Medicare's operational history and impact on health care

Medicare was originally designed in the 1960s to fit into the existing health care delivery system. However, the program's early years showed an inflationary impact on health care costs. Medicare was the second largest federal domestic program and the fastest growing one, making it a target for those concerned about the size of government in general. By 1980, Medicare constituted 15% of the nation's expenditures for personal health care; and Medicare's administrators recommended substantive changes in provider payments through the introduction of the prospective payment system. Prospective payment system legislation impacted hospitals initially and later skilled nursing facilities and home health agencies. As policymakers made changes in Medicare payments to providers, providers made changes in the way services were delivered. What eventually evolved, in an insidious manner, was implicit management of the nation's health care delivery system by the Medicare program.     

Billing and payment of commercial and Medicaid health plan adult vaccination claims in Michigan since the Affordable Care Act

BackgroundProvider concern regarding insurance non-payment for vaccines is a common barrier to provision of adult immunizations. We examined current adult vaccination billing and payment associated with two managed care populations to identify reasons for non-payment of immunization insurance claims.MethodsWe assessed administrative data from 2014 to 2015 from Blue Care Network of Michigan, a nonprofit health maintenance organization, and Blue Cross Complete of Michigan, a Medicaid managed care plan, to determine rates of and reasons for non-payment of adult vaccination claims across patient-care settings, insurance plans, and vaccine types. We compared commercial and Medicaid payment rates to Medicare payment rates and examined patient cost sharing.ResultsPharmacy-submitted claims for adult vaccine doses were almost always paid (commercial 98.5%; Medicaid 100%). As the physician office accounted for the clear majority (79% commercial; 69% Medicaid) of medical (non-pharmacy) vaccination services, we limited further analyses of both commercial and Medicaid medical claims to the physician office setting. In the physician office setting, rates of payment were high with commercial rates of payment (97.9%) greater than Medicaid rates (91.6%). Reasons for non-payment varied, but generally related to the complexity of adult vaccine recommendations (patient diagnosis does not match recommendations) or insurance coverage (complex contracts, multiple insurance payers). Vaccine administration services were also generally paid. Commercial health plan payments were greater for both vaccine dose and vaccine administration than Medicare payments; Medicaid paid a higher amount for the vaccine dose, but less for vaccine administration than Medicare. Patients generally had very low (commercial) or no (Medicaid) cost-sharing for vaccination.ConclusionsAdult vaccine dose claims were usually paid. Medicaid generally had higher rates of non-payment than commercial insurance.     

McAllen And El Paso revisited: Medicare variations not always reflected in the under-sixty-five population

Medicare spending for the elderly is much higher in McAllen, Texas, than in El Paso, Texas, as reported in a 2009 New Yorker article by Atul Gawande. To investigate whether this disparity was present in the non-Medicare populations of those two cities, we obtained medical use and expense data for patients privately insured by Blue Cross and Blue Shield of Texas. In contrast to the Medicare population, the use of and spending per capita for medical services by privately insured populations in McAllen and El Paso was much less divergent, with some exceptions. For example, although spending per Medicare member per year was 86 percent higher in McAllen than in El Paso, total spending per member per year in McAllen was 7 percent lower than in El Paso for the population insured by Blue Cross and Blue Shield of Texas. We consider possible explanations but conclude that health care providers respond quite differently to incentives in Medicare compared to those in private insurance programs.     

The Lessons Of Medicare's Prospective Payment System Show That The Bundled Payment Program Faces Challenges

Policy makers have been trying to replace Medicare's fee-for-service payment system for years with approaches that pay one price for an aggregation of services. The intent is to reward providers for offering needed care in the most appropriate and cost-effective manner. Medicare's first payment change designed to accomplish such a change was the hospital prospective payment system, introduced during 1983-84. But because it focused only on hospital care, its impact on total Medicare spending was limited. In 2011 Medicare began a new initiative to expand the "bundled payment" concept to link payments for multiple services that patients receive during an episode of care. The goal of Medicare's current bundled payment initiative is to provide incentives to deliver health care more efficiently while maintaining or improving quality. This article provides a detailed analysis of how Medicare implemented the hospital prospective payment system, how hospitals responded to the new incentives, and lessons learned that are applicable to the bundled payment initiative. The lessons include that any Medicare payment reform needs to continuously respond to the many different components of the health system and that payment reform should be coupled with analogous reforms in private insurance payment, so that providers receive consistent signals to alter their behavior.     

Accountable care organizations: the case for flexible partnerships between health plans and providers

Under the Affordable Care Act, the new Center for Medicare and Medicaid Innovation will guide a number of experimental programs in health care payment and delivery. Among the most ambitious of the reform models is the accountable care organization (ACO), which will offer providers economic rewards if they can reduce Medicare's cost growth in their communities. However, the dismal history of provider-led attempts to manage costs suggests that this program is unlikely to accomplish its objectives. What's more, if ACOs foster more market concentration among providers, they have the potential to shift costs onto private insurers. This paper proposes a more flexible payment model for providers and private insurers that would divide health care services into three categories: long-term, low-intensity primary care; unscheduled care, including unscheduled emergency services; and major clinical interventions that usually involve hospitalization or organized outpatient care. Each category of care would be paid for differently, with each containing different elements of financial risk for the providers. Health plans would then be encouraged to provide logistical and analytic support to providers in managing health costs in these categories.     

The performance of Medicare, Medicaid, and individual commercial products

Medicare, Medicaid, and individual nongovernmental insurance products are marketed by commercial health insurance companies. We propose that the product offerings be viewed as a group rather than as separate products competing for internal company resources. A study population consisting of 35 Aetna plans in 24 states, 124 Blue Cross Blue Shield plans (BCBS) in 45 states and the District of Columbia, 43 Cigna plans in 28 states, and 23 UnitedHealth plans in 22 states was examined on 29 variables, including financial, marketing, and medical management data. The findings revealed that Medicaid and individual nongovernmental products were terminated more often than other products across all ownership types. When BCBS plans were analyzed across for-profit, nonprofit, and mutual ownership types, the companies had distinct preferences for product offerings. The study provided evidence that health plans will limit their exposure to Medicare, Medicaid, and individual nongovernmental products in preference to comprehensive/group products.     

Competition between non-profit and for-profit health insurers

This study investigates the effects of tax, regulatory, and reimbursement policies and other factors exogenous to the health insurance market on the relative price (to commercial insurers) paid by Blue Cross plans for hospital care, their administrative expense and accounting profits, premiums, and ultimately Blue Cross market share. We specify and estimate a simultaneous equation model to assess interrelationships among these variables. We conclude that premium tax advantages enjoyed by the Blues have virtually no effect on the Blues' premiums or their market shares. A Blue Cross plans' market share has a positive effect on the discount it obtains from hospitals as does coverage of Blue Shield charges by a state-mandated rate-setting plan. An upper bound on the effect on the Blue Cross market share of covering Blue Cross under rate-setting but excluding the commercials from such coverage is seven percentage points. Tests for administrative slack in the operation of Blue Cross plans yield mixed results.     

Evidence-based coverage policy

Many health plans apply evidence-based approaches to coverage decisions. The foundation of such approaches is the systematic review of information about the effectiveness of medical interventions. This paper discusses the principles underlying evidence-based coverage policy and how they are applied by two major programs: the Technology Evaluation Center of the Blue Cross Blue Shield Association and the Medicare Coverage Advisory Committee. Although such policies likely have limited effects on spending, they can help to direct medical resources toward effective care.     

Early lessons from accountable care models in the private sector: partnerships between health plans and providers

New health care delivery and payment models in the private sector are being shaped by active collaboration between health insurance plans and providers. We examine key characteristics of several of these private accountable care models, including their overall efforts to improve the quality, efficiency, and accountability of care; their criteria for selecting providers; the payment methods and performance measures they are using; and the technical assistance they are supplying to participating providers. Our findings show that not all providers are equally ready to enter into these arrangements with health plans and therefore flexibility in design of these arrangements is critical. These findings also hold lessons for the emerging public accountable care models, such as the Medicare Shared Savings Program-underscoring providers' need for comprehensive and timely data and analytic reports; payment tailored to providers' readiness for these contracts; and measurement of quality across multiple years and care settings.     

Michigan's Physician Group Incentive Program Offers A Regional Model For Incremental 'Fee For Value' Payment Reform

Blue Cross Blue Shield of Michigan partnered with providers across the state to create an innovative, "fee for value" physician incentive program that would deliver high-quality, efficient care. The Physician Group Incentive Program rewards physician organizations-formal groups of physicians and practices that can accept incentive payments on behalf of their members-based on the number of quality and utilization measures they adopt, such as generic drug dispensing rates, and on their performance on these measures across their patient populations. Physicians also receive payments for implementing a range of patient-centered medical home capabilities, such as patient registries, and they receive higher fees for office visits for incorporating these capabilities into routine practice while also improving performance. Taken together, the incentive dollars, fee increases, and care management payments amount to a potential increase in reimbursement of 40?percent or more from Blue Cross Blue Shield of Michigan for practices designated as high-performing patient-centered medical homes. At the same time, we estimate that implementing the patient-centered medical home capabilities was associated with $155?million in lower medical costs in program year 2011 for Blue Cross Blue Shield of Michigan members. We intend to devote a higher percentage of reimbursement over time to communities of caregivers that offer high-value, system-based care, and a lower percentage of reimbursement to individual physicians on a service-specific basis.     

The impact of participation in health promotion on medical costs: a reconsideration of the Blue Cross and Blue Shield of Indiana study

PURPOSE. The purpose of this study was to investigate whether participation in a comprehensive worksite health promotion program was associated with reduced employee health care costs. DESIGN. Four independent study groups, two treatment and two comparison, were identified based on type and date of first participation in the intervention. Two years of pre-program health cost data and five years of post-program data were collected for each subject. The Jonckheere-Terpstra statistical test was used to analyze the data. SETTING. The health promotion program was offered at Blue Cross and Blue Shield of Indiana corporate headquarters. The study period began on January 1, 1976, and continued through December 31, 1982. SUBJECTS. Seven hundred and forty-three men and women employed continuously by Blue Cross and Blue Shield of Indiana throughout a seven-year period were studied. INTERVENTION. The health promotion program consisted of four progressive phases which involved 1) health risk reduction mass education, 2) completion of a health risk appraisal and risk reduction counseling, 3) health promotion classes such as smoking cessation and nutrition education, and 4) follow-up and maintenance. MEASURES. The principal dependent variable was pre-program to post-program changes in health costs as measured by employee health care expense claims paid for by the company's health insurance plan. RESULTS. This study found that program participation was not associated with reduced health care costs. CONCLUSIONS. It would be prudent to remain guarded about the health cost savings effects of worksite health promotion programs.     

The future of medicare hospital payment

The combination of health care cost growth exceeding general inflation and the swelling of beneficiary rolls with baby boomers will create fiscal pressure for Medicare. Despite dramatic declines in the growth of hospital costs following the introduction of Medicare's prospective payment system (PPS), the growth in Medicare hospital spending per beneficiary has been close to three times the overall rate of inflation since 2000. This paper examines issues related to Medicare's using its pricing policies to more aggressively pursue hospital cost containment. I discuss the need to calibrate payments to reflect expected necessary costs to reduce potential effects on beneficiaries' access, quality of care, or technological improvements.     

New England's Blue Cross Blue Shield shake-out: a case study in consumer activism

For two generations, Blue Cross Blue Shield (BCBS) insurance plans could be counted on to play a key role in the financing of every community's health care system. "The Blues" dominated the health insurance market, yet they were also a reliable "insurer of last resort." In recent years, BCBS plans have begun to re-structure to stay competitive. Four of New England's BCBS plans have proposed or completed mergers with Anthem Insurance, a mutual insurance company based in Indiana. This issue of States of Health looks at how advocates in New England are working together to protect health care consumers amid this transformation.     

Impact of Medicare's prospective payment system on hospitals, skilled nursing facilities, and home health agencies: how the Balanced Budget Act of 1997 may have altered service patterns for Medicare providers

The prospective payment system is one of many changes in reimbursement that has affected the delivery of health care. Originally developed for the payment of inpatient hospital services, it has become a major factor in how all health insurance is reimbursed. The policy implications extend beyond the Medicare program and affect the entire health care delivery system. Initially implemented in 1982 for payments to hospitals, prospective payment system was extended to payments for skilled nursing facility and home health agency services by the Balanced Budget Act of 1997. The intent of the Balanced Budget Act was to bring into balance the federal budget through reductions in spending. The decisions that providers have made to mitigate the impact are a function of ownership type, organizational mission, and current level of Medicare participation. This article summarizes the findings of several initial studies on the Balanced Budget Act's impact and discusses how changes in Medicare reimbursement policy have influenced the delivery of health care for the general public and for Medicare beneficiaries.     

Use of diagnosis-related groups by non-Medicare payers

Medicare's prospective payment system (PPS) for hospital cases is based on diagnosis-related groups (DRGs). A wide variety of other third-party payers for hospital care have adapted elements of this system for their own use. The extent of DRG use varies considerably both by type of payer and by geographical area. Users include: 21 State Medicaid programs, 3 workers' compensation systems, the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS), more than one-half of the Blue Cross and Blue Shield Association (BCBSA) member plans, several self-insured employers, and a few employer coalitions. We describe how each of these payers use DRGs. No single approach is dominant. Some payers negotiate specific prices for so many combinations of DRG and hospital that the paradigm that payment equals rate times weight does not apply. What has emerged appears to be a very flexible payment system in which the only constant is the use of DRGs as a measure of output.     

Regence HMO Oregon

Regence HMO Oregon is a large IPA-model HMO based in Portland, Ore. It serves commercial, Medicaid, and Medicare cost enrollees throughout Oregon and southern Washington. An affiliate of Blue Cross and Blue Shield of Oregon, Regence HMO Oregon built its rural enrollment by acquiring Capitol Health Care, an HMO with rural enrollment; by encouraging rural employers with traditional Blue Cross and Blue Shield of Oregon indemnity and PPO coverage to switch to HMO coverage; and by aggressively contracting with providers statewide to serve Oregon Health Plan (Medicaid) enrollees.     

Treat the causes, not the symptoms of the health care cost problem

The design of the American health care system is guaranteed to create an inflationary spiral. A third party payment system combined with cost-based reimbursement of hospitals, fee-for-service payments to physicians, tax deductible health insurance premiums, and a litigious society that also demands more services have created a growing sense of urgency that something must be done to control costs. Medicare's experience with prospective pricing and use of coordinated care has helped change the incentives that lead to higher costs. Greater use of such approaches shows promise but proposals to impose rigid expenditure caps could create what is tantamount to a pressure cooker unless the underlying incentives are changed.     

An economic history of Medicare part C

Context: Twenty‐five years ago, private insurance plans were introduced into the Medicare program with the stated dual aims of (1) giving beneficiaries a choice of health insurance plans beyond the fee‐for‐service Medicare program and (2) transferring to the Medicare program the efficiencies and cost savings achieved by managed care in the private sector. Methods: In this article we review the economic history of Medicare Part C, known today as Medicare Advantage, focusing on the impact of major changes in the program's structure and of plan payment methods on trends in the availability of private plans, plan enrollment, and Medicare spending. Additionally, we compare the experience of Medicare Advantage and of employer‐sponsored health insurance with managed care over the same time period. Findings: Beneficiaries’ access to private plans has been inconsistent over the program's history, with higher plan payments resulting in greater choice and enrollment and vice versa. But Medicare Advantage generally has cost more than the traditional Medicare program, an overpayment that has increased in recent years. Conclusions: Major changes in Medicare Advantage's payment rules are needed in order to simultaneously encourage the participation of private plans, the provision of high‐quality care, and to save Medicare money.     

Medicare's Payment Strategy For End-Stage Renal Disease Now Embraces Bundled Payment And Pay-For-Performance To Cut Costs

Since 1973 Medicare has provided health insurance coverage to all people who have been diagnosed with end-stage renal disease, or kidney failure. In this article we trace the history of payment policies in Medicare's dialysis program from 1973 to 2011, while also providing some insight into the rationale for changes made over time. Initially, Medicare adopted a fee-for-service payment policy for dialysis care, using the same reimbursement standards employed in the broader Medicare program. However, driven by rapid spending growth in this population, the dialysis program has implemented innovative payment reforms, such as prospective bundled payments and pay-for-performance incentives. It is uncertain whether these strategies can stem the increase in the total cost of dialysis to Medicare, or whether they can do so without adversely affecting the quality of care. Future research on the intended and unintended consequences of payment reform will be critical.