The Mayo Clinic And Medicare

The Wall Street Journal

President Obama last year praised the Mayo Clinic as a "classic example" of how a health-care provider can offer "better outcomes" at lower cost. Then what should Americans think about the famous Minnesota medical center's decision to take fewer Medicare patients?

Specifically, Mayo said last week it will no longer accept Medicare patients at one of its primary care clinics in Arizona. Mayo said the decision is part of a two-year pilot program to determine if it should also drop Medicare patients at other facilities in Arizona, Florida and Minnesota, which serve more than 500,000 seniors.

Mayo says it lost $840 million last year treating Medicare patients, the result of the program's low reimbursement rates. Its hospital and four clinics in Arizona—including the Glendale facility—lost $120 million. Providers like Mayo swallow some of these Medicare losses, while also shifting the cost by charging more to private patients and insurers.

Of course, only governments can lose that much money and pretend they don't have to change. "Mayo Clinic loses a substantial amount of money every year due to the reimbursement schedule under Medicare," the institution said. "Decades of underfunding and paying for volume rather than value in Medicare have led us to this decision."

Mayo is probably a leading indicator of where other hospitals and doctors are headed. Physicians on average earn 20% to 30% less from Medicare than they do from private patients, and many are dropping out of the program. While about 92% of family physicians participate in Medicare, only about 73% of those are now accepting new patients. In some specialties—neurology, oncology, gynecology—in places like Manhattan and Washington, patients can struggle to find any doctor who'll accept Medicare.

The $500 billion in Medicare cuts planned as part of ObamaCare won't help this trend. The hospital industry agreed earlier this year to chip in $100 billion over the next decade in lower annual payment increases for Medicare. The chief Medicare actuary estimates that up to 20% of hospitals could become unprofitable as a result of the scheme.

The irony is that the Obama Administration has repeatedly praised Mayo as an example of the efficiency and lower cost that will spread everywhere if ObamaCare passes. And it's true that Mayo is a sterling example of the kind of health reform that many economists—notably White House budget chief Peter Orszag—extol.

Mayo's doctors are salaried and work in teams, which have become known more broadly as accountable care organizations, or ACOs. Mayo would prefer to receive a bundled payment for an episode of illness, rather than the Medicare practice of reimbursing for individual procedures. As it is now under Medicare, Mayo's less-is-more model means it can't make up its true costs on volume.

We have our differences with this ACO model. It essentially converts health-care providers into the equivalent of managed care in the 1990s. While HMOs did lead to less health spending for a time, patients and doctors rebelled. Congress threatened to intervene with a "patients bill of rights" until insurers backed off. The promoters of ACOs are saying that managed care will work better this time because the providers will be reducing costs at the behest of government, instead of insurance companies.

That may work for Mayo, which has spent decades building an institutional culture by trial and error. But it takes a special kind of hubris to believe that government can replicate such a culture nationwide. The ACO model still hides the cost of care from individuals, who thus have no incentive to reduce their utilization. Mayo also serves a more affluent population than most hospitals, which may make cost-saving easier.

The double irony is that earlier this year Mayo itself came out against the House health bill as offering too little cost-saving reform. And, six months later, the truth is that neither bill in Congress includes the kind of cost-saving innovations that would lead to more Mayos. Instead, the highly touted insurance "exchanges" will essentially import Medicare's rules. Mr. Orszag and the Obama whiz kids have settled for "pilot programs" and cost-saving quarter measures because Congress doesn't want to give up political control over government health payments.

In other words, the real Mayo story is that sclerotic Medicare is preventing more Mayos, and ObamaCare is paving the way for all of health care to operate like Medicare.

House backs bill to overhaul student loan program

By USA Today

The House voted Thursday in favor of the biggest overhaul of college aid programs since their creation in the 1960s — a bill to oust private student loans and lenders from the student loan business and put the government in charge.

The vote was 253-171 in favor of a bill that fulfills nearly all of President Obama's campaign promises for higher education: The measure ends subsidies for private lenders, boosts Pell Grants for needy students and creates a grant program to improve community colleges, among other things. "These are reforms that have been talked about for years, but they're always blocked by special interests and their lobbyists," Obama said Thursday during a rally at the University of Maryland.

"Well, because you voted for change in November, we're going to bring change in the House of Representatives today," the president said.

Ending loan subsidies and turning control over to the government would save taxpayers an estimated $87 billion, according to the Congressional Budget Office. Lawmakers would use that money to help make college more affordable, increasing the maximum Pell Grant by $1,400 to $6,900 over the next decade.

The choice before us is clear. We can either keep sending alternative student loans to banks or we can start sending them directly to students.

Yet the money also would be spent on things that don't help pay for college, such as construction at K-12 schools and new preschool programs.

And while the measure would increase Pell Grants, it would do nothing to curb college costs, which rise much faster than Pell Grants do.

In addition, the CBO says that when administrative costs and market conditions are considered, the savings from switching to direct government lending could be much lower, $47 billion instead of $87 billion.

Republicans warned that instead of saving the government money, as Democrats promise, the bill could wind up costing the government more money.

"Unfortunately, the numbers just don't add up," said Minnesota Rep. John Kline, senior Republican on the Education Committee.

Lawmakers split largely along party lines on the bill, with only six Republicans in favor and three Democrats against. The measure goes next to the Senate, where its fate is a little less certain.

Obama didn't get his way on one thing: The president proposed earlier this year to take Pell Grants out of lawmakers' hands entirely, making the program an entitlement like Social Security and Medicare, which would have cost an estimated $117 billion — more than lawmakers have to spend.

Under the measure, Pell Grants would rise slightly more than inflation over the next decade, increasing on average about 2.6% yearly, according to the bill's sponsors. However, the grants would still depend on annual spending bills and could rise less than promised, as has happened in the past.

Lawmakers met Obama halfway on the labyrinthine college aid form; Obama proposed to eliminate it altogether when he ran for president, but the bill would keep the form and shorten it.

As consumers, college students probably wouldn't notice much difference in their loans, which they would get through their schools. However, officials at several colleges and pharmacy schools worry they may not be able to make the switch to direct government loans in time for next year, and Education Department officials said this week they do not intend to extend the deadline.

More schools administer federal loans through the subsidized loan program than from the government's direct loan program. Private lenders made $56 billion in government-backed loans to more than 6 million students last year, compared with $14 billion in direct loans from the government.

Republicans argued it is wrong to put the government in near-total control of student lending.

Many also worry about job losses in their districts. Private lenders employ more than 30,000 people whose jobs depend on the subsidized loan program, and the industry says many would be laid off.

Sallie Mae, the biggest student lender, has about 8,500 employees in the program and probably would lay off about 30% of those workers. It still will have contracts to service federal loans.

Its employees have held a series of town hall meetings and petition drives to involve local leaders in Pennsylvania, Florida, Delaware, New York and Indiana.

Democratic Rep. David Wu of Oregon said lenders still could make all the loans they want. "What will not happen anymore is making those student loans with taxpayer subsidies," he said.

Obama Announces Agreement With Drug Companies
Story from USA Today

WASHINGTON (AP) — President Obama on Monday welcomed the pharmaceutical industry's agreement to help close a gap in Medicare's drug coverage including Michigan Medicare, calling the pact a step forward in the push for overhaul of the health care system.

Obama said that drug companies have pledged to spend $80 billion over the next decade to help reduce the cost of drugs for seniors and pay for a portion of Obama's health care legislation. The agreement with the pharmaceutical industry would help close a gap in prescription drug coverage under Medicare.

"This is a significant breakthrough on the road to health care reform, one that will make a difference in the lives of many older Americans," Obama said in the White House's Diplomatic Room.

Obama said the move will help correct an anomaly in the program that provides a prescription drug benefit through Medicare. Under the deal, drug companies will pay part of the cost of brand name drugs for lower and middle-income older people in the so-called "doughnut hole." That term refers to a feature of the current drug program that requires beneficiaries to pay the entire cost of prescriptions after initial coverage is exhausted but before catastrophic coverage begins.

"It's a reform that will make prescription drugs more affordable for millions of seniors and restore a measure of fairness," Obama said.

Obama said some Medicare Michigan beneficiaries will find at least a 50% discount on prescription drugs. Obama says drug companies stand to benefit when more Americans can afford prescription drugs.

The drug companies' investment would reduce the cost of drugs for seniors and pay for a portion of Obama's proposed revamping of health care. The deal was struck with Sen. Max Baucus, D-Mont., the chairman of the Senate Finance Committee, as well as the White House.

The president was joined Monday in announcing the deal by Barry Rand, head of the senior citizens' advocacy group AARP, as well as Baucus and Sen. Chris Dodd, D-Conn.

"This is an early win for reform," Rand said.

Push to Compare Treatments Worries Drug, Device Makers
Story from the Wall Street Journal


WASHINGTON -- Federal health-care agencies are getting $1.1 billion in economic-stimulus funds for research comparing the effectiveness of various treatments. But drug and medical-device makers, along with some members of Congress, say they are worried the findings will be used to limit patients' options.

President Barack Obama has emphasized that reining in health-care costs is vital to cutting the budget deficit. The administration believes research could help doctors reduce wasteful and ineffective treatments. The White House's budget blueprint envisions combining data on which treatments work best with electronic health records to deliver "user-friendly pop-up alerts for physicians at the point of care."

The National Institutes of Health has said it will consider research proposals comparing the cost-effectiveness of biologic medications, cancer treatments and preventive measures for chronic illnesses such as diabetes.

The director of the Agency for Healthcare Research and Quality, said "the overarching purpose of the program is to give clinicians and patients information they need to make decisions." That could include, she said, information on effectiveness, safety and costs.

"We don't want [the research] to be used to deny access to care," said a vice president for policy and research at the Pharmaceutical Research and Manufacturers of America.

The Vice President of the Advanced Medical Technology Association, said using "this research to deny access to appropriate treatments for individual patients with individual medical histories and individual needs should not be the objective."

The director of the White House Office of Management and Budget, told lawmakers last month that the research won't necessarily lead to coverage denials. "At the extreme, if something is shown not to be effective, it could simply not be covered," he said. But he also suggested the government could pay "more for the things that work than the things that don't."

The Centers for Medicare and Medicaid Services, the agency that manages some plans relating to Michigan Medicare Insurance, already uses AHRQ research to help decide what treatments it will cover. However, the agency isn't the one making regulations or Michigan Medicaid insurance payment decisions, nor does it recommend what treatments are best.

The stimulus law provided $400 million to NIH, $300 million to AHRQ and another $400 million to the Department of Health and Human Services, the parent agency of NIH and AHRQ, for research comparing the effectiveness of medical treatments. HHS set up an advisory group to coordinate research and distribute the money. The group will hold a meeting Tuesday to get public input on how to spend the $400 million.

Some say the government-funded research inevitably could be used to decide insurance coverage. Sen. Jon Kyl (R., Ariz.) unsuccessfully pushed a measure recently to bar federal health programs from using comparative-effectiveness research to deny coverage. His amendment got 44 votes, including those of Sens. Charles Grassley (R., Iowa) and Russ Feingold (D., Wisc.), who have played major roles in health-care legislation.

AHRQ already has turned research it funded into guidance for consumers, physicians and policy makers, some comparing costs of various treatments. A 2007 online guide on pain medications for osteoarthritis, for example, lists a variety of pain relievers and their prices, including $2 for 100 aspirins and $170 for a 30-day supply of 400-milligram Lodine.