Selling Out Medicare's Soul


Originally published in Synapse - The UCSF student newspaper, Volume 40, Number 8, 26 October 1995.

On Oct. 18 the U.S. House of Representatives voted 231-201 to cut $270 billion dollars from Medicare over the next seven years.

The AMA endorsed the Medicare cuts after wresting numerous concessions, including the preservation of physician payments at their current levels, a $250,000 limit on malpractice awards, the relaxation of Medicare claims fraud laws, and an exemption from state laws which will allow physician provider-service networks to set up managed care plans and receive Medicare funds.

These provisions add up to billions of dollars of extra profits for physicians and place the major burden of Medicare cuts on senior citizens, prompting many to wonder whether the AMA has patients' interests in mind in its quest for healthcare reform.

On the eve of the House vote, Synapse interviewed Kevin Grumbach, a family practitioner at San Francisco General Hospital, researcher with the Institute of Health Policy Studies at UCSF, and assistant professor in the Department of Family and Community Medicine.

Synapse: The Medicare trust fund is going to go broke soon. From your perspective, what reforms are needed to prevent that from happening?

Grumbach: This is not a new problem. Periodically Medicare projects that there will be a deficit in the trust fund. Traditionally what they've done is just change the financing a little bit.

There is a higher proportion of people over 65, so they need to rebalance the revenues coming in with the expenditures. Some modest reforms and some reconsideration of what the appropriate tax rate should be are needed.

It's not that the whole system is collapsing suddenly in an unprecedented fashion. I clearly would not endorse the Republican proposal, which essentially is to start the dismantling of Medicare and to privatize it in a very destructive way.

I would agree with the Clinton administration view that it's hard to look at Medicare outside the context of what's happening to the healthcare system as a whole.

When you're talking about containing costs, you really need a system-wide approach. It's what people describe as pushing on a balloon — you try to squeeze Medicare, but it just bulges out in other ways.

Synapse: The Republicans have come up with different ways of saving money, like making wealthier seniors pay higher premiums, doing more cost sharing, pushing more patients into managed care. Do you think those things will save money or not?

Grumbach: There's a giant shell game, so it looks like you're saving money; but somebody else is paying for it, so is that a real savings?

A savings to taxpayers that looks good on the federal government's ledger but is not controlling the true costs of care — I don't think those are effective solutions.

There are two basic thrusts going on, it seems to me. One is just to take money out of the system, and then there are the structural changes. The two big structural changes are important to consider. One is the shift into a managed care type format — essentially, to take money that right now Medicare pays directly to physicians and hospitals and home care agencies, and instead, to pay that to some sort of private managed health care plan, and say, "You manage the costs."

That would be a very fundamental change because it adds a new intermediary between Medicare and the actual providers of care.

The other approach is to go to a medical savings account type system, which is essentially paying through Medicare for a high deductible catastrophic plan. People will pay direct for their everyday health care needs up to, say, $3,000, and that's when the health insurance kicks in.

It's like traditional car insurance: if you wreck your car, you get paid, but you don't get paid for your tune ups. People will get a little savings account that they can spend on it. And the theory is that they'll be much more cost conscious when they're "spending their own money."

I guess even a cynic like me would have to say managed care is starting to squeeze down on costs. But there's also a huge siphoning off of money that used to go directly to patient care that now is going to get sucked off by this whole intermediary administrative bureaucracy and the profit structure.

One of the big appeals in Medicare is that about two percent of Medicare money stays for insurance administration. There are no profits. Now suddenly you're adding HMOs that have anywhere from 15 to 30 percent of overhead and profits.

So now, you're only going to put potentially 70 cents on the dollar into patient care instead of 98 cents on a dollar. So that health insurance plan has to be really quite remarkable.

Synapse: So the health care might be cheaper but the patient isn't going to get as much.

Grumbach: Right. How can they deliver "care" at 80 cents on the dollar given their extra overhead? One way is by partly cutting some of the amount of money they pay to providers, but the other is by being very shrewd about marketing only to healthy seniors.

The typical thing they do is get Richard Simmons to go out to some senior center and have a kick-off for their managed care recruitment drive. They don't go lo the Alzheimer's Center, you don't see a lot of them out at Hunter's Point Bay view aggressively marketing.

They go into the suburbs with sort of the vigorous golfing senior set and that's who they're marketing this stuff to. My real fear is that it starts to segregate the market, and the people who go into the managed care will be a healthier population.

Synapse: And what about the mcd ical savings accounts? What do you think the effects of that would be?

Grumbach: I think it's similar in the sense that, who would want a medical savings account? Given that it's voluntary, who would want that?

Synapse: Someone who knows they're not going to spend it all.

Grumbach: If you know you're really sick and you're going to hit that $3,000 limit, why would you pick that plan?

There's no advantage to you and it's probably a hassle to have to-start paying all your own bills suddenly. So exactly, it's people who say, well, my guess is that I'm not going to go through that $3,000 deductible, and so I'll probably have money left over at the end of the year.

Then it starts to have the same problem where you select out the healthier people and it leaves the sicker Medicare patients with the short end of the stick.

So, it's interesting, both managed care and the medical savings account, even though they’re different mechanisms share one thing, which is they really create a big incentive to lure the healthier people.

You've set up this totally unfair playing field, and you can predict that the traditional Medicare system that has people who arc the most sick least able to exercise their options, that'll just look much more costly.

Not because it's really doing any worse, it just has the sickest people. And that will prompt further cutbacks, and lo me it just spells the dismantling of Medicare.

I think the points that need to be emphasized in this is that when you start talking about structural changes you attack some of the fundamental premises that have made Medicare work to the extent that it has.

When everybody's in it together, and it's one big insurance plan for everybody, and my benefits are as good as your benefits, and my doctor's going lo get paid the same amount as your doctor, to the extent that I want the system to be better, if I fight for it to be better for me, then it's going to be better for you and everybody else in Medicare.

And that's really been the political glue that's held it together. And as soon as you start moving people off into these segregated Medicare programs — each one in their own plan, each managing their own individual medical savings account — it totally undermines that sense that we're in it together.

Also, under the rhetoric of cost containment, you've essentially transferred close to $100 billion from patient care services under conventional Medicare into a whole new insurance bureaucracy —into the hands

Under the rhetoric of cost containment, you've essentially transferred close to $100 billion from patient care services under conventional Medicare into a whole new insurance bureaucracy — into the hands of shareholders on Wall Street.

And I think that needs to be clear. Is that a reasonable price to pay for trying to control costs?

Are we really willing to transfer this huge amount of capital away from patient care and into useless bureaucracy?

Synapse: One of the other things that's been discussed is changing the way that graduate student medical education is paid for. How would that affect academic institutions like UCSF?

Grumbach: Traditionally the only explicit funding for graduate medical education that any insurance plan paid for was Medicare. About $8 billion a year now goes to subsidize the cost of training interns and residents.

The rationale was that it was a public investment, that there should be some public contribution for supporting those institutions that take on the responsibility and all the additional costs of training physicians; not just to pay residents' salaries but to compensate for the fact that you have to hire extra physicians to teach, and that residents may order more tests, or work in teaching hospitals where they have sicker patients.

This support was instrumental in the expansion of residency training in the past three or four decades. The problem with it is that it came with very little strings attached.

The federal government really did not stipulate what types of physicians would be trained. It was set up in a very perverse way in that it encouraged specialization. The more years you're in training, the more money the hospital got.

The payments didn't go directly to the residency program, they went to the hospital, sort of as an add-on for the inpatient payments that Medicare makes to hospitals.

So again there were all these incentives to move towards hospital-based training programs and it prevented more primary care outpatient training sites from developing.

There were a lot of problems with it, although the money clearly was important. I think the Clinton plan had a very good approach, which was to try to rationalize it, to attach more strings, to regulate the types of programs involved and influence the general distribution of specialties and training.

The Clinton plan also said it shouldn't just be Medicare, basically all insurance plans should pay their fair share, because training benefits the whole system. That went down to defeat.

And I think the danger now is moving to the other extreme where the feds just say, "Well, let's just pull out training money altogether."

Why should the federal government in this deregulatory sort of political environment be stuck with the bill for residency training?

But that would be catastrophic for an academic medical center, because $8 billion is not something that places like UCSF Medical Center could just say goodbye to, particularly when they're also facing this pressure to cut costs.

When you look at it, the missions of an academic health center, to the extent that they have been legitimate, are much more for society as a whole.

Training physicians isn't just about benefiting one particular health insurance plan; research is not just a proprietary good for one insurance plan.

We're at this terrible crossroads where we're saying "is there any sense of some public mission left? And if so, how are we going to pay for it?"

Because the market may be good for some things but it was never designed to support services that benefit the population as a whole.

On the other hand, academic health centers have sort of paid lip service to a lot of those things like training, research to benefit the public, serving the underserved, and in fact have often done what's been in their best interests.

If they're going to really play that song about serving the public, then they need to really get back in touch with their mission and rededicate themselves more vigorously to public service rather than just the more self-promoting side of academics.

Synapse: There's been a lot of controversy about the AMA coming out in favor of the Republican plan, and I was wondering if you would comment on that.

Grumbach: I was shocked by that, because frankly I think the AMA has done some very good things lately.

They're very good about things like going toe-to-toe with the tobacco industry, taking on issues like domestic violence.

They, to their credit, at least advocated for universal health insurance coverage, even though their particular plan I don't think is a good one. This is just such a throwback to the old AMA that seems to be motivated much more by physicians'

The AMA made a sort of Dr. Faustus bargain with the devil over silly things like malpractice reform. self-interest than by some public-spirited ethos.

They made a sort of Dr. Faustus bargain with the devil over silly things like malpractice reform. You can't cut $270 billion from Medicare without it affecting physicians' fees — I'm sorry, there's just no way to do that.

Medicare, for all its faults, has been a proud example of a federal program that by and large has worked, and it's the closest thing we've gotten to a program that's truly been universal. It has been financed not as progressively as it could have been but has been somewhat fair through a tax system.

It's run with incredible administrative efficiency. It's been the source of some innovative policies, whether it's hospital DRGs or the re-source-based relative value scale for physician payment.

And the real goal of the conservative reforms is essentially to pare down Medicare as we've known it and to convert it into a market-based system that no longer serves everybody equally.

There are problems with Medicare for sure, and probably to the extent that anything good is happening, there's a sense that we need to move more toward a primary-care oriented system, we probably need to get away from fee for service to capitated type payment, wen need to think more carefully about how much things cost and get physicians to practice in more reasonable styles. I think that's all good.

The real tragedy of this is that we could have moved toward that type of system within the framework of Medicare. They could have made a lot of innovations in primary care and managing costs while retaining the essential fabric of Medicare.

To me that's tragic. Some good directions may be introduced, but at much too high a price — the price of selling out Medicare's soul. It makes me sad.