Senators Mull Ways to Cut Costs in Medicare

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WASHINGTON — The Medicare program could easily become solvent if regulators cracked down harder on fraudsters and profiteers, Sen. Elizabeth Warren (D-Mass.), chair of the Senate Finance Subcommittee on Fiscal Responsibility and Economic Growth, said Wednesday.

“The Medicare system is hemorrhaging money on scams and fraud,” Warren said at a hearing on Medicare financing. “It is critical that we stop the flow and if we do, the system will have more than enough money to operate at its current level and increase coverage.”

Concerns About Drug Prices

Pharmaceutical companies were one target of Warren’s ire. “In 2019, total Medicare spending on prescription drugs was $220 billion,” she said. “Because Medicare cannot negotiate prices, drug companies are able to rake in billions in profits. Now that’s bad enough, but the drug companies have more ways to juice their profits: they use anti-competitive tactics like ‘pay for delay,’ product hopping, and patent thickening, all while anti-trust regulators turn a blind eye. It’s enough to gag a maggot.”

She also pointed to the private insurers who participate in Medicare Advantage. “Medicare Advantage was … built on vague promises of cost savings, but instead, it has cost Medicare almost $150 billion extra over the past 12 years,” Warren said. “Because greedy private insurers are gaining the program’s rules, including its risk adjustment process, its benchmark policy, and its quality bonus program, all to squeeze more money out of Medicare and to drive up the costs for taxpayers.”

Making changes to both those programs could save more than $900 billion over 10 years, while the estimated shortfall in Medicare’s hospital insurance trust fund is $517 billion between 2026 and 2031, and the cost of extending Medicare coverage to include dental, vision, and hearing benefits is just under $360 billion. “In other words, we don’t need to cut Medicare benefits. We need to cut out the scams that are bringing Medicare down,” she said.

Arguments Against Expanding Medicare Benefits

Sen. Bill Cassidy, MD (R-La.), the subcommittee’s ranking member, had different ideas. Expanding Medicare benefits “doesn’t make sense to me,” he said. “We have an obligation to the people currently being covered, and yet we will expand the benefit and maybe have insolvency come even quicker.” Cassidy noted that if Medicare were to become insolvent, “under current law, it would be an immediate cut to providers of roughly 20% to 30%,” something that providers would not be able to afford, leading to less provider access for beneficiaries.

Although some people have suggested doing away with beneficiary cost-sharing, “there’s a lot of data showing that one thing that puts the brakes on it is if you have just a little bit of cost-sharing, Cassidy said. “Not too much so the diabetic does not get her needed care, but at least a little bit so people think twice.”

“It’s time to take a modern approach to the way we deliver healthcare,” using an approach “that rewards providers for keeping patients out of hospital beds and one that recognizes the patient, and the doctor, and that relationship as the ultimate arbiter of value, health, and well-being,” he continued. “We can get there without disrupting the quality and access our constituents need, but the discussion has to begin today.”

Hearing witness James Capretta, senior fellow at the American Enterprise Institute, a right-leaning think tank here, suggested five ways to modernize the program: putting the Medicare benefit together into one understandable, coordinated benefit with rational cost-sharing; making the choices between various Medicare plans more understandable for patients; strengthening premium competition among the available options; improving price competition among providers; and consolidating the various Medicare trust funds, so the financing of the entire program would be more clear.

Amy Kapczynski, JD, faculty co-director of the Law and Political Economy Project at Yale Law School in New Haven, Connecticut, noted that current drug pricing doesn’t accurately reflect companies’ research and development costs. She had several suggestions for improving Medicare drug coverage. In addition to allowing Medicare to negotiate drug prices, “we should also have legislation that penalizes price spikes to prevent price gouging on existing drugs,” she said. “We should explore legislation to curb anti-competitive patent-thickening, and [legislation] that would strengthen rules against ‘pay for delay’ settlement deals. And we should also critically provide the [Federal Trade Commission] with more resources and authority to address anti-competitive conduct in the sector.”

Direct Contracting in the Spotlight

A Medicare demonstration program known as Direct Contracting came under some criticism at the hearing. Under the program, accountable care organizations (ACOs), insurance companies, and health systems, would agree to provide care for a certain number of traditional Medicare beneficiaries in a geographic area for a set amount of money.

“CMS has invited the same insurers that are already scamming Medicare and dozens of new investor-owned organizations to cover traditional Medicare beneficiaries through a new privatized Direct Contracting model that lets them pocket — get this — as much as 40% in profits,” Warren said. “This invites fiscal disaster, and I hope this administration will reverse this decision.”

Susan Rogers, MD, president of Physicians for a National Health Program, a lobbying group for single-payer healthcare that has protested against Direct Contracting, agreed. “We cannot let Medicare become a playground for Wall Street investors,” Rogers said. “We need to get back to what we know works, and that’s traditional Medicare.”

On the other hand, Katherine Baicker, PhD, professor of public policy at the University of Chicago, spoke in favor of more use of alternative payment models in Medicare, including ACOs. “Right now, Medicare’s fee-for-service traditional structure gets the prices wrong, despite all best efforts,” she said. “It’s very difficult to write down prices that align with value on a line-by-line basis. And we see overuse of some services at the same time that we see underuse of other services. And that’s not the best way to ensure we get the most health for beneficiaries for every dollar that we spend.”

Instead, “reforms that align payments to providers with the value of healthcare that the service provides could help our dollars go further in promoting health and well-being for beneficiaries,” Baicker said. “That would include some alternative payment models, each of which has challenges but has potential. We’ve seen experiments in the Medicare program with alternative payment models like bundled payments or capitated payments or ACOs … Some of the experiments in bundled payments, particularly those looking at joint replacement, have seen reduction in costs while maintaining the quality of outcome for beneficiaries.”

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    Joyce Frieden oversees MedPage Today’s Washington coverage, including stories about Congress, the White House, the Supreme Court, healthcare trade associations, and federal agencies. She has 35 years of experience covering health policy. Follow

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