Medicare in the 21st Century

If you want to know where Medicare reimbursement is heading, look to the recommendations developed by the Medicare Payment Advisory Commission (MedPAC), established in 2007 to advise Congress on the program.

MedPAC has just issued one of their annual reports to Congress. In it, they begin by tackling the issues of how to redesign Medicare to fit the changing “boomer” beneficiary profile by developing comparative effectiveness measures, fixing a skewed Medicare Advantage Program, and changing provider behavior through financial incentives to reduce hospital readmissions.

In a word, they are looking for “data,” which they say currently is inadequate for developing tools to measure the effectiveness of procedures. The terms reasonable, necessary, AND comparative-effectiveness, we think, will be in your future.

In addition to advising Congress on payments to health plans participating in the Medicare Advantage program and providers in Medicare’s traditional fee-for-service program, MedPAC is also tasked with analyzing access to care, quality of care, and other issues affecting Medicare.

Their June report is of note to orthopedic device manufacturers and surgeons because proposed changes in payments methods and systems may provide financial incentives to alter behavior by all the health care stakeholders.

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The report addresses the following topics (we will focus only on the payment issues):

  • The changing beneficiary profile in Medicare
  • Developing information on the comparative effectiveness of alternative therapies
  • Ways to increase efficiency in the Medicare Advantage program
  • Design features of a pay-for-performance system
  • Decreasing the number of avoidable hospital readmissions
  • New wage index system
  • Changes to physicians’ practice expense payments
  • The Secretary of HHS’s estimate of the update for physician services

(To read the entire report, click here.)

The implication for the Medicare program of a changing beneficiary profile is huge, and the Commission examines several approaches to promote greater efficiency in the program.

Want more information? See other Spine News Articles at Orthopedics This Week, a weekly publication providing news, analysis, and commentary about the orthopedics industry.

Changing Beneficiary Demographics

Some of these basic demographic changes include changes in beneficiaries’ age and ethnic mix, as well as disparities in education and income. In addition, a growing proportion of beneficiaries will be treated for multiple chronic conditions, because of an increase in the prevalence of obese beneficiaries, advances in technology for diagnosing and treating conditions, and changes in disease definitions.

In 1987, 31% of Medicare beneficiaries received treatment for five or more chronic conditions, accounting for about half of total health care spending on Medicare beneficiaries. Fifteen years later, more than half of all Medicare beneficiaries were treated for five or more chronic conditions, accounting for 76% of total healthcare spending.

The Commission sees a decreasing proportion of beneficiaries who will have disabilities and employer-sponsored health insurance. Fewer beneficiaries with disabilities tend to be more costly than those without disabilities and this decrease suggests downward pressure on Medicare costs. However, the report says the costliness of beneficiaries without disabilities has been increasing much faster than the costliness of the disabled.

We will also see fewer beneficiaries with employer-sponsored insurance to supplement Medicare. Such insurance is a relatively comprehensive supplemental coverage, so a decline in its prevalence could reduce beneficiaries’ service use and expose them to greater financial liability.

Comparative-Effectiveness as a Tool

Some of the Commission recommendations to address the needs of future beneficiaries are:

  • Facilitate care coordination in traditional Medicare
  • Expand the use of health information technology, which may improve efficiency and quality of care to all beneficiaries and facilitate care coordination
  • Increase the use of comparative-effectiveness analyses as a source of information and guidance for providers and beneficiaries
  • Implement public health efforts that promote healthy lifestyles
  • Modify the benefits and cost sharing of traditional Medicare

Getting more data to improve efficiency, says the report, should result in not only getting more results from a set amount of inputs, but also getting more of the right care. One way the Commission recommends to do so is to develop information on the comparative-effectiveness of alternative therapies.

Comparative-effectiveness analysis compares the clinical effectiveness of a service (drugs, devices, diagnostic and surgical procedures, diagnostic tests, and medical services) with its alternatives. The Commission finds that not enough credible, empirically-based information is available for healthcare providers and patients to make informed decisions about alternative services for diagnosing and treating most common clinical conditions. This looks like developing criteria for CMS’s shopping list for coverage and payment decisions.

Here is a telling quote from the report: “Many new services disseminate quickly into routine medical care with little or no basis for knowing whether they outperform existing treatments. Information about the value of alternative health strategies could improve quality and reduce variation in practice styles.” This sounds like it could have been written by the critics of spinal fusion or foot-draggers for hip and knee down-classifications.

If you need more proof of coming changes, consider this from the report:

Creation of Comparative-Effectiveness Entity

“The Commission recommends that the Congress should charge an independent entity to sponsor credible research on comparative effectiveness of healthcare services and disseminate this information to patients, providers, and public and private payers. Such an entity would:

  • Be independent and have a secure and sufficient public/private source of funding
  • Produce objective information and operate under a transparent process
  • Seek input on agenda items from patients, providers, and payers
  • Re-examine the comparative effectiveness of interventions over time
  • Disseminate information to providers, patients, and public and private health plans
  • Have no role in making or recommending coverage or payment decisions, and
  • Have an independent board to oversee it”

The Commission points to the National Institute for Health and Clinical Excellence in the United Kingdom (NICE) as an example of such an independent entity. The wisdom of using Britain as a model for healthcare reform is a debate for another day.

The entity’s primary mission would be to sponsor studies that compare the clinical effectiveness of a service with its alternatives. Payers, including Medicare, could use this information to inform coverage and payment decisions. While cost-effectiveness is not a primary mission, the Commission does not rule out the entity’s producing such analyses. In the simplest case, cost may be an important factor to consider for two services that are equally effective in a given population. But even when clinical effectiveness differs, it may be important for end users to be aware of costs.

Coverage and Payments

The Commission echoes recent CMS non-coverage decisions about artificial discs when it says:

“Even for products approved by the FDA, little information is available about their long-term safety and effectiveness. Phase III clinical studies do not typically provide this information for drugs or devices because manufacturers usually conduct the studies over a relatively short time with a relatively small number of patients. Thus, long-term side effects may go undetected during phase III studies. In addition, the safety and efficacy of products in patients with conditions or comorbidities not included in phase III studies are unknown. Some clinical studies may be limited, excluding older patients and those with multiple illnesses. In addition, after the FDA approves a product, providers can prescribe it off-label—that is, to patients with conditions not evaluated in a clinical trial.”

Basing Payment Decisions on More Evidence

CMS considers the clinical effectiveness of a service when it makes a coverage determination. But as we have recently seen, the clinical evidence is often for a younger population rather than for the elderly and disabled. Phase III clinical trials to obtain FDA approval do not always demonstrate long-term safety and effectiveness in all patient populations who will eventually receive the service. In addition, evidence about the effectiveness of the service compared with its alternatives is infrequently available. CMS, says the report, rarely uses clinical information to set payments.

Some researchers contend that CMS needs to base its payment decisions on more complete clinical evidence when dealing with costly new services. Investment in building a process for conducting comparative-effectiveness studies could lead to future use of this information in Medicare’s payment policies. Researchers have suggested several ways for CMS to use comparative-effectiveness information in the payment process including:

  • Creating a tiered payment structure that pays providers more for services that show more value to the program
  • Creating a tiered cost-sharing structure that costs patients less for services that show more value to the program
  • Using the cost-effectiveness ratio to inform the payment level
  • Not paying the additional cost of a more expensive service if evidence shows that it is clinically comparable to its alternatives, and
  • Requiring manufacturers to enter into a risk-sharing agreement, which links actual beneficiary outcomes to the payment of a service based on its comparative effectiveness. Manufacturers might rebate the Medicare program for services that do not meet expectations for their effectiveness

MedPAC suggests that Medicare might use comparative-effectiveness information to prioritize pay-for-performance measures, target screening programs, or prioritize disease management initiatives. A pay-for-performance program could link providers’ bonuses to the provision of services that are clinically effective and of high value.

Medicare might also consider comparative effectiveness when choosing measures for pay-for-performance programs because there are usually more potential measures than are practical to use.

The message from this small part of the MedPAC report is that, in their opinion, changing Medicare beneficiary demographics and financial pressures will bring about a changing reimbursement and coverage system that will demand more evidence, more data and a demonstration of comparative-effectiveness.

For the 21st-Century CMS, the winners will know what the payer wants and will offer the data needed for payment.

Written by Walter Eisner