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Anyone who has ever received an “Explanation of Benefits” statement has likely been struck by the complexity of medical billing. Even relatively simple consultations can yield a list of separate charges for physician work, facility costs, and diagnostic tests. For hospitalization, many additional payments (for anesthesiology, radiology, drugs, rehabilitation, and so on) may accompany the direct costs. Yet, all are often bound together as parts of the same course of treatment.
Congress has struggled for years to constrain the ever-rising cost of Medicare and to remedy the incentive for providers to deliver inflated volumes of low-value services – most recently by enacting the 2015 Medicare and CHIP Reauthorization Act (MACRA). The law seeks to get doctors to reduce costs of treatment, but most have resisted.
As an alternative, the law seeks to improve the value of care delivered by grading physicians on a vast array of clinical process metrics, but the federal agency tasked with overseeing this scoring system has declared it to be unworkable and called for its repeal.
Fortunately, the objectives of the law can be achieved through Medicare Advantage – an insurance plan embraced by a third of Medicare beneficiaries. Medicare Advantage protects patients and taxpayers from high medical costs, while encouraging innovation and reducing micromanagement.
Medicare costs have risen steadily from $8 billion in 1970, the program’s inception, to $679 billion in 2017. Since the 1980s, Congress has gradually established fees for hospital and physician services, slowing the growth of prices for each. But this cap on fees has encouraged providers to inflate the number of visits and services for which they can still claim separate reimbursement.
Congress sought to address rising costs by automatically reducing Medicare physician fees when aggregate national medical spending exceeded a “Sustainable Growth Rate.” But, fees were reduced both for low-spending and high-spending clinicians, the cap repeatedly threatened to cause physicians from low-tech medical specialties (such as primary care) to stop accepting Medicare patients. The cap did not succeed in checking the proliferation of auxiliary services responsible for Medicare’s rising costs.
MACRA was enacted with broad bipartisan support to remedy this problem. The law establishes Alternative Payment Models, which reimburse physicians for delivering a full course of treatment, rather than for each service they employ. This is intended to reward clinicians for curing patients, and to discourage them from padding the bills.
But, as a newly-released Manhattan Institute Issue Brief demonstrates, the reality of the law has fallen well short of its promise. In 2017, only 7 percent of clinicians chose to receive payment through Alternative Payment Models, usually because this enabled them to claim more money, rather than less. Most physicians do not want to accept a fixed amount for a full course of treatment, since this requires them to bear the risk of treating high-cost patients. Instead, they have sought to keep receiving reimbursement through traditional fee-for-service plans.
Yet, the status quo is not an option. To ensure that doctors would be paid according to aggregate patient costs and outcomes, the law requires clinicians continuing to claim fee-for-service reimbursement to comply with a regulatory protocol known as the Merit-based Incentive Payment System. This adjusts the reimbursement rates of physicians according to their performance relative to peers on a vast number of metrics loosely associated with cost, quality, computerization, and miscellaneous other factors, such as engagement with Medicare’s administrative initiatives.
MedPAC, the agency established by Congress to advise on Medicare payment policy, has declared the Merit-based Incentive Payment System unworkable and called for it to be repealed. The agency has further argued that, by imposing an enormous array of clinical process metrics, which tend to be poorly-correlated with medical outcomes and skewed by variation in patient characteristics, the scoring system is likely to reward statistical noise and the chasing of arbitrary targets rather than high-value care. The program will impose significant administrative costs on physician practices, according to MedPAC, while making it “extremely unlikely that clinicians will understand their score or what they need to do to improve it.”
In sum, physicians lack the interest or ability to engage in meaningful Alternative Payment Models, while the Merit-based Incentive Payment System seems likely to drown them in paperwork and arbitrary bureaucratic interference.
Thankfully, there is a better alternative – Medicare Advantage, which already protects taxpayers and patients from providers claiming reimbursement for inflated volumes of low-value care without government micromanagement. Medicare Advantage provides a single payment for its beneficiaries to receive healthcare coverage from their choice of private insurers. Its plans must bear any costs incurred treating patients, regardless of whether they operate with tight managed-care networks or as fee-for-service benefits without networks. All have an incentive to deliver the best quality of care for the lowest cost.
Policymakers should ensure that clinicians receive full credit associated with participation in Alternative Payment Models for treating beneficiaries enrolled in any Medicare Advantage plan, regardless of its internal payment arrangements. Rather than trying to micromanage providers into delivering better value at lower cost, policymakers should support a shift towards Medicare Advantage – coupling freedom with the responsibility needed to deliver innovative high-value care.
Chris Pope is a senior fellow at the Manhattan Institute.
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