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Selected news articles which highlight important policy issues.

News: Weekly Archives

News for the week of 08-03-2006

Scaling Back Changes to Medicare Payments
The New York Times, 8-3-06

Editor's Notes:

The Centers for Medicare and Medicaid Services announced that it will adjust its proposed reforms of the current Medicare payment system for hospital services.

Michael O. Leavitt, the secretary of health and human services, said the current payment system was full of biases and distortions that encouraged hospitals to provide "treatments that happen to be the most profitable."

Federal officials said the new payments would be more accurate because they would be based on estimated hospital costs, rather than inflated charges. In revising its proposal, the government significantly modified its method of estimating costs, to include more data from high-cost hospitals. The resulting changes will be smaller than originally proposed and will be put into effect gradually over three years, rather than all at once.

Dr. Mark B. McClellan, administrator of the Centers for Medicare and Medicaid Services, said the final rule would mean "smaller changes in payment, up or down, than the proposed rule."

Medicare pays more than $125 billion a year to nearly 5,000 hospitals. Hospitals typically receive a fixed amount for each Medicare patient, regardless of how long the person stays in the hospital. Each patient is classified in one of 526 categories, known as diagnosis-related groups.

Federal officials had proposed sweeping changes in the classification system, to account for the severity of each patient's illness. They wanted to replace the 526 categories with 861. They settled for more modest changes in 2007, creating 20 diagnostic groups and altering 32 others.

A 2004 joint report from the Federal Trade Commission and the Department of Justice points out the dangers inherent in Medicare's complex reimbursement system:

Any administered pricing system inevitably has difficulty in replicating the price that would prevail in a competitive market. Not surprisingly, one unintended consequence of the CMS administered pricing systems has been to make some hospital services extraordinarily lucrative and others unprofitable. As a result, some services are more available (and others less available) than they would be in a competitive market.

One potential solution to this problem is the growing efforts by public and private insurers to give consumers better information on hospital pricing and quality, while also giving them incentives to pick more efficient providers. This movement is still in its infancy, and will face serious obstacles from providers who benefit from status quo.

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Medicare Drug Plan is Prescribing Profits, Business Gains Could Diminish As Program Evolves
The San Francisco Chronicle, 8-4-06

Editor's Notes:

Critics of the Medicare Part D prescription drug benefit have bemoaned the higher profits that some companies have realized from the plan. But it is also very much a calculated risk for insurers and drug manufacturers. The threat of government intervention into the market (price controls masquerading as "negotiation") and the concern over rising health care costs for larger cohorts of older Americans could mean trouble for the private partners who participate in the plan.

Experts say it is premature to conclude that profits will stay high based on these earnings reports. What's more, beneficiaries this year were allowed to sign up as late as May 15, so 2006 full–year results won't completely reflect the Medicare effect.

"We won't know much about this program until next year," said Robert Laszewski, a health insurance consultant in Washington. "If this becomes the $800 billion program it's projected to become, government—particularly a Democratic–controlled Congress—is likely going to try to control costs."

Insurers and other benefit providers have no guarantee that the federal government will continue to subsidize them at current levels. Analysts also worry about low profit margins and high administrative costs for companies offering Medicare drug plans.

Drugmakers could eventually find that the high cost of prescription medications pushes more people toward lower–cost alternatives. High costs also could encourage government intervention. A reduction in the number of companies offering the program could bolster their bargaining clout and help them negotiate lower drug prices.

About 38 million Medicare beneficiaries—about 90 percent of people eligible for the program—now have a drug benefit either through Medicare or through private plans that offer similar or better coverage

Part D was always envisaged as the opening salvo in long–term Medicare reform. Free market policymakers who endorsed the plan should take note that, without additional reforms in the near future, all of their early efforts will have gone for naught.

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Administration Aims to Set Health–Care Standards
Washington Post, 8-7-06

Editor's Notes:

The Bush administration recently detailed plans to improve the quality of U.S. health care by requiring health professionals to set uniform standards for treatment and improve reporting of patient outcomes. It is hoped that these new requirements will raise the quality of care for federally funded facilities that accept Medicare and Medicaid patients, but Health and Human Services Secretary Mike Leavitt also urged state officials to enact the same reforms for state subsidized services.

Leavitt cautioned that the first standards in all three areas would be "pretty basic," but said they would provide a foundation for a future system in which patients could make "much more informed decisions" about where to go for treatment and what it is likely to cost.

Leavitt said that the demand for such information is large and that tools are becoming available to supply it. He said he had contacted executives of 21 of the 100 largest private employers and "21 of 21" are ready to sign such contracts with their own suppliers. That number will grow rapidly in coming weeks, he said.

Governors expressed interest in using Leavitt's model in their states but voiced some skepticism about the readiness of doctors to have their work evaluated.

Leavitt insisted that the physicians with whom he has met "want the standards" set for care in their specialties, in part because they want to evaluate their own performance against that of their peers, and in part because rewards for quality—which Leavitt said these measurements would make possible—might offset the loss of income threatened as budget pressures reduce their reimbursements for Medicare patients.

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Health Care Taps “Mystery Shoppers”
Wall Street Journal, 8-8-06

Editor's Notes:

In a promising development for consumer driven health care, health professionals are turning to a longstanding retail tactic to learn how to improve patient care: mystery shoppers. Initiatives like this one can help providers improve health care quality and give doctors better insight into their patients.

"Perception is reality," says Dr. Loden, who has made a number of changes in his practice based on reports from mystery shoppers. "The patient's perception is all that really matters."

The health–care industry has never been noted for its customer service. But as competition builds amid efforts to encourage patients to comparison–shop for health care, medical facilities and hospitals are increasingly looking for ways to improve the patient experience. Some are turning to mystery–shopping services—a mainstay of the retail and hotel industries—which send employees to pose as customers and later report back on how they were treated.

Although health–care mystery shopping made up just 2% of the $600 million in revenue for the mystery–shopping industry in 2004—the latest data available from the Mystery Shopping Providers Association—medical revenues doubled from the prior year. "Before 18 months ago, we hadn't had a single inquiry from health care," says Jeff Hall, president of Ann Arbor, Mich.–based Second to None Inc., a general mystery–shopping company. "We fielded half a dozen in the last year."

Health–care facilities that use mystery shoppers say the reports have led to a number of changes in the patient experience, including improved estimates of wait times, better explanations of medical procedures, extended hours for hospital administration workers, escorts for patients who have gotten lost, and even less–stressful programming on the television in the waiting room.

One big impetus for focusing on patient experience: Beginning Oct. 1, the U.S. Centers for Medicare and Medicaid Services will begin assessing patient satisfaction at hospitals across the country and making that data public. Patients can already compare some measures of clinical care at a Department of Health and Human Services Web site, www.hospitalcompare.hhs.gov. But the new survey will be the first time potential patients can directly compare satisfaction scores across hospitals nationwide.

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