CBO: Medicare demonstrations ineffective at reducing costs, improving efficiency

Medicare demonstrations designed to improve health care quality and efficiency have largely failed to result in savings, according to the results of investigations summarized in a Congressional Budget Office brief.

In the brief, the Congressional Budget Office (CBO) noted an evaluation of 10 major demonstrations by independent researchers showed that most programs have failed to reduce Medicare spending.

“In nearly every program, spending was either unchanged or increased relative to the spending that would have occurred in the absence of the program, when the fees paid to the participating organizations were considered,” Douglas W. Elmendorf, the director of CBO, wrote in his CBO’s Director’s Blog.

“The outcomes of these demonstrations are not surprising, nor should they be to anyone with a rudimentary understanding of how markets work,” B. Sonny Bal, MD, JD, MBA, told Orthopedics Today. “In essence, the government, as a major participant in the health care market, micromanaged disease management and attempted to fine-tune payment schemes based on selected measured outcomes. The result, not surprisingly, is more cost and not much change.”

Medicare spending was more likely to be reduced through programs that featured substantial interaction with physicians and significant in-person interaction with patients, the brief noted — but even these programs, when averaged, failed to achieve savings substantial enough to offset their fees.

According to information posted on CBO’s Director’s Blog, one of the four value-based payment demonstrations resulted in Medicare savings. The others resulted in either little or no savings.

“During the 2 decades of so-called disease management schemes, there must have been a necessary, added cost component related to the disease micromanagement regimes themselves,” Bal, an Orthopedics Today Editorial Board member said. “Health care practitioners negotiated around the onerous regulations and expectations, and ended up providing care closest to that which they were trained to anyway. At the end of the day, the outcomes were largely unchanged — both in terms of disease and treatment outcomes — and related costs were higher to reflect the costs of regulation itself.”

According to the CBO brief, one of the hurdles to lower spending and increase the quality of health care is Medicare’s fee-for-service payment system. The system, according to the brief, “rewards providers for delivering more care, but does not pay them for coordinating with other providers.” Other problems highlighted by the brief lie in the nation’s decentralized health care delivery system.

The brief concludes programs that involve disease management and care coordination or value-based payment will have to undergo changes to their payment and delivery systems so spending reductions can be properly achieved and the quality of care can be improved.

Bal said the report blames the Medicare fee-for-service system for the failure of government-driven market intervention — and suggests that a lack of communication and centralization may be to blame for high costs and a failure to reach goals.

“It may be true that the fee-for-service system is one defective component in an overall system that promotes limitless demand for expensive health care, distorts incentives at the provider end and creates predictable price inflation, but centralization is hardly the answer,” Bal said. “However attractive central control and price regulation may be to the bureaucracy, these measures are no substitute for time-tested economic principles … the individual physician must be wary that these demonstration projects are a disguised attempt to knock down the fee-for-service system, without any other attendant system reform.”

“The Medicare demonstrations reviewed here … offer several lessons for designing and evaluating demonstrations in the future,” Elmendorf wrote in his blog post.

Bal, meanwhile, suggested a system wherein trade barriers were removed and the market opened to willing participants — “where the government’s role would be to enforce the rule of law rather than create the law in favor of the highest bidder.”

Such a system, he said, would equilibrate to determine proper demand and pricing.

“Conversely, if we continue down the current path, centralization of health care in a single provider with complete distortion of incentive and demand is predictable with the inevitable erosion of quality, innovation and attendant spiraling of costs,” Bal said.

At a base level, however, he noted that proper reform could simply be a matter of taking a more “realistic” viewpoint.

“Fundamental to any meaningful reform must be a realistic attempt to inject market efficiency into the system,” Bal said. “The consumer must pay, at least in part, for the cost of health care, and the costs can no longer be distorted by high mandates, incentive schemes, payment formulas and remote bureaucrats.” – by Robert Press

References:

• http://cboblog.cbo.gov. Accessed Feb. 15, 2012.
• Nelson L. Lessons from Medicare’s demonstration projects on disease management, care coordination, and value-based payment. Issue brief. Jan. 2012.

• B. Sonny Bal, MD, JD, MBA, is an associate professor of hip and knee replacement in the department of orthopedic surgery, University of Missouri School of Medicine. He can be reached at Missouri Orthopaedic Institute, 1100 Virginia Ave., Columbia, MO 65212; 573-882-6762; email: balb@health.missouri.edu.
• Disclosure: Bal has no relevant financial disclosures.