Docs, Drug Companies, Insurers Drive Up Medicare Costs

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Center for Public Integrity

Docs, Drug Companies, Insurers Drive Up Medicare Costs

Obamacare forced cuts at hospitals, but not for other segments of industry

(Photo: 401K 2012)

As one of an estimated 78 million baby boomers in this country, I was delighted to hear that Medicare’s Hospital Trust Fund won’t run out of money until 2030 — 13 years later than projected in 2009, the year before Congress passed the Affordable Care Act.

While it’s uncertain how much of that good news can be attributed to the health care law, some of the provisions aimed at slowing Medicare spending, such as requiring Medicare to reduce payments to hospitals with high readmission rates, are likely helping.

But the Hospital Trust Fund accounts for only about half of total Medicare spending. Most of the rest goes to cover physician fees, prescription drugs and to provide incentives for health insurance companies to participate in the Medicare Advantage program and administer the Medicare drug program.

The Affordable Care Act could have done much more than it does to curb spending in those areas. Because it doesn’t is a testament to the power and influence of the lobbyists who represent doctors, pharmaceutical companies and health insurers.

Some lawmakers, including Rep. Henry Waxman, D-Calif., and Sen. Jay Rockefeller, D-W.Va., wanted to include language in the law that would have allowed Medicare to negotiate prices with drug companies. That’s something that has long been a policy priority for patient and consumer advocates. But drug companies and their lobbyists are far more powerful and have far more money to spend to influence elections than any patient advocacy group could ever hope to have.

Late last month, two of the advocacy groups — the Medicare Rights Center and Social Security Works — released a report suggesting that Congress could save taxpayers $141 billion over 10 years just by reauthorizing a program that was eliminated at the behest of drug makers when lawmakers enacted the Medicare prescription drug benefit (Part D) in 2003.

The groups noted that while the prescription drug benefit helped Medicare beneficiaries afford their medications, “the law also severely limited the government’s ability to control Medicare drug prices.”

Prior to passage of the Medicare Modernization Act in 2003, which created Part D, the federal government benefited from discounts on prescription medicines for people covered by both Medicare and Medicaid. According to the advocacy groups, elimination of that program “resulted in windfall profits for pharmaceutical manufacturers.” They cited an analysis showing that drug companies’ profits soared by 34 percent to $76.3 billion in the first year of the Part D program.

The groups also recommended that Congress allow Medicare to create its own drug insurance plan that could directly negotiate drug prices in the same way as another big government agency — the Department of Veterans Affairs — has long been able to do.

Medicare could also reduce spending by billions of dollars if it wrested some control from the American Medical Association, which for more than two decades has largely determined how much doctors get paid by Medicare for the services they provide.

As reported in POLITICO Magazine last week, the Centers for Medicare and Medicaid Services gave the AMA/Specialty Society Relative Value Scale Update Committee (RUC for short) the responsibility to determine the relative value of the “time, effort and skill that goes into performing a procedure.” 

Over the course of several years, the committee’s recommendations to CMS have led to the major income disparity that now exists between primary care physicians and specialists, who are paid more because the work they do is deemed by the committee to have greater relative value. This not only has created the severe shortage of primary care physicians in the United States, but it has also contributed to soaring health care costs, especially for Medicare.

Congress has also allowed health insurers to enrich themselves, in both lawful and unlawful ways, since the creation of the Medicare Advantage program in 1997. 

Under this program, Medicare pays privately run health plans a set monthly rate for each patient. As the Center for Public Integrity reported in a series of investigative reports this past June, about 16 million Americans have enrolled in these private plans at a cost to taxpayers of more than $160 billion. In addition to paying the private plans a bonus to participate in the program, the CPI investigation uncovered as much as $70 billion of improper payments to Medicare Advantage plans from 2008 through last year.

Will Congress act to save taxpayers billions of dollars — and protect the solvency of the Medicare programs — by taking on the AMA, the drugmakers and the insurers? Don’t hold your breath.

As Waxman said following the release of the report calling for Congress to allow Medicare to demand rebates and negotiate prices with drug companies, it’s unlikely that lawmakers will take any action any time soon.

“Republicans, but even a lot of Democrats, are looking to the drug companies for campaign support,” he said.

He could have included insurance companies and physicians and host of other special interests on that list.

Wendell Potter

Wendell Potter is former Vice President of corporate communications at CIGNA, one of the United States' largest health insurance companies. In June 2009, he testified against the HMO industry in the U.S. Senate as a whistleblower. He is now the Senior Fellow on Health Care for the Center for Media and Democracy in Madison, Wisconsin.

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