Print BCTV: Hard Cuts -- Avalere, Geisinger Health, Gail Wilensky debate Medicare cuts

Hard Cuts

Transcript of BioCentury This Week TV Episode 124





Dan Mendelson, CEO, Avalere Health LLC, Washington, D.C.

Earl Steinberg, EVP for Innovation and Dissemination, Geisinger Health System, Danville, Pa.

Dr. Gail Wilensky, Former Administrator, U.S. Centers for Medicare & Medicaid Services (CMS), Baltimore, Md.



Henry J. Kaiser Family Foundation, Menlo Park, Calif.

Jack Lew, Former Director, U.S. Office of Management and Budget (OMB), Washington, D.C.

Marilyn Tavenner, Acting Administrator, CMS

Sen. Orrin Hatch (R-Utah)

U.S. Congressional Budget Office (CBO), Washington, D.C.



Steve Usdin, Senior Editor




STEVE USDIN: Right now, 150 ways to cut Medicare costs. Will any of them work? I'm Steve Usdin. Welcome to BioCentury This Week.


NARRATOR: Your trusted source for biotechnology information and analysis, BioCentury This Week.


NARRATOR: Congress has postponed the debt ceiling crisis. Now the focus in Washington has swung back to budgets and deficits. The nation is heading toward budget sequestration.


For Medicare, this means a 2% spending cut. But that's just a down payment. Any serious attempt to tackle the deficit must curb the increase in Medicare and Medicaid spending.


Last week, the Kaiser Family Foundation report listed 150 ideas to reduce Medicare spending. The problem is almost all of them would hurt someone, either by directly limiting access to health care or reducing payments to hospitals, physicians, or drug companies. In his second inaugural address, President Obama touched on the need to make hard choices. But he also suggested he'll impose dramatic cuts.


BARACK OBAMA: We must make the hard choices to reduce the cost of health care and the size of our deficit. But we reject the belief that America must choose between caring for the generation that built this country and investing in the generation that will build its future. The commitments we make to each other through Medicare and Medicaid and social security, these things do not sap our initiative.


They strengthen us. They do not make us a nation of takers. They free us to take the risks that make this country great.


STEVE USDIN: Today, we'll discuss some of the ways Medicare costs may be reduced and who would feel the pain. Later, we'll hear from Gail Wilensky, who headed Medicare during the first Bush administration. But first, we're joined by Dan Mendelson, CEO of Avalere Health, a consulting company that specializes in both health care delivery and policy. He was responsible for Medicare and Medicaid and the Office of Management and Budget during the Clinton administration.


Also joining us is Earl Steinberg, executive vice president for innovation and dissemination at the Geisinger Health System in Pennsylvania. Geisinger is widely considered a model for efficient health care delivery. I wanted to start with you, Earl. 150 different ways to cut Medicare costs. Which ones of them make sense for patients and for the country?


EARL STEINBERG: Well, the ones that make the most sense for everybody, particularly patients in the country, are the ones that get rid of wasteful care or harmful care. So unfortunately, although people in the United States continue to believe that, with health care, more is always better, that is not the case. And there are many services that are either of no value or are outright harmful that we could get rid of and reduce costs at the same time that we can increase the quality of care and patient outcome.


STEVE USDIN: So Dan, do you think that's the case? And if it is, is there a political will to make it happen? Because any time you're cutting something, somebody's profits are being hurt or somebody's access is being limited.


DAN MENDELSON: I'd agree with Earl that the ones that make the most sense are in places where care is either not useful or is being overused. Now, I would say, as well, that there are a whole range of costs reductions that could also be had by making the system more rational. So for example, patient gets discharged from a hospital right now, and they might go to an expensive post-acute facility, or they might go to an inexpensive one. And there's nobody monitoring where they go. So there are also cost reductions that could be had in that way.


I think you raised the right question. And when you hear the president talking about this subject, he basically says, well, I'm happy to cut Medicare if it's on my terms. And the discussion really hasn't even started yet, frankly. And I think that there really isn't a political will right now to make significant changes in the program.


STEVE USDIN: And Earl, I'm wondering -- Geisinger is held up as a model for efficient health. President Obama has personally mentioned Geisinger a number of times in speeches, and other people in the administration have. What is it that you've done there that could be a model? What's applicable outside of rural Pennsylvania, where Geisinger is?


EARL STEINBERG: Well, a very interesting and important question. There are many aspects of Geisinger that contribute to the high-quality, cost-effective care that it delivers. One of them is the culture.


So the place has recruited and attracted a group of caregivers who are really devoted to delivering the highest possible quality of care and who are sensitive to cost. In addition, Geisinger has had the luxury of having both a health insurance company and a healthcare delivery system. And that has enabled them to experiment with things that the private sector otherwise has not been able to experiment with, because it is the case there, where it's a "left pocket, right pocket" issue. And if it turns out that an innovative payment scheme or delivery scheme hurts one of those entities or the other, it works to the benefit of the other one. And so it's neutral.


STEVE USDIN: Yeah. So Dan, how can that be applied to the real world? Because outside of Geisinger, there aren't very many systems that have--


DAN MENDELSON: It's a beautiful and unique system. And I almost wish that we lived approximate to it so that we could access care in that system, as well. We can't.


I think that, really, this is one of the major issues that Medicare has right now is that Medicare can start to transform the delivery system locally, but the big fee for service payment systems are so difficult to change, because, as you said, the minute you try to reduce payments, you're really reducing somebody's revenues. And that becomes a very difficult cycle. I think one thing that I find very interesting is that new people coming into Medicare, more than 40% of them are choosing to go into Medicare managed care. So they're basically voting with their feet against the fee for service delivery system and opting into these more integrated settings of care, where they have to accept less choice. But meanwhile, they get better continuity of care.


STEVE USDIN: Earl, I know you want to say something. We're going to do it right when we come back. We have to take a break.


We're discussing options for cutting Medicare costs. We'll be joined later by Gail Wilensky, who headed Medicare in the first Bush administration. But first, here's a look at how health care fits into deficit reduction options.


NARRATOR: You're watching BioCentury This Week.




STEVE USDIN: We're back with Geisinger's Earl Steinberg and Dan Mendelson of Avalere discussing the future of Medicare. Earl, you wanted to bring up a point when we broke there.


EARL STEINBERG: Yeah, I just wanted to make the point that, although there are several aspects of Geisinger that are unique or somewhat unique, they are not the only things that enable Geisinger to deliver the high-quality, low-cost care that it delivers. I've spent the past 18 months studying what it is at Geisinger that contributes to its performance. And two things stand out that are going to be required everywhere and that can be done everywhere.


The first is analysis of data for a population of patients. This is something that health plans have done for a long time, but healthcare providers have never done it. They've always taken care of people one patient at a time. Moreover, they've never had the data to do it. So in order for them to perform successfully in an at-risk type of payment system, they're going to have to be able to either do that or have somebody do it for them.


STEVE USDIN: And that brings up an interesting idea, which is the role of technology. And it seems to me that there's two ways you can think of technology in this context. One is technologies that might help save costs, like electronic medical records if they're done properly. And the other is how good Medicare is at paying for technologies, like medical devices, drugs, durable medical goods, things like that. I'm wondering on both of those scores, starting with the electronic medical records. People thought a long time ago, or while ago, that it was going to save billions. It hasn't worked out. Why?


DAN MENDELSON: I think the point that Earl is making, which is a very important one, is that these health care systems actually now have to monitor and measure and understand quality. And the only way that you can do that is by having a very capable data system that enables you to get on top of it. Look, the way to save money in health care, reducing waste and inefficiency, is first to understand it, and then to do something about it. And I think a lot of the investment so far in health IT has really been in paying for the systems that are required.


Now begins the behavioral change, which arguably is much, much more difficult to actually get something done. And when Earl was talking before about the fact that within the Geisinger system there's a commitment to quality, that commitment will have to be universally held. And the health IT systems will have to be there in order for the system to make progress.


EARL STEINBERG: So Geisinger has had an electronic medical record for 16 years. So it was one of the earliest in the country to implement an electronic medical record. And Geisinger has devoted enormous resources to try to leverage that technology as much as possible.


But it's a tool. And that tool is to facilitate a certain type of care. So it enables us at Geisinger to deliver care more efficiently and reliably. But there's a lot of work required in order to get those systems to the point where they're going to do that.


STEVE USDIN: Well, thanks. In just a moment, Gail Wilensky, the former head of Medicare, adds her perspective to the conversation. But first, Orrin Hatch shared his views from the Senate floor last week about the need to restrain Medicare spending.


ORRIN HATCH: Let's just take a look at our two main health care entitlements, Medicare and Medicaid. In just the next 10 years, the federal government will spend more than $12 trillion on Medicare and Medicaid. Let's just put that in perspective. That's $12 trillion on just two programs.




NARRATOR: Now, back to BioCentury This Week.


STEVE USDIN: We're discussing the future of Medicare and ways cost may be reduced. We're joined now by Gail Wilensky, the former head of Medicare during the first Bush administration. Avalere Health CEO, Dan Mendelson, also joins us. Gail, I wanted to start with, we heard at the beginning of the show President Obama's remarks in the second inaugural about Medicare, what's your take away? What does it mean?


GAIL WILENSKY: I don't see a lot of inclination by the administration to making any significant changes in the program right now. That was my major takeaway. Before the election, some of my Democratic policy friends had said, don't worry about all of the bashing of premium support that's going on. This is just part of pre-election activities. It will be possible to have more serious discussions about these issues after the election. I must say the inaugural address did not give me any comfort that that concept is available for discussion, or even that there is much thought of Medicare as an area of change is assumed to be important.


DAN MENDELSON: That's interesting. I have a slightly different take on it. I mean, I think this administration is actually very open to a serious discussion, and there a number of senior policy officials, Jack Lew, for example, who really understand Medicare and Medicaid and would be interested in having that discussion. I think the problem right now is that there is no climate to create that discussion.


I mean, you see that in the fact that there's really no bipartisan discussion. The Senate can't even get its act together to confirm a really outstanding acting Medicare administrator, Marilyn Tavenner, who frankly, the fact that she hasn't been confirmed is shameful, and she really absolutely should be confirmed. And so you have this climate that is not conducive to a discussion, but I think the president was saying that they are open to having a discussion if one is to be had.


STEVE USDIN: Then what would be, I guess, what would it take to provoke that discussion? Basically, the way things are worked in Washington now, it seems it would take a sense of crisis to do anything, doesn't it?


DAN MENDELSON: There's no immediate crisis.


GAIL WILENSKY: There's definitely no immediate crisis. We'll see, by the way, Marilyn Tavenner has strong support by the former administrators. My impression is that she'll have to be renominated by the administration, now that they're in a new term, so before we jump to any conclusions about whether she is or isn't going to get a speedy hearing, we need to make sure the administration nominates her in an expeditious way.


STEVE USDIN: But, I want to jump back to this idea. So there's no immediate crisis in Medicare, on the one hand. On the other hand, everybody in Washington says that big changes in Medicare are needed in the long run, because if you don't make those changes, it's going to crowd out everything. Does that mean that we can just wait 10 years to make these changes?


DAN MENDELSON: No, we can't wait. The amount of money that we are spending continues to go up and up every year, but there's no immediate crisis. And I think that what's going to have to happen as part of a much larger construct on deficit reduction, are changes they get phased in over an extended period of time so that they come in more gently into the health care system. Look, I mean, there has to be a place where these issues can be discussed in a bipartisan way, because changes like this Balanced Budget Act, OBRA '90, they just don't happen by one party waking up in the morning, and saying this is my policy.


STEVE USDIN: Well, you've been in Democratic administration, you've been in Republican administration, so we can start that here. What are the things that you would both agree on? What do you think are things that could be phased in now that would have an effect to prevent this enormous increase in Medicare costs, unsustainable cost, 10 years, 20 years out?


GAIL WILENSKY: One thing that has to happen, and this is an area where there is agreement among both Republicans and Democrats, we have to find a smarter way to pay physician services under Medicare. Right now, physicians bill using some 10,000 different codes. Each year there is an almost crisis when it looks like their fees are going to get reduced by as much as 27%, as happened earlier this month in January, that we've got to find a smarter way to pay physicians that rewards for value, not for volume. A phrase you hear used frequently. There's an interest by both Republicans and Democrats.


The question is going to be can we come up with the alternative, and can we begin to phase it in quickly? It has been a problem in the past, that when we all see something down the road as a serious issue, like the large share of the federal budget that will go for entitlements, if we don't do something to change those dynamics, where at the moment it's not a problem, because of the reduced payments to providers under the Affordable Care Act, and the general slow spending in Medicare and healthcare that's going on now, there's not immediate budget pressure. And that's been very difficult for the Congress to reconcile.


STEVE USDIN: Gail, there's a lot of talk in Washington, in health policy circles about value-based purchasing and moving Medicare toward a value based system. What does it mean, and are we doing it?


GAIL WILENSKY: We are about to start for hospitals, where hospitals that measurably provide better value for the money that is spent, will get a little extra bonus payment. Starting in 2015, there's a value modifier that will attach to physicians, initially in large groups, and by 2017, in smaller groups. Everyone I know thinks conceptually, this makes sense, but it's such a small piece of the reimbursement, it's unclear that it will actually change behavior. If we really believe that's how we want to pay institutions and clinicians, we've got to make it the dominant part of their payment, not the little end of the tail.


STEVE USDIN: Dan, what do you think?


DAN MENDELSON: I think there is very significant change as a result of the policies that we have right now. And what we're seeing is that the hospitals that we're working with, care not only about the financial aspects, but they also care normatively about the fact that they want to be good. And as CMS is beginning to put these metrics out, behavior is really changing. The other thing that's happening is the health plans are beginning to push the incentives that they have down to clinicians. So for example, if the health plan is going to get paid more if it prescribes a beta blocker -- if the patient gets a beta blocker after an MI, they are moving those incentives down to the physician, and that's the way that they're affecting patient care. So I see some significant changes, while I agree with Gail that the more financially based you make these incentives, the more effective they will be. But you also have to make sure that you're adjusting properly so that you're not penalizing institutions that tend to take care of a sicker mix of people.


STEVE USDIN: So you can do that risk adjustment, but that also leaves you the bigger question, I guess, of who decides what value is? What is it that you reward and are you rewarding the right things?


GAIL WILENSKY: Well, you need to be sure that you're clear about the metrics. There needs to be agreement among the various professional groups that this is a fair way to measure physician services or hospital outcomes otherwise, there won't be buy in. But it's to recognize that only in healthcare do we pretend as though there's no differentiation in quality, and we should pay the same for best in class, worse in class. We're finally beginning to change how we think about paying for services in healthcare, as we do almost everywhere else.


STEVE USDIN: When we come back, we'll hear some final thoughts about constraining the cost of Medicare.


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STEVE USDIN: We're back with Dan Mendelson and Gail Wilensky. Dan, you were saying something when we took a break there.


DAN MENDELSON: I think there are a number of other areas where there's broad agreement. So, for example, we should be paying on the basis of quality not the quantity of services that are delivered. So one of the most important parts of the Affordable Care Act was a change in the way managed care plans were paid. We pay on the basis of quality now. And guess what's happening?


Quality is improving in the plans, and it's really a very positive dynamic. So we have to be bringing those quality based payment systems into other areas of Medicare. Another area where I think there's broad agreement is that something needs to be done to unify payment for dual eligibles, people who are eligible for Medicare and Medicaid. So there are a number of places where the two parties can come together.


But the other point that I'd make though is, we all understand that structural reform needs to happen at some point. Ideas like raising the eligibility age, but those are ideas that have to happen in the context of a much broader budget agreement that would be done on a bipartisan basis between the two parties.


STEVE USDIN: So Gail, Dan mentioned there one thing that's been talked about a lot in Washington, which is raising the eligibility age of Medicare to 67. Is that something you think Republicans would support? Is it a good idea?


GAIL WILENSKY: It is a good idea. I believe that Republicans would support it. It recognizes that people live so much longer then when retirement at 65 was a concept that was used in part because few people actually lived as long, or much longer than 65. You do need to do it with notice, so that this is something that you would phase in and it would affect not people who are 63, who are assuming they can get Medicare at 65.


And you need to acknowledge that some people, because of disability, will need to be on Medicare at 65 and make provisions. It also means that you need to be vigilant that people who are in their late '60s don't get discriminated upon in their place of employment, and if there's some flexibility.


STEVE USDIN: So, Dan, what are some other ideas, some specifics, that you think that there would be agreement about as part of this bigger picture you're talking about.


DAN MENDELSON: Raising the eligibility age, I think, is a lot easier now because of the fact that the president's Reform Act is passed, and there is continuity of insurance. And so it's something that I think, at this point, Democrats would probably be more willing to talk about, but I wouldn't say there's broad agreement on it. There still is a belief that the program does need to have a large enough catchment area so that there's broad popular support. So there, I think, you actually begin to get into areas of difference.


STEVE USDIN: So one of the other things that when members of Congress look and they look at this Kaiser report and they say, well, let's get the biggest numbers, the biggest bang for what you can get money for. Another one is various versions of increasing rebates on drugs. You think that's something that is likely to happen?


DAN MENDELSON: I think it's very unlikely to happen. I think most members of Congress look at drug rebates and believe that they are a form of price control, and that it is something that frankly, it's better to let the market work then for the government to take at that. And clearly, you have some members who are on the left who want to be doing that, but I think the centrist members, at this point, are not particularly enthusiastic about that policy.


GAIL WILENSKY: Especially when you realize that Part D spending for outpatient prescription drugs is running way below what either the Congressional Budget Office or CMS had predicted it would, in part, at least for now, reflecting the power that the market can push when there are some alternatives around for seniors.


STEVE USDIN: So you used the expression the market, both of you did a couple of times. One of the other things that gets talked about, mostly on the right, is the idea of skin in the game. Patients having to pay more and driving them to make better decisions. Do you think that that's realistic? It is something that's going to happen?


DAN MENDELSON: Yeah, I'm very cynical about that argument. I think that in point of fact, Avalere research has shown that when patients have very high co-pays, they tend not to use the services that are being offered. And if that's an oral cancer medication, and they go to the pharmacy, and they aren't obtaining that medication, that's a really serious problem.


That's not skinning the game, that, to me, is a perverse incentive. And so it's going to be necessary to be very careful about the incentives that we put in front of patients to make sure they're actually the incentives that we want to have them utilize health care in a way that makes sense.


GAIL WILENSKY: But people, and I'm one of them, who like the notion of having the incentives be right, not just for the clinicians and institutions, but for the seniors, want to have a competitively bid amount, including traditional Medicare, so that people understand if they want the more expensive variety, they're going to have to pay a little more, but there's something available that gives them the Medicare package at the prices they've been used to paying.


STEVE USDIN: I'm sorry that's all the time we've got today. We could talk about this all week. That's this week's show. I'd like to thank Earl Steinberg, Gail Walensky, and Dan Mendelson. And remember to follow BioCentury on Twitter, you can share your thoughts about today's show using the hashtag #BioCenturyTV. I'm Steve Usdin, I'll see you next week.