friday the Memphis Business Journal reported you saying that we ought to have ‘a Travelocity for health care’ that would ‘give a quality grade for doctors and show how much they charge for services.’ I'm wholeheartedly with you on this. But how do you square this proposal with the fact that, though you're the nation's largest payor, you acquiesced to the AMA's interests and then refused to release physician data?

Can you please explain these discrepancies?

Michael Millenson of Highland Park, IL agreed with Brian. He said, “It's past time for HHS to be an aggressive, whole-hearted mover towards release of more information and more timely information. Meanwhile, one easy, no-cost step would be for Secretary Leavitt to use his bully pulpit to call for states to collect ‘all payer’ data. It sounds like a technical issue, but what it will do is allow valid national comparisons of quality of care, as well as enable better state efforts. A local/nation win-win.

I want to use Medicare claims data for this purpose. And I have been advocating the states provide their data for this purpose. However, I have a problem. A federal court in Florida, some years ago, prohibited HHS from publicly disclosing certain Medicare claims data. Specifically, HHS was prohibited from disclosing annual Medicare reimbursement rates for individually identifiable physicians.

A few months ago, another federal court — this time in D.C., ruled the opposite — that I must provide the data to a specific party. This leaves me sandwiched between two differing courts.

We are working to develop a solution. However, the real fix will need to be legislative.

In the Medicare trigger legislation I sent to Congress, I have included language that would allow HHS in a thoughtful, consistent way to enhance quality improvement efforts in our Chartered Value Exchanges with physician performance measurement results. This needs to happen. I think there is a potential for bipartisan action on at least this part of the legislation I sent up.

Michael and Brian, take a look at the legislation linked above and tell me what you think.

Dealing With Medicare

I suppose the compulsion I feel to get people’s attention on the plight of the Medicare Trust Fund can be attributed to my current close association with it. Medicare is part of HHS and I’m also a Trustee.

This week, I released our budget proposal for the next five years. Medicare makes up 56 percent of the $737 billion we spend. I said at a news conference our proposal should be viewed as a stark warning. Medicare, on its current course, is just 11 years from going broke.

Eleven years is going to fly by. Here’s a perspective builder. The Fourth of July last year seems like yesterday. In 20 times that time, left on autopilot, Medicare will be broke.

Systems as big and complex as Medicare don’t turn on a dime. We need to start dealing with this.

I’m certainly not the first person to warn of this. Part of the problem is that the entire country has been desensitized, numbed actually, by a repeated cycle of alarms and inaction.

Dire warnings on Medicare insolvency have become a seasonal occurrence in Washington. It is like the cherry blossoms blooming in April, part of life’s natural rhythm. People briefly take note, remember it’s that time of year and continue on their way.

The budget we announced Monday is admittedly aggressive. It is another type of warning. I wanted to make sure people could see with specificity the hard decisions policy makers, no matter their party, will face every year until we change the current course.

Medicare is a centrally planned, government regulated system of price fixing. Price fixing systems adjust by having government regulators decide the priorities. The tools we use are blunt and inexact.

Government makes a few thousand decisions that determine who gets treated, how much they get treated, and how much value it has. It is an inefficient way and it contributes substantially to the dilemma we face. We can’t fix Medicare without changing the way health care works in the United States.

What if, rather than government making a few thousand regulatory decisions that affect everybody, consumers made millions of personal decisions informed by transparent information about the cost and quality of various providers? What if doctors and hospitals were rewarded by having high-value care rather than high-volume care?

My view: quality will improve and costs will diminish. That is what happens when consumers are allowed to make decisions armed with reliable information.

The invisible hand of the marketplace is better at rooting out waste and finding optimal value than government regulators.

Electronic Medical Records and the Medicare Sustainable Growth Rate

[Note: This afternoon, I notified Congress we (the Administration) support a requirement that doctors adopt e-prescribing and electronic medical records in order to get the full Sustainable Growth Rate update (HHS statement). I've written more below about why I think this is important.]

When I was a boy, there was a Tennessee Ernie Ford ballad titled, “Sixteen Tons.” It told the story of a coal miner who bought all of life’s necessities from the company-owned store on credit. 

Apparently, the miner in the song spent more at the company store than he earned, but the company store just kept running his tab up higher and higher, making it more and more difficult for him to ever pay it back. It created a hopelessness reflected in the song.

The chorus of the song was:

"You load sixteen tons, and what do you get;
Another day older and deeper in debt.
Saint Peter don’t you call me cause I can’t go;
I owe my soul to the company store."

This week, the Congress will begin working on the Medicare Sustainable Growth Rate (SGR) or what people call the “doc fix.”  The doc fix is a ritual crisis brought on annually by a terrible system Congress put into place in 1997 to manage the amount Medicare pays doctors for various procedures.   

Here’s how it works: Each year, the Secretary of Health and Human Services is required by law to establish a target for the rate of overall spending on Medicare Part B. (Think of that as the total of all the miners’ wages)

If, collectively, doctors bill Medicare for more than the target, the Secretary of HHS is then required by law to make it up on future updates. (The mining company reduces the future wages to pay off past debts at the company store)

However, the doctors just keep billing more and more procedures to Medicare and spend far more than the target.

This has gone on now for more than 10 years and Medicare has now paid so much more than the target that the formula in the law dictates that doctors receive negative updates, cutting the amount they get paid for each procedure. This year, the SGR hole is so deep the law requires HHS to reduce the future rates we pay doctors by 10%.

So, each year Congress steps in and overrides the system by instructing Medicare not to cut the reimbursement rates.  Consequently, the amount that doctors get paid at least stays the same or is a little more.

Here’s an important point.  When Congress overrides the law, it doesn’t fix the system or pay off the deficit which is now so large it would require nearly $200 billion to pay off the backlog. 

This is a lousy system and it hasn’t reduced Medicare costs.  The total expenditures just keep going up.  Why? When rates per procedure don’t go up, doctors have simply done more procedures.

Moving toward a long term solution

Long term, the solution to this problem is to change the way we pay doctors.  At least some portion of their payment should be based on how successful they are in keeping people healthy, rather that just the volume of procedures they perform.  Sometimes that is called pay for performance or value-based health care. Whatever you call it, we cannot make progress unless doctors adopt a system of electronic medical records. Such a system depends on being able to gather quality data electronically.

Electronic medical records are widely accepted as providing significant long term efficiencies. The technology is maturing but doctors have not adopted them in sufficient numbers to create critical mass. 

Doctors want Congress, in the next couple of weeks, to once again override the Sustainable Growth Rate law.  It will cost taxpayers at least $4 billion. This year it’s a 10% reduction they will be overriding.  Next year it will be 15%.  We just dig a bigger and bigger hole. We need to begin the process of moving toward a longer-term solution.

It is the position of the Administration that any new bill overriding the SGR law should require physicians to implement health information technology that meets department standards for interoperability in order to be eligible for higher payments from Medicare. 

The benefits of utilizing interoperable health information technology for keeping electronic health records, prescribing drugs electronically and other purposes are clear.  This technology will produce a higher quality of care, while reducing medical costs and errors, which affected an estimated 1.5 million Americans last year through prescription drug errors. 

Such a requirement would accelerate adoption of this technology considerably, and help to drive improvements in health care quality as well as reductions in medical costs and errors.  I’m confident that many members of Congress are of a like mind on this issue and I look forward to discussing it with them in the next few days.   

Express Lane SCHIP

There’s a website my son showed me called howstuffworks.com. I don’t think what I want to write about today can be found there. However, my thoughts fit into that category. I want to explain how just one provision of the SCHIP bill the President vetoed would have worked and why we insist it is changed.

First, let me make a couple of points. Whoever said “the devil is in the detail,” must have been talking about legislation. This bill was written in consultation with people who knew exactly what their goal was: universal, government-run, taxpayer-financed health care for citizens and non citizens alike in the United States. Second, this bill clearly moved multiple steps toward that end.

The President and I believe every American needs health insurance, but our vision of how to accomplish it is fundamentally different than the Democrats’. We believe government should offer insurance to citizens in hardship, like poor children (Medicaid and SCHIP), and low income adults (Medicaid), like the disabled and elderly (Medicare). However, we believe government can organize the private marketplace so everybody else can choose their own plan, and choose their own doctor and hospital. We believe consumers make better decisions about their health than the government does. We think competition drives quality up and cost down.

Last week, we made clear that we want this program reauthorized and we are willing to assure there is enough money in the budget to cover poor children. What we aren’t willing to do is fund the program with $15 to $18 billion dollars more than is needed. And we don’t believe it is necessary to raise taxes to do it.

Now, back to the devil in the very clever and deliberately hidden details of the vetoed bill. The bill has a basic strategy: Flood the program with money and then build into the language of the bill methods of blowing the doors open for eligibility. In short, use the language of poor children to fill the money bucket up. Then, when taxpayers have committed money, we can expand the population of those who get the benefit to include adults, aliens, and higher income people who have private insurance now.

There are several glaring examples of how this bill was designed to do exactly that. One method used is hidden under the phrase, “express lane” enrollment. This allows states to delegate deciding if people are eligible for SCHIP to others, like schools. It then provides that if the school decides they are eligible for subsidized school lunch they can get Medicaid and SCHIP.

Here’s the really clever part of this camouflage. Schools don’t have any way to enforce eligibility by income or citizenship for subsidized school lunch, let alone SCHIP. If there is any question, they put children into the program. Talk to anybody knowledgeable about school lunch programs and they will tell you, significant numbers of children are deemed eligible for these programs that aren’t.

The school doesn’t even have to have the signature of the family, nor does the family really have to verify income or citizenship status or other important information such as whether the family already has health insurance.

What’s the penalty if a state lets lots of people who aren’t eligible into the program? Virtually none; again, let me explain how the bill would work.

Assume the federal government wanted to check up on a state to assure they are keeping the rules. It is not possible to check every file, so the logical thing would be to pull a scientifically drawn sample of all their enrollees, survey those cases for compliance, drawing conclusions based on the survey for the entire program. If say, a thousand cases are checked, statistically you can predict the compliance of the entire group.

Let’s say, the sample found 200 of the 1000 were falsely allowed in the program, or 20% of the entire program. The law would simply allow the federal government to ask for its money back on the 200 specific cases. But the bill actually prohibits the federal government to make the states accountable for the tens of thousands of cases the sample represents.

In other words, the bill not only makes it easy for ineligible people to get in the program; it also takes away any meaningful penalties for states that put them there. In fact, it creates massive financial incentives for states to do so.

We are all for signing up kids and even signing up kids fast. States can use presumptive eligibility but still maintain the integrity of the program by running a full eligibility determination. States can send eligibility workers with laptops into the schools to take applications, but we should not ask taxpayers to foot the bill for people who are not eligible.

There are many other reasons the President vetoed this bill. I’ll write more later.