A Slower but Certain Death Spiral

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Offering an absurdist twist on an American tragedy, the Medicare Trustees reported last month that the Medicare Trust Fund is going broke at a slower rate than previously projected.

Marilyn Tavenner, Administrator of the Centers for Medicare & Medicaid Services (CMS), touted the announcement as good news for beneficiaries and attributed the development to the Affordable Care Act. I’m not so sure.

ACA may have played an indirect role in extending the solvency of the fund two years (until 2026) by sounding the death knell for the status quo (straight-on fee-for-service) and helping providers of all types embrace change. Credit for bending the cost curve, however, likely belongs elsewhere: CMS has ratcheted down payments and tightened criteria, just as private insurers have, and providers in general seem to be operating with greater consciousness of the cost of care—something I’ve noticed in the office of my own GP, who is less interested in my suggestions these days. In other words, the truth is writ large on the wall—and the culture is shifting.

The really important numbers in the report are these: In 2012, total expenditures for 50.7 million people—42.1 million 65 and older and 8.5 million disabled—were $574.2 billion. Total income was $536.9 billion. Assets held in U.S. Treasury securities decreased by $37.3 billion to $287.6 billion. These numbers leave no question about which direction the trajectory is headed.

This week, the WSJ reported that an OIG analysis of Medicare lab costs indicated the government could save $1 billion if it paid rates negotiated by some Medicaid and private insurers. Furthermore, the government could save even more if the program charged co-pays, the authors suggest. But the government is constrained by law from negotiating lower rates with its providers.

There are many reasons why the largest payor in the United States should be able to use its market clout to negotiate rates with the provider of any service or product—including pharmaceuticals—and the first is that it is a colossal waste of our tax dollars not to do so.

There is one reason why this is not happening: Politics.

I’ve always said we need a housewife with 6 children—someone who has to know how to live on a budget—in the White House. Maybe a better place for her would be at the helm of CMS.