Medicare’s Victims: An Interview with Dr. David Hogberg

Medicare's Victims

Dr. David Hogberg, author of the fantastic new book Medicare’s Victims: How the U.S. Government’s Largest Health Care Program Harms Patients and Impairs Physicians (which we highly recommend) was kind enough to spend some time discussing issues related to competition, who Medicare’s victims are, and small business pharmacies with us.

Dr. Hogberg is a health policy analyst with the National Center for Public Policy Research.


AA: Who are Medicare’s victims and what aspects of Medicare are they victimized by?

DH: Among patients, Medicare’s victims are the ones who have been harmed physically and/or financially by Medicare’s policies. Among physicians, it is those who have been stymied in their ability to provide good treatment to their patients because of Medicare’s policies. What they have in common is that they tend to lack political power. That is, they lackthe ability to compel Congress to make changes in Medicare policy that will help them.

Let me give one example. In chapter 3, I tell the story of Sean Plomann, who’d had a number of operations on his leg due to cancer. His leg often caused him excruciating pain. Eventually, Sean applied to go on Medicare as a disabled person. However,most disabled people have to endure a two-year wait period before they allowed on Medicare. While Sean was in the waiting period, he was unable to afford pain medication. He described the scars on his legs as “lighting up.” To dull the pain, he drank and used marijuana supplied by friends. The waiting period for the disabled has been in place since the disabled were first given access to Medicare in 1973. Congress has never come close to reducing it, let alone eliminating it. The reason is the disabled lack political power when it comes to Medicare.

AA: Who is to blame? Laws and regulations? Politics? Money? Big business?

DH: Basically, the system itself—by which I mean Medicare combined with democracy—is to blame. Generally, under any government program, including health-care programs, resources tend to flow toward those who have political power.

Start with members of Congress, who are chiefly responsible for crafting Medicare policy. Most members of Congress want to get reelected, so they will cater to groups that are important to achieving that goal. Thus, they will design Medicare policy that pleases people who help them get reelected.

That’s one reason most seniors receive reasonably good treatment under Medicare. People over age 65 vote at rates higher than most any other group. Many live in retirement communities or belong to senior centers, so they are very easy to organize if the need arises. Finally, they have only two major programs they care about, Social Security and Medicare, so it’s very easy to focus their efforts.

Unfortunately, the people who are most likely to suffer under Medicare, or any government health care program for that matter, are usually the sickest. The reason is they usually lack political power. First, not that many people get seriously ill in a given year, seldom enough to amount to much at the ballot box. Second, they are seldom in any condition to be organizing, protesting, donating to Congressional campaigns, etc. that are the sorts of things that can persuade Congress to make changes in Medicare policy. Finally, some of them are so ill that they won’t be around for the next election.

A lot of that applies to the disabled. The disabled vote at rates that even lower than the general population. Very few of them are stuck in Medicare’s waiting period at any one time. They are not easy to organize; and when they are organized, they aren’t focused. There are something like 200 federal program for the disabled administered by 20 different agencies. So there are many programs they are concerned about, Medicare being only one. The lack of political power the disabled have in regard to Medicare is a big reason why the waiting period has never been changed.

AA: In your discussion of the “Big Hospital Lobby,” you describe the ways in which Medicare can be used by big business to force smaller competitors out of the market and, ultimately, out of business. You write that “they dress it up in the rhetoric of the ‘noble purpose.’ As one supporter of physician-owned specialty hospitals put it, the Big Hospital Lobby ‘hides behind their community mission’ in order to stifle competition.”

You go on to say that “By limiting the access that physician-owned specialty hospitals have to Medicare, the big hospitals, which are often bureaucratic, have protected themselves from smaller, quicker competition. In so doing, they have choked off a major source of efficiency and innovation in the health care system and have limited patients’ options.”

These are experiences small business pharmacy owners are all too familiar with. Big business pharmacy’s position is that smaller competitors are anathema to Part D’s success and/or cost savings and that only they have the ability to provide for seniors. Millions of dollars are spent on spreading this message and justifying big business’ anti-competitive position in the market.

Is it fair to say competition has been a victim of Medicare as well? Can you speak to the concerns of small business pharmacists?

DH: You can certainly see what the Big Pharmacy Lobby is doing in this advertisement. Funny how the big guys always portray the smaller guys as the ones who are greedy.

The Part D rules say that a Part D plan must allow any pharmacy into their network that meets the network requirements. But then the rules permit a plan to create a preferred network from which the plan can exclude any pharmacy it wants. It seems strange that if a smaller pharmacy is also willing to meet the requirements of the preferred network that it can be excluded. It definitely looks like the type of law that a big business favors (and lobbies for) to try to drive out the smaller competition.

On the other hand, I believe in the maximum amount of freedom (including economic freedom) possible in a society, so a Part D plan should be free to include or exclude any pharmacy it wants.

Organizations for community pharmacies should be looking for ways to remove regulations that hinder their economic freedom. For example, my understanding is that to create a pharmacy network under Part D, it must cover a specific geographic location. Well, if something like that hinders smaller pharmacies from creating networks of their own and then entering into agreements with Part D plans, that’s something that community pharmacists should try to change.

AA: The industry has seen a tremendous amount of consolidation recently and it only seems to be accelerating. In just the past few months we’ve seen CVS Health purchasing OmniCare and Target’s pharmacy business, Aetna purchasing Humana, a public offer from Anthem to purchase Cigna, and endless speculation that more deals are to come. If the Aetna and Humana deal is approved, Aetna, CVS Health and UnitedHealth will control 73% of enrolled seniors.

What are your views on this consolidation? Does it raise concerns for Medicare’s victims? What about the Medicare program in general?

DH: Consolidation always seems to be a big problem in areas of the economy that are heavily regulated by the government. Regulations are costly to comply with, and it is easier to for large organizations to absorb those costs than smaller ones. We often see it among hospitals, and we are witnessing the beginning of consolidation among insurance companies on the Obamacare exchanges. Thus, it’s not surprising to me there is consolidation going on among the players in the Part D game.

While consolidation can bring benefits to consumers if the consolidation makes a company more efficient, that should be driven by market forces, not by government laws and regulations. If it is driven by the latter, then it will probably just mean less choice and higher prices for consumers in the long run. In this particular case, it is likely that Medicare beneficiaries will lose out.

AA: While discussing issues related to therapy, you say that “government rules and regulations tend to calcify, unable to keep up with changes in treatment.” We see this calcification in Part D as it relates to regulations regarding preferred pharmacy networks.

For example, when Part D was enacted in 2006 the insurance companies, pharmacy benefit managers, mail order pharmacies and retail pharmacies were separate companies. Vertical integration has allowed regulations that made sense in 2006 to be exploited in 2015.

Is this a case of regulations being unable to keep up with changes in the market? Is it a lack of foresight on the part of the federal government? Or a consequence of a poorly regulated program?

DH: It may be a case of the regulations incentivizing the vertical integration. Again, government regulations are easier to deal with if your business is a bigger one, and vertical integration increases a business’s size. And, for the record, terms like “government foresight” and “well-regulated program” are usually oxymorons.

AA: Quality of care is an issue that comes up often. Decision makers at big business healthcare organizations are generally not physicians or pharmacists. They are business people who view people as numbers rather than patients. This topic comes up in your discussion of physician-owned specialty hospitals.

Did you find that quality of care has suffered under Medicare? Can you provide some examples?

DH: Does a bear sleep in the woods? Let me give you two examples. In the early 1990s, the Centers for Medicare & Medicaid Services (CMS) adopted a new system of price control for physician fees under Medicare. One of the unintended consequences of the new price control system was that it paid more for shorter visits than it did for longer visits. More specifically, if the pay for each type of visit is divided by the number of minutes recommended for each type of visit, the pay-per-minute for shorter visits is greater than for longer visits.

The problem is that patients tend to view longer physician visits as ones of higher quality, and with good reason. Research has found that longer visits enable physicians to ask more questions and provide more information about patients’ ailments and the recommended treatments. Unfortunately, Medicare’s price controls, in effect, penalize doctors who try to provide better quality by spending more time with their patients.

And, it is set to get worse. A recent bill that Congress passed to eliminate the hated “Sustainable Growth Rate” included a new system for physician fees called the Merit-Based Incentive Payment System (MIPS). It will reward or penalize physicians who treat Medicare patients based on various metrics. Two of the metrics that MIPS will use to grade physicians are how well physicians’ patients score on quality measures and how many medical resources physicians use to treat patients. Under MIPS, a physician will receive a composite score, between zero and 100, based on how well he meets the MIPS criteria. Each year, CMS will choose a “threshold” number. If a physician minimizes the use of medical resources while his patients score well on quality measures, he will likely score above that threshold and he will receive a bonus. If he scores below it, he will be penalized with a cut to his Medicare reimbursement. MIPS will incentivize physicians to avoid the sickest patients. For physicians, the easiest way to have patients who score well on quality measures and limit the use of resources is to treat patients who are, at worst, moderately ill. Patients who have their diabetes or their heart conditions under control will generate better scores on quality measures such a blood sugar level or blood pressure. Keeping such patients healthy will involve fewer resources. These factors will increase the chances that a physician gets a bonus on his Medicare fees.

By contrast, sicker patients will score poorly on quality measures. Treating them will require more resources. A sicker caseload likely means a physician will fall below the MIPS threshold and see his Medicare fees cut. In short, the sickest Medicare patients will have a harder time finding physicians who will treat them thanks to MIPS. There are many terms that can describe a system that encourages physicians to avoid the sickest patients. “Quality care” isn’t one of them.

AA: The 65 and older population in the United States is growing fast; by 2050 the population of seniors is expected to double to over 80 million.

With this in mind, what is the prognosis for Medicare’s various victims? Will these problems grow as the population grows? Are you optimistic about Medicare’s future? What changes do you believe need to be made?

DH: I’m not optimistic unless some major reforms to Medicare are made. Without them, the pressure to cut Medicare will increase, and the cuts will fall hardest on the sickest Medicare patients since they are the costliest patients and they are the ones with the least amount of political influence.

What I propose in my book is a system of large Medicare accounts out of which Medicare beneficiaries pay for their care directly. If they don’t spend all of the money in the account, they get to keep a percentage of what they save at the end of the year. The accounts will be limited, with Medicare picking up the expenses for indigent beneficiaries who exceed the amount in the accounts. Everyone else will have to purchase private insurance to cover anything that exceeds the accounts—a bit like private Medigap covers Medicare’s cost sharing today.

Such accounts will encourage Medicare patients to become consumers of health care. They will have incentive to be more careful in how much care they use and to take better care of their health as both will mean they get to keep more money for their Medicare accounts.

It will also incentivize doctors and other health care providers to find ways to provide more cost-effective care as there will be millions of Medicare patients who will be looking for care that provides better quality at lower costs.

Finally, Medicare beneficiaries are much less likely to be victimized if they are the ones who control the resources. They, along with the physicians, will be able to decide the right course of treatment with much less interference from Congress or CMS.

While I recommend changing Medicare Parts A and B into large Medicare accounts, it’s worth considering doing something similar for Part D. Let Medicare beneficiaries have accounts of, say, $5,000 to spend on prescription drugs. If they don’t spend it all, they’d get to keep part of what they save. They would buy private plans to cover anything over $5,000. That would not only give more control to Medicare beneficiaries, it might put all pharmacies, including community ones, on a more equal footing.

1 Comment

  1. Lois Gorman says:

    After we set limits on welfare, medicaid, food stamps and all the other give aways, especially give aways to foreign enemies, then we can talk social security and medicare reform.
    We paid into the system with the expectation it would be there for us later in life. Leave the system alone until the budget is cut in a lot of other places, including the retirement and health care of our retired politicians. If they were on social security and medicare it would be fixed with no cut to benefits in a heartbeat.

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