In Part I of this series, we discussed the problem of Medicare/Medicaid insolvency and what might be done to solve this problem. Seema Verma, former administrator for the Centers for Medicare and Medicaid Services under President Trump, offers her solutions in a recent article published in The Wall Street Journal.
Last post Verma suggested the solution is to convert Medicaid to a value-based reimbursement model. The more common term for this type of healthcare is capitation, or payment based on the number of patient lives covered by the physician provider or hospital system. After a fixed payment for each patient, no additional payments are received, regardless of the treatment provided. While Verma argues this will bring down costs, and it will, I argued that this provided the wrong incentives to providers – it encourages them to withhold treatment, especially if it is expensive. (For more on this argument, see Part I.)
A common problem with capitated payments is the rationing of care. Verma addresses this concern today. She argues that to ensure care isn’t rationed, part of the doctor’s reimbursement is tied to quality and patient outcomes. For example, doctors can use part of the capitated payment to cover the costs of home modifications to prevent falls, to provide medically tailored meals for diabetics, or to send a nurse to a patient’s home to administer medications. Unless this expense is in addition to the capitated payments, you can be sure doctors and hospitals are not going to pay for such luxuries.
She goes on to say value-based reimbursement can also be used to address new high-cost medications. If a patient doesn’t show meaningful improvement after taking the medication, the drug manufacturer’s reimbursement would be reduced or not paid at all. But who is going to decide how to define “meaningful improvement?” The answer is the government, not the doctor. This is just rationing by another name.
The same strategy for lowering costs is used in socialized medicine countries. If the government determines the cost of the treatment is not going to result in “meaningful improvement,” the treatment is denied. This may be due to the patient’s age, years of life expectancy, usefulness of the patient to society, or other parameters determined by the government.
Ms. Verma advocates for more competition in America, and that does make sense. Competition always lowers the cost and improves the quality of any service or manufactured product. But that only occurs when there is a level-playing field. As it stands right now, there are broken federal policies that benefit healthcare monopolies and these need to be eliminated. Where healthcare systems enjoy a monopoly, no competition can exist.
Verma says these healthcare monopolies are refusing to be held accountable for quality, to accept value-based contracts, or to negotiate prices with payers, employers and state Medicaid agencies. Perhaps she should consider a Medicaid model based on the highly successful Medicare Advantage plans that allows private insurance companies to compete for seniors in the Medicare system. The results of competition there have lowered premiums and provided additional services to those who enroll. Millions of American seniors now benefit from these plans.
Verma is also concerned about the drugs provided to Medicaid enrollees. The federal 340B Drug Pricing Program provides discounted drugs to so-called safety-net providers to help them reduce medication costs for low-income patients. But she argues providers aren’t required to pass on the discounts when selling medicines to patients, and can pocket the profit. To this end, 340B providers have worked to acquire physician-owned clinics and smaller hospitals, allowing them to expand their use of the program and thus their profit and monopoly power.
(For more on this subject, stay tuned for Part III of this series on my next blog.)
