Former Medicare official reflects on intersection between health care and politics

Ocular Surgery News recently spoke with Thomas A. Gustafson, PhD, who earlier this year entered the private sector after 30 years as a high-level official in the Department of Health and Human Services.

Alan E. Reider

After a 31-year career in the federal government, most recently serving as the deputy director for the Centers for Medicare and Medicaid Service’s Center for Medicare Management, where he was the principal federal official responsible for all Medicare fee-for-service reimbursement, Thomas A. Gustafson, PhD, has moved to the private sector as a senior health policy advisor to the firm of Arent Fox LLP in Washington, D.C.

Since April, Dr. Gustafson has been working with a broad variety of health care clients, from physician groups to the medical device and pharmaceutical companies, guiding them through the complexity of the reimbursement system and advising them how to prepare and plan for changes in the future. Dr. Gustafson’s interview with OSN was his first since arriving in his new position.

Alan E. Reider, JD
OSN Regulator/Legislative Section Editor

Ocular Surgery News: You have spent 30 years in the public sector and a short time so far in the private sector. How do you feel you can bring your public sector experience to bear in this new environment?

Thomas A. Gustafson, PhD: I have an in-depth knowledge of what Medicare and other government programs do, how they operate, and what leads them to make reforms. While I worked in the executive branch, I also had extensive experience with Congress. I have testified before congressional committees, briefed witnesses, written testimony and worked on bills. I understand how the legislative part of the process works.

And it is no mystery to the readers of your publication, who are important drivers of the health care sector, that government programs such as Medicare pay for a large fraction of the cataract surgery in the United States.

Medicare plays a significant role in almost every area of health care. Yet Medicare is evolving in ways that many people with clinical or business backgrounds have not had the opportunity to grasp. So I bring that perspective.

I have at times in my career had to be a bit of an amateur lawyer and a bit of an amateur medical technology-type person. In the course of the work I was doing, you have to be able to understand clinical issues, not to be able to lay hands on a patient, but to understand how clinical processes evolve, how technology emerges and how we pay for it.

I have come to the private sector knowing how to put all the issues together. When one works with federal government policy, you need to be integrative. You are not viewing it just from a budget standpoint. You are not viewing it just as a lawyer. You are not viewing it just from a clinical perspective. The policy people are the ones who, to some extent, bring it all together.

Landmark moments

OSN: What were some of the landmark moments in the evolution of the Medicare system that you think brought us to where we are today?

Thomas A. Gustafson

Dr. Gustafson: The most important change during my tenure was the introduction of the outpatient perspective payment system. That was, at the time, among the largest and most complicated payment reforms the agency had undertaken. It replaced a number of different payment systems affecting hospital outpatient departments with a single, consolidated system.

At that time, we had about 15 years experience with an inpatient perspective payment system and about 8 years of experience with a physician fee schedule. Various other parts of the program had some form of a perspective payment system, but the outpatient department did not. Reforming outpatient payment turned out to be a whole lot more complex than anybody anticipated.

Implementation was under intense time pressure, but the reform led to some important changes in the size of beneficiary co-payments, which was an important political motivator of the entire process. It was a technically daunting task to bring all of those elements together.

OSN: When did that process get under way?

Dr. Gustafson: The final rule was issued in April 2000, and we started using it to pay hospitals in August 2000.

Other similar projects included the introduction of the long-term hospital perspective payment system and significant reform of the ambulatory surgical center payment system (see the Sept. 15 issue of Ocular Surgery News for related articles).

A major challenge in managing payment systems, the sort I have been involved with heavily over the last 6 or 8 years, is that you have to create payment rates for everything Medicare pays for. So, for instance, the physician fee schedule includes more than 7,000 different codes. Each has a price. That price is revised each year. It is revised in a fairly formulaic way for inflation and other factors in most years, but in some cases you have to go in and do a much more systematic look at the relative prices.

The challenge is to present prices that are reasonably accurate and that reflect the underlying economic reality as best you can in the circumstances. It is an intricate task and never ending. If you get something wrong, all of a sudden some industry gets slammed or some form of therapy may dry up because hospitals will stop providing it to Medicare beneficiaries. So the stakes can be high.

OSN: How involved were you in revising specific codes?

Dr. Gustafson: I was involved extensively in the creation of all the regulations, but I would not typically be intimately involved in specific coding decisions. I oversaw the coding process as a whole, and only in some instances where there was a need would I get involved more specifically.

For instance, I was heavily involved in the creation of the agency’s policy for presbyopia-correcting IOLs. In fact, we had no such term until I wrote it in a memo one day and everyone started using it.

A little later, I was involved in discussions about Alcon’s toric IOL. Those would be examples where specific difficult cases might come to light that needed some higher level intervention.

Largely, you try to rely on the technical experts to the greatest extent possible, and you don’t want to interfere with clinical wisdom any more than you have to. But on the other hand, so many issues are not strictly clinical.

For example, talking about ears for a moment instead of eyes, I got directly involved in the question of whether Medicare should pay for a particular technology. Cochlear implants have been paid for by the Medicare program for several decades. Medicare doesn’t pay for many of them because mostly they are used for younger patients, addressing some problem that manifests at an early age. Medicare probably pays for a couple of hundred of cases a year.

On the other hand, Medicare does not pay for hearing aids. Air conducting hearing aids and bone conducting hearing aids are essentially written out in statute. So just as with eye glasses, these aids are not in a covered category.

Cochlear implants, however, were deemed by the program to not be hearing aids and were therefore covered a number of years ago.

Then along came products, developed more recently, that stimulate the bones in the middle ear and fall into a gray area. They are not air conducting, and they are not the typical bone conducting aids that vibrate your entire skull.

We thought long and hard about which category these fall into and finally decided they are closer to hearing aids, and that had they been around in 1965 when the original statute on this was drafted, we thought that Congress would have excluded them rather than included them. So we decided to not cover them. This is the sort of unusual case that would have required my attention.

A principle called “bureaucratic economy” leads you to try to get decisions made at the lowest level of the organization you can. Many routine decisions at CMS are made by the staff, who are very competent, operating under general guidance. During the last 5 years of my tenure there, I was at a very senior level. I was one of the 10 or 12 people who were really running the agency. I would tend to get involved in making sure processes worked right, making sure outcomes worked right, making sure the quality of product was right and on difficult and extraordinary cases that fell outside the bounds of the routine.

Political considerations

OSN: How did you determine which voices to listen to and which to tune out? How do you make those types of decisions?

Dr. Gustafson: It is useful to describe the difference between technical and political considerations, or policy and political considerations. I was a policy official who worked in a political environment. I was under direction of political appointees, and there was no contest in my mind about who was in charge of the operation. They were appointed by those elected. I was simply career staff.

I had more experience than many of them in the health care sector, in general, and certainly more experience in the agency, but it was a matter of bringing my skills to bear to help them make the best decisions they could.

Mercifully, most of the time the political direction we got would be respectful of the technical and policy considerations. The senior political appointees would make the final decisions, and we respected that as well.

Does politics enter into what a government agency does? Absolutely. You want it to, to a certain extent. You do not want to have large sections of the economy run by monks who are immune to political issues.

In my experience in the government, I would guess that 80% to 90% of the decisions that were being made by the agency were essentially invariant to any political agenda. The agency is running the largest insurance program in the world, and for much that needs to get decided there typically was not a particular Democratic or a particular Republican slant to what was going on.

This is not to say that the political officers were not political in their outlook, but the personalities probably mattered more than the political affiliation. As a senior civil servant, I was there in a non-political role, and people who persist in a bureaucracy for long periods of time tend to be pretty middle of the road. I never found it a problem working with people of either party.

Accountability measures

OSN: Is now an optimistic time for health care providers and the health care industry, in your opinion?

Dr. Gustafson: I think this is going to be an increasingly challenging time. The health care sector has been lagging for years behind other sectors of the economy in several important respects. Use of information technology is one.

But more important are concrete and understandable measures of accountability. We hold airlines to fairly strong accountability standards. If we don’t like our phone company, we change phone companies. People have the ability to shop around, and they rely in part on consumer-driven information to do that. The health care sector has been driven by much more of a professional mindset, as in people thinking: “We’re the experts,” and it’s only been in the last few years that people in health care have really started to tackle on a widespread basis the need for accountability measurement. And that is not going to go away.

OSN: Are you referring to pay-for-performance initiatives?

Dr. Gustafson: Pay-for-performance is one manifestation. It is a tool to get people to pay attention to performance measures. But the main point is delivery of reliably high-quality care. People need to understand that it is just part of doing business to be measured and to have your performance scrutinized and to scrutinize it yourself.

When the agency first started to gather information about quality measurement from hospitals, which is now in a phase called pay-for-reporting, one of the measures was percentage of cases in which aspirin was given to patients who manifest signs of a myocardial infarction. This was a consensus measure.

Yet this was not happening nearly as much as people thought it should. We started measuring it. The mere fact of measurement caused hospitals themselves to start paying attention because it was going to become part of a report.

If health care providers think that this is just a fad of Washington this semester and they can just outwait it, I think they are suffering from what my old boss, Herb Kuhn, used to refer to it as “mural dyslexia” – or failure to read the handwriting on the wall.

In that sense, life is going to get somewhat more complex. I would hope that providers would find it ultimately a more rewarding environment because, if you are sure that you are doing a good job, if you can see the results and talk about them and they are right there on the annual report, then that puts you in a good position.

Now, having said that, measurement is a difficult proposition. Measuring quality is particularly difficult. We are in the midst of what I think is at least a 15-year process of developing a comprehensive, agreed-to set of measures. This doesn’t happen overnight, and the measure sets will need constant revision. The whole effect will change in ways we cannot predict right now because we are just gaining experience with it. So it will be different, but it is going to be there.

Now, you have to play all this out against economic considerations. As an economist, I would be remiss not to mention that the Medicare program already spends a good chunk of the gross national product and is projected to double or triple that percentage within my lifetime. As baby boomers head toward retirement age, improvements in medical technology are proving to be largely cost drivers and not cost savers.

OSN: Can you explain that further?

Dr. Gustafson: Much of medical technology is having the effect of raising, rather than lowering, overall costs. The flourishing of diagnostic imaging is a perfect example. We are doing many more MRIs and many more CAT scans. Are we improving care? That is unclear. We think we probably are. Community hospitals are installing $1 million and $2 million machines, and they are being run 17 hours a day. Is this good? I hope so. Is it more expensive in the aggregate? Yes. Are there cost-saving technical changes? Yes, there are. Government programs, however, don’t always do a good job of reflecting those changes.

Cataract surgery is an example of cost-saving technical changes that were not well accounted for. In the early years, cataract surgery was a chancy operation and it was expensive. Then technology improved, and surgeons’ techniques got a lot better.

Surgery became routine but the price remained high. Eventually, cataract surgery was identified as an “overpriced procedure,” and Medicare’s payment was subsequently lowered. This is an example where cost-saving technology is coming in and the price that the government was paying did not adapt to it responsively enough.

Government payment systems need to adapt to both cost-increasing and cost-saving technologies. Increasing access to some highly sophisticated technologies, which are becoming the standard of care in many instances, will remain a challenge for the financing system.

OSN: How can we keep affording this?

Dr. Gustafson: Part of the answer is that the economy keeps growing and health care is what economists call a normal good. A normal good is one that you consume more of when your income goes up. So as people become richer, as the economy as a whole becomes richer, they are able to afford more medical care.

So it is not necessarily an insupportable result to see a larger share of the gross national product going toward health care. However, it is still worrisome in the context of the trust fund for the Medicare program and in wondering how we are going to continue to pay for all those baby boomers.

We pay a significantly larger share of our gross domestic product for health care than other comparable countries, such as Japan or countries in Europe. Yet it is far from obvious that the health of our population is any the better for it. So from a societal standpoint, are we making the right bargain here, or is this the result of a long history of preventing prices from decreasing and of the American people’s interest in free choice?

Health care on the national agenda

OSN: You have had the benefit of 30 years of experience watching the ebbs and flows of public interest and of how much we are spending as a country on health care. I would imagine people are either hyperaware of health care issues or hardly at all, depending on what else is going on politically or militarily.

Dr. Gustafson: I think you are right, but the other factor that I think tends to matter is the extent to which economic cycles are affecting the cost and extent of coverage in the private sector. At the time Michael Dukakis ran for president in 1988, a bad economic situation was causing employers to impose more energetic restrictions on their employees’ health insurance. Some employers began dropping their coverage, some began introducing co-pays where they never had them before, and others forced everyone into HMOs.

In other words, this was hitting the middle class in the pocketbook. And all of a sudden health care reform was on the national agenda the way it had not been a couple of years before. And nothing much happened except the economy got better and interest in the subject went away again.

So at times, this issue comes to the surface, and it is driven by various forces. In fact, the majority of middle-class folks are pretty well served by the existing insurance system, and they just do not feel the pain of the uninsured. It becomes a question of when the American policy is going to grow up enough to address this problem. All health policy analysts think there is a problem, but the mere fact that there is a problem is not enough to interest the country in solving the problem.

OSN: On balance, do you think more people think the sky is falling because of the high cost of paying for the uninsured, or do more people have blinders on?

Dr. Gustafson: I think that mostly people do not know and do not care. Issues of the uninsured tend not to be that important in most places. In contrast, when Hurricane Katrina hit, all of a sudden a whole bunch of uninsured people who had been being cared for within the provinces of Louisiana had to suddenly go to Texas and Tennessee. The crude system we have for caring for the uninsured in those states suddenly had twice as many as they used to. When you have a big crisis like Katrina, suddenly driving hundreds of thousands out of Louisiana and into neighboring states, it just exposed our vulnerabilities in crystal clarity.

Urgent issues

OSN: What systemic issues in the Medicare/Medicaid system do you think need to be addressed most urgently in the next couple of years? What is most broken in your mind that needs swift redress?

Dr. Gustafson: Leaving aside issues of the uninsured for the moment, since by definition Medicare and Medicaid provide insurance coverage, the largest problem would be the dubious sustainability of the current structure over the next generation.

The current estimate of the point at which the Medicare trust fund goes belly up is 2019. We are in an environment where 85% of Medicare case load is in fee-for-service. Medicare’s fee-for-service program needs to get smarter and to figure out how to address the problems associated with chronic care patients. We also need to see a more energetic assessment of cost-increasing medical technologies and the comparative cost-effectiveness of medical procedures, as well as the promotion of health information technology. That is a whole conversation unto itself.

In short, we need modernization of the health care sector and modernization of the benefits. Something needs to be done to try to address the overall cost picture over the long term, particularly given that the dependency ratio – the ratio of the number of dependents to workers – is going to become more of a problem over time.

For more information:

• Thomas A. Gustafson, PhD, is an advisor in the health care practice of Arent Fox, with a focus on Medicare payment issues. He can be reached at 1050 Connecticut Ave. NW, Washington, DC 20036-5339; 202-715-8462; e-mail: gustafson.thomas@arentfox.com.