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Medicare Cost-Lowering Experiments Rarely Acted On

The Democratic health-reform legislation comes studded with cautious plans to test proposals reining in Medicare costs. But history suggests that even if the experiments are successful, the odds aren't high that their lessons will be applied to the entire program.

Consider the case of a 1990s pilot project that earned the support of a president, several key legislators and successive Medicare leaders — from both parties. A five-year test showed that lumping together payments for doctors and hospitals for some heart surgeries encouraged them to be more efficient and reduced Medicare's cost by 10 percent. But the project ran into relentless opposition from doctors and hospitals. The result: Congress has never approved the change for widespread Medicare use and Medicare continues to study the issue.

Successful Medicare experiments are "certainly not enough to change policy," said Paul Ginsburg, director of the Center for Studying Health System Change, a nonpartisan research group in Washington. Yet Democrats' hopes to "bend the cost curve" hinge in large part on introducing successful Medicare experiments into the system. And because of Medicare's clout as the insurer for 45 million older and disabled Americans, many private insurers follow its lead.

Medicare has conducted hundreds of tests, called pilots or demonstration projects, since the mid-1970s, but can't apply them to the entire system without congressional approval. Lawmakers have made other important changes to Medicare, but pilot projects have rarely been the catalyst.

Most of these experiments haven't been expanded because they failed a threshold test; they didn't save money or improve care. Others passed that test but were derailed by objections from hospitals, doctors and other providers — or were caught up in political fights as control of Congress shifted. Only a handful resulted in broad health system changes. Two became permanent programs. And the biggest success — a more efficient way to pay hospitals — occurred 27 years ago.

Congress is frustrated at the lack of innovation, aides said. But they note that political leaders are hesitant to make changes to the Medicare system without such rigorous study and without consensus because they fear alterations could result in unintended dire consequences on a massive scale.

Still, in the health overhaul legislation working its way through Congress, lawmakers have added provisions that they hope can improve the odds for implementing successful demonstrations. One measure seeks to circumvent the difficulties of getting congressional approval for changes. It would give the secretary of Health and Human Services the authority to expand demonstrations that work; Congress' permission wouldn't be needed. Another would create an Innovation Center that would allow Medicare to pursue promising ideas more quickly. Yet another would set up an independent Medicare commission to recommend Medicare savings that would be implemented if Congress didn't act.

Many Paths to Nowhere

The 1991 heart surgery pilot project shows how difficult it is to prod Congress to change Medicare in the face of opposition from providers. The test was begun during President George H.W. Bush's administration by Gail Wilensky, who was head of the agency running Medicare and Medicaid. In the demonstration, Medicare combined a number of separate payments normally made to the hospital and doctors for specific procedures and follow-up care in an effort to discourage them from performing excess services.

Wilensky no longer ran Medicare by the time the demonstration results were in, but as an adviser to Congress she said she believed the program was ripe for expansion. Her Democratic successor, Bruce Vladeck, agreed.

But his efforts to expand the demonstration fell flat because of broad opposition from such heavyweights as the Mayo Clinic in Rochester, Minn., and the American Hospital Association and — after Medicare officials suggested including joint replacement surgery in the program — the American Academy of Orthopedic Surgeons.

That wasn't the only promising demonstration to be quashed. In 1997, for example, Congress instructed Medicare to test a plan under which suppliers of durable medical equipment — oxygen tanks, diabetes supplies and wheelchairs — would submit bids. Medicare would use the bids to generate a range of prices that it would pay and would require suppliers who wished to sell to Medicare patients to meet those prices. After the demonstration showed a 20 percent savings, legislators in 2003 ordered Medicare officials to expand the program.

But by 2008, medical supply companies, worried they would lose money, pressured lawmakers to reconsider details of the program. Congress came to share the suppliers' view that the bidding process was unfair to smaller companies and delayed the project until 2011.

In late 1999, a similar experiment to extract better prices from managed-care plans was jettisoned as well. Lawmakers had mandated the program two years earlier, but when Medicare officials chose Phoenix, Ariz., as one of the test sites for the project, insurers appealed to local members of Congress and the program was killed.

A Critical Success

A rare victory came in the 1980s. In 1981 Medicare's hospital costs were up more than 17 percent. That put pressure on Congress to find a way to bend the cost curve. One demonstration found that paying a flat rate for hospital services limited spending growth compared with the traditional method of reimbursing hospitals based on how much they spent, plus a small bonus.

Congress approved that change in the way hospitals were paid in 1983. By 1985, hospital spending was growing by only 5.7 percent, according to federal officials.

Democrats also point to other successes, such as a managed-care program for social services, and the Program for All-Inclusive Care for the Elderly, which pays groups of providers a monthly lump sum for providing all care to frail, low-income Medicare patients.

In the current legislation are demonstrations that would test accountable-care organizations, medical homes and combining physician and hospital payments for post-acute care. These projects could change the way health care is delivered, increase its efficiency and, over time, lower costs for consumers.

"Out of those pilot projects could come significant changes in Medicare," said Clifford Gaus, who directed Medicare's demonstration programs in the 1970s. "It just could take a long time. The bending the cost curve problem is now, not in five years."

This story was produced through collaboration between NPR and Kaiser Health News(KHN), an editorially independent program of the Henry J. Kaiser Family Foundation, a nonpartisan health-care policy research organization. The Kaiser Family Foundation is not affiliated with Kaiser Permanente.

Copyright 2023 Kaiser Health News. To see more, visit Kaiser Health News.

Christopher Weaver
Kate Steadman