Mediscare? What Paul Ryan’s Medicare Overhaul Fails to Address

I don’t think anyone remotely following the health care debate as well as this country’s budget problems will contest that Medicare as it currently stands is quickly heading into an insolvent state. In fact, the annual drama of the Sustainability Growth Rate (SGR) formula on physician pay cuts shows that doctors now owe the Medicare program over 300 billion dollars (and climbing). By law unless deferred by a legislative act for the umpteenth time before January 2013, your doctors are facing about a 30% pay cut for all services. Just so you know, this will put virtually all private physicians out of the Medicare program (can we say MEDISCARE?). The law states at some point this must be paid back (in effect a deferred tax payment on your doctors) for the privilege of having provided services to the Medicare patients over the past 23 years. The reason the doctors are being held accountable is that Medicare services consumption is exceeding revenues. In 1989 our legislators devised something called an RVU (relative value unit) method to cost account for physician services. They then set a dollar amount to an RVU. Subsequently, they derived a formula that allowed for a certain amount of growth but the formula failed to account for the unforeseen regulatory interference, additional paperwork, and insurance components to your typical doctors visit cost. The RVU legislation tied future growth to a fixed budget. Since the formula failed to accurately account for unforeseen cost, the system is going broke and your doctors are supposed to foot the difference in “planned cost” vs. “true costs”.

After they developed the RVU system of payment, they then made it illegal for doctors to accept additional payment (I think fully enacted in 1997) over what Medicare allows for any covered service, in effect fixing the price of physician services. President Obama under the Patient Protection and Affordable Care Act (PPACA) legislation has accelerated the urgency of the debate because he insists he will reduce over 700 additional billion dollars out of the Medicare program (remember the docs already owe Medicare 300 plus billion), I wonder who is going to get an additional deferred tax bill? Obviously he doesn’t have a solution for this issue; he has in fact, exacerbated it.

 

Presidential candidate Mitt Romney announced his vice president pick US Congressman Paul Ryan August 11th, 2012. With his pick, the issue of Medicare reform has been thrust into the front of all political conversation. Paul Ryan had introduced his concept of Medicare reform over a year ago when all of us were temporarily discussing the fiscal cliff our US government is facing. His solution includes the idea of increasing competition and individual responsibility for consumption of health care resources. He has chosen to do this by advocating personal vouchers for insurance purchases. But what he doesn’t understand or what he isn’t acknowledging is: the game is rigged. By tying the voucher idea to the purchase of insurance, the plan will not address the issue of competition. I will attempt to explain further.

The idea of creating more competition usually will result in more innovation, more supply production and subsequently, lower prices. Under this premise, his idea has true merit. This of course assumes that the product created can be delivered for less. It also assumes that the barriers to enter the market can be breached. The price point and the ability to breach the barriers is where my present concerns lie with Congressman Ryan’s proposal.

Over the years health insurance products have narrowed significantly, especially when looked at in each regional/local market. The AMA has documented using agreed measurements for monopoly analysis that virtually every regional market should be broken up if the Federal Trade Commission were to apply its authority under the Sherman Anti-trust Act of 1890. The FTC doesn’t get to evaluate the health insurance market because in 1945 the McCarran-Ferguson Act was passed exempting the health insurance industry from such regulation, unless the Federal government specifically legislates itself such authority. In Florida for instance, new insurance companies are rarely created because of significant capital requirements and government regulations. The Florida Office of Insurance Regulation is the overseer of Florida Health Insurance companies. The state has the authority to create barriers to entry (for instance set high cash holding requirements) which can shore up the current large players and make it impossible for smaller competitors to enter the market. The Patient Protection and Affordable Care Act (PPACA) has provisions specified that do address the Health Insurance industry directly and so it does grant the government specific interstate authority to regulate; specifically the ability to eliminate caps on coverage and to disallow the industry from excluding individuals from being underwritten. Most agree these two things need to be addressed as it relates to the Health Insurance industries behavior and tactics.

What is truly ironic about the country’s current situation is that the Sherman Act was necessary to address such behaviors as monopoly control in industry (railroads being an obvious one) and to assure that price-fixing was ruled illegal. The irony is that since the 1990’s our very own government has assured price fixing in health care is the norm, thus itself violating the intent of the Sherman Anti-Trust Act of 1890! Under Medicare rules, providers of health services cannot receive from individuals (and thus health insurance companies either) any fees above what Medicare has decided to pay for any covered service. This is in effect, price fixing. The private insurance companies use the Medicare fee schedule (which is price-fixed) as the benchmark for any of their other business contracts. This is why the health care system is in such a state of affairs. Price controls are causing supply restraints, especially for primary physician services. This is now obvious in the country as evidenced by longer wait times to see a doctor, doctors placing non-physicians in their chair to try to meet the demand curve and more care being rendered in the emergency room due to patients losing access to physician offices. In Mitt Romney’s state of Massachusetts, after his mini PPACA program, wait times have increased dramatically due to the artificial demand curve and the diminished supply of the fleeing doctors.

So, what I am saying is by tying the voucher idea to insurance purchases, true competition for more affordable health care can’t occur. It can’t occur because there is no true competition in the insurance industry and also because under present law Medicare has fixed the price of services, regardless of true supply and demand realities. The competition in health insurance should be networks, prices and efficient payer services. If the price is being set by Medicare, how then will there ever be any competition?

Between the two ideas, I would advocate the one that offers some competition. What Congressman Ryan should be advocating is vouchers for health care services (predicated on real dollars back to people who over the years paid these dollars in) to be used by individuals who are eligible for Medicare benefits. The vouchers can go not just for insurance costs but also physician services payments, diagnostic services, hospitalization costs and nursing home care. Remember health insurance doesn’t equal health care. Congressman Ryan’s proposal has missed this important point. Giving a voucher for health insurance will not improve affordable access to health care, not under the present rules of the game. By placing the voucher into the hands of the individual, all aspects of the health care system will immediately be forced to compete for the individual’s dollars. This will result in less expensive care and is the proper alignment of social justice.

No matter what, I think it is a reality that going forward more personal consumption of health care services is going to have to come out of all of our individual pockets. Whether we let the current Medicare program turn into a two-tiered system or we liberate all of us into a more evenly competitive market is up to us. I hope folks request the ideas debate be opened up even further than the choice the two parties are now presenting. My personal recommendation would be to immediately end price fixing (we decided in the 1800’s this was not only bad but illegal) and share the burden of any additional costs through smaller price adjustments on a consumption/individual basis. This would allow the largest amount of access for the least amount of increased cost. Continuing on the present path will result in a two-tiered system that will actually be far more expensive. One tier being the folks able to pay substantially more for the same service, resulting in a worsened physician shortage for the other tier, those folks waiting in the socialized health care cue where rationing will be the status quo. That to me is truly scary.

About thedoctorsreport

Dr. Kordonowy is board certified by the American Board of Internal Medicine and has been in private practice since 1993. His group practice is in Fort Myers, Florida. His website is: www.drkordonowy.com. He earned his degree from the University of Kansas School of Medicine in Kansas City, Kansas and completed his residency as Chief Resident at Orlando Regional Hospital System. As Chief Resident, Dr. Kordonowy was recognized as the Outstanding Resident by the American College of Physicians. He is a member of the American Medical Association, American College of Physicians, and the American Society of Internal Medicine. In December 2005, Dr. Kordonowy became Board Certified in the new field of Clinical Lipidology by the American Board of Clinical Lipidology. Lipidology is the specialty of diagnosis and management of cholesterol and triglyceride metabolism disorders. Cardiovascular disease risk assessment is also part of this specialty. He now serves as president of the Independent Physicians Association of Lee County. He is active in the Lee County Medical Society, the Florida Medical Society , the Florida Lipid Foundation, National Lipid Association and the American Medical Association.
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One Response to Mediscare? What Paul Ryan’s Medicare Overhaul Fails to Address

  1. Pingback: “Get ready for a two-tier system of medical care” | The Doctor's Report

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