Stanley Feld M.D., FACP, MACE Menu


Medicare Backs Off! Maybe.

Stanley Feld M.D.,FACP, MACE

Astonishing events have occurred in the last 2 weeks. On April 27, 2006 CMS published the new regulations for a change in DRG effective October 1, 2007. The New York Times published an article about the change on July 24, 2006. DRGs reflect hospital costs to the healthcare system.

Eighty percent of the costs of care to the healthcare system are the result of the treatment of complications of chronic disease. Eighty percent of those dollars are spent in the hospitals for complicated procedures. If we have any hope of Repairing the Healthcare System, we need to decrease the complications of chronic disease and keep the patients out of the hospital.

The original formulas for the DRG system were created in 1983. It is antiquated. It has evolved into gross overpayment of hospital charges. The proposed new patch is to convert the DRG formula from reliance on hospital charges to the consideration of hospital costs. Not a bad idea. The charges for Dick Cheney’s implanted defibrillator were $30,000. The charge seems inflated and needs to be justified on a cost basis.

The problem is, how is Medicare going to figure out what hospital costs are? How are they going to figure out quality of care on the basis of costs? Was the analytic program developed by 3M created after a competitive bidding process? Does the program have defects? How are hospitals going to adjust to a change in system that they have figured out and profited from in the last 23 years? How are the device companies going to adjust to a change in their excellent margins?

Not surprisingly, the uproar from well funded lobbyists for hospitals and devices companies was loud and unrelenting. Everyone was yelling about the change in the DRG system including Senators and Congressmen.

On August 1, 2006, Mark McClellan tried to explain the changes in the DRG system in the midst of the firestorm of lobbying in Congress and direct to the public media advertising.

“The changes are designed to more accurately reflect hospital costs and reduce incentives for hospitals to treat only the most profitable patients,” said Mark McClellan, administrator for the Centers for Medicare and Medicaid Services.

Again, a good idea, if it does not destroy the Focused Factory Centers of Excellence some hospitals have created. The main issue here is how the costs of care incurred by the hospitals compare to the charges for care. This point always seems to get lost in the political rhetoric. My guess is the difference between costs of care verses charges for care are great. However, I believe the true difference will be difficult to obtain. Few hospitals and device companies have the desire or incentive to reveal the difference.

Medicare’s explanation of the of the shift in fees included the following statement;
“For example, if a patient needs a ventilator for more than 96 hours, hospitals can expect a higher payment than they would get now. However, if the patient needs a ventilator for less than 96 hours, the hospital may get less money than they would get now. Also, if a patient is admitted with seizures, the hospital would get a higher payment. But if that patient just had a severe headache, the hospital could see a lower payment.”

These explanations make no sense to me.
If the patient was on a ventilator for 95 hours, and you as a skillful physician were able to get him off the ventilator, your hospital would get less money than if the hospital kept the patient on the ventilator for 4 more hours. It seems to me that the incentives for less costly care are going in the wrong direction.
If one was admitted for a headache, for example, included in the differential diagnosis for the headache was a brain tumor, if the work up turned out not to be a brain tumor that would be wonderful for the patient’s prognosis. If the diagnosis was a headache, the hospital would get less money because the patient had a better prognosis. Does that make sense to you?

“We want to get the payments right, so each patient gets appropriate care,” McClellan said.

My belief is medical decision making should be made by competent physicians and not legislated by rules that do not work. Medicare should be concentrating on the price they pay hospital for care and how they can create incentives in the system to decrease the complications of disease so the cost of care decreases. They should not be fiddling with payment schemes that are bizarre and clearly create incentive for institutions to abuse the system.

On August 2, the government backed off; “Under intense pressure from health care lobbyists and lawmakers, the Bush administration says it will scale back and delay proposed changes in Medicare payments to hospitals that would have created clear winners and losers.”

“The proposals would have cut payments by 20 percent to 30 percent for many complex treatments and new technologies. Hospitals will instead see much smaller cuts or even small increases for many of those procedures. Some of the changes will be phased in over three years.”

The physician groups should be so lucky. We face 5% reductions per year across the board in a rigid payment system that does not encourage innovation to prevent the complications of chronic diseases.

Why do you think this happens?

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