Medicare is a monolith in American healthcare. Although it accounts for only 20 percent of all healthcare spending and 16 percent of all federal spending, its influence can be felt on all healthcare payment and policies in the United States.
Few of us were in active practice in the 1960s when Medicare began covering treatment of the elderly, let alone during the years preceding its passage when organized medicine opposed any government-run medical care program. But technological advance in healthcare-unavailable to the most needy and vulnerable, especially the elderly, due to cost beyond their means-and its promise of a longer life with better health gave rise to grinding social conflict that demanded resolution. In 1965, with Democratic majorities in Congress and Lyndon Johnson in the White House, Medicare-Title XVIII of the Social Security Act-was born.
The Medicare program was a compromise between universal healthcare supporters and opponents, settling on healthcare not for all, but for those defined as neediest. It made the promised benefits of modern healthcare more widely accessible, but at the same time began a spiral of regulation now growing exponentially, while expanding cost threatens Medicare program solvency.
The Medicare fee schedule, its expenditure target, and its perverse sustainable growth rate formula are pieces of federal cost control policy that attempts the impossible: unrestricted access to unlimited care of growing complexity for growing numbers of people by restricting costs and constraining payments under tax-funding limits. The SGR formula ties physician expenditure targets and fee schedule conversion factor updates to growth in the economy, as measured by the percent of growth in gross domestic product each year.
The Medicare method for fitting mission to means is to tie spending to available tax revenues. With service volume and expense growing faster than funds, the simple solution is price reduction using the SGR formula. This translates to fee cuts for physicians. The rationale for the physician expenditure target is to create an incentive for physicians to reduce treatment costs for individual patients and thus save money in the overall budget. But it hasn’t worked. Physicians don’t make treatment decisions based on what’s good for the federal budget; they make them based on what’s good for the patient.
The pressure for cost control in Medicare will worsen. The Congressional Budget Office warns that the 32-year trend in Medicare spending growth has amounted to GDP growth plus 2.8 percent per year. Medicare spending, $3 billion in 1967, ballooned to $272 billion in 2003. At this rate Medicare spending will grow from 2.5 percent of GDP in 2002 to 9.2 percent of GDP in 2075. Combined with Medicaid and Social Security, total federal entitlement payments in 2075 would be 18 percent of GDP, which is equivalent to all federal tax revenues generated today under current tax policy.
In addition to these projected costs, the new Medicare Drug Benefit (Medicare Part D) passed in November 2003 will add an estimated 28 percent to the future Medicare payment obligation ($8 trillion in future benefit payment exposure versus $20 trillion for Part A and Part B.) The drug benefit was passed without any new tax funding to pay for it. If tax cuts passed in 2002 do not “sunset,” the General Accounting Office estimates that by 2040, interest paid on federal debt will equal all federal tax revenue, and Medicare, Social Security, and other spending will exceed tax revenues by 250 percent. This prospect, which obviously would bankrupt the government, is completely unsustainable.
Medicare and the Medicare fee schedule are casualties of federal tax policy, and particularly of tax shortfalls and budget deficits. The cuts projected over the next seven years for the Medicare fee schedule conversion factor represent only the beginning of the downward pressure on all Medicare payments, unless costs unexpectedly fall or new money is poured into the program from somewhere. Even new tax sources don’t solve the future cost problem because the annual growth rate in Medicare costs and health services in general exceeds the growth in national income and eventually will outstrip tax revenues. It is growth in medical services and the demand for services that ultimately drives the cost. Until a means of reducing the demand is accepted, the cost dilemma will grow, and for physicians price (reimbursement) cuts will continue.
With this background in mind, this issue of the AANS Bulletin focuses on Medicare and the effects of new Medicare legislation. Although from a neurosurgeon’s perspective the future appears discouraging, we must continue to search out and lobby for solutions that fit national healthcare needs and budget realities.
James R. Bean, MD, is editor of the Bulletin and the AANS treasurer. He is in private practice in Lexington, Ky.