FixHealthCarePolicy

Medicare Payment Rules: Looking Behind the Curtain

As public relations campaigns on health care legislation are ramped up over the next few weeks, Americans will do well to remember the storybook classic, The Wizard of Oz. The power of the Wizard was based on mystery, fear, and intimidation. Only after the intrepid travelers pulled back the curtain did they realize the Wizard was a mere mortal turning the cranks of a great smoke-belching machine. They were no longer afraid.

Congressional advocates of a single-payer system would like Americans to believe that a government Wizard will be superior to our current decentralized network of health care. The logic behind single-payer is that health care is too complicated for individuals to make their own choices and decisions. Decisions should be left to the Wizard.

Because paying for the promises is more difficult than anticipated, some in Congress want to make the Wizard even more powerful. To control costs, the House Majority Leader, Steny Hoyer, asked the Congressional Budget Office (CBO) to analyze the Obama Administration’s proposal to create an Independent Medicare Advisory Council (IMAC) that would give the Executive Branch the power to change Medicare payments to providers (hospitals, doctors, etc.). Those changes would go into effect unless a super-majority in Congress voted to block them. In essence, give more power to the Wizard (technically, under the Obama proposal, there would be five Wizards).

Is the greater concentration of power into the hands of a few political appointees really a good idea? By coincidence, just as the House left town for the August recess, the Centers for Medicare and Medicaid Services (CMS) announced the final FY 2010 payment rates for about 3,500 acute care hospitals, 400 long-term care hospitals, 200 freestanding Inpatient Rehabilitation Facilities, about 1,000 rehabilitation units in hospitals, and more than 15,000 skilled nursing facilities. The three final rules covering four payment systems put on public display on July 31 total a mere 2,314 pages.

The final rules made changes from the proposed rules that have important financial impact on our hospitals, nursing homes, etc. For example, under the proposed rule, inpatient rates for inpatient hospital services would have resulted in a decline in payments. The final rule provides a $1.9 billion increase in payments.

The rules also are abundantly clear that CMS is not some rogue agency operating on its own. The rules implement the laws Congress has passed and follow the decisions made by the political leadership provided by the Office of the Secretary, the Office of Management and Budget, and the White House.

In reality, it is highly doubtful that Congress would seriously consider such a dramatic shift in the balance of power between the Legislative and Executive Branches. If all the decisions are left to the Executive Branch, the hundreds of millions of dollars spent by hospitals, physicians, pharmaceutical companies, and health plans to influence Congress would dry up. Congress is not about to let that happen. Under the House bill, CBO estimates that Medicare payments to health plans, hospitals, nursing homes, home health agencies, and other providers will be reduced by more than $500 billion over the next ten years. Every health care lobbyist in Washington knows such decisions will be revisited many times over that period. This instability would be multiplied if the federal government were to expand its role over payment systems and regulatory structure as envisioned by the House bill.

In an essay, “How to Attract Capital,” from the 1960s, Walter Wriston wrote, “The second basic requirement for the attraction of capital is some reasonable expectation that the rules of the game will not be changed with any great frequency. Private capital can adapt itself to most rules, provided always that the expectation exists that the game will be played by those rules over a period of time. It is for this same reason that private capital is frightened away by direct economic controls. While the private investor willingly accepts the risks of the free market place, he almost inevitably shies away from situations where arbitrary decisions can make or break his business.”

Political interference in the health care market may be good for refilling campaign coffers and employment of high-priced lawyers looking for loopholes, but it is no way to run 16 percent of our entire economy. Congress has already messed up Medicare and Medicaid. It should keep its hands off of the rest of the health care system. The American people should not put their faith in a Wizard.