QUESTIONS AND ANSWERS ABOUT MEDICARE

1. Why didn't Congress give the federal government the power to negotiate drug prices? 

How will a requirement for direct federal negotiation impact the program? 
Although one might think it makes sense to require the government to directly "negotiate" with pharmaceutical manufacturers, it will benefit neither seniors nor the millions of Americans whose lives are saved and bettered by new pharmaceutical innovations.  In fact, the Congressional Budget Office has projected that government-run health plans will produce less, not more, savings on the cost of drugs.

Prescription drug plans participating in the Medicare program already have a strong financial incentive to aggressively seek the best prices for medicines.  In fact, new prescription drug plans are offering even greater choice and richer benefit options at lower costs than predicted.  Succeeding in a competitive environment means offering seniors prescription drugs at affordable prices. A government bureaucracy has no such competitive incentive.   

2. Are seniors actually saving money on prescription drugs in the new Medicare program?

Yes, savings are immediate and, over the life of the program, they will be directed toward those who need them most.  A study in the Annals of Internal Medicine found that Part D enrollees experienced a 13.1 percent decrease in out-of-pocket expenses. Part D has 90 percent participation with an 89 percent satisfaction rate and is currently spending less than projected.

A PhRMA based study shows the Medicare prescription drug benefit has produced savings and improved access to drugs for beneficiaries, especially low-income seniors who are enrolled in the program.

3. What will be required by Congress to "fix" the Medicare payment rate for physicians?

Medicare payments for services of physicians are made on the basis of a fee schedule.  The fee schedule assigns relative values to services that reflect physician work, practice expenses, and malpractice costs, and is adjusted for geographic variations in costs. The adjusted relative values are then converted into a dollar payment amount by a conversion factor.  The conversion factor is updated each year according to a formula intended to restrain overall spending for physicians' services. Several factors enter into the calculation of the formula, including a sustainable growth rate (SGR).

As actual spending on physician services has been greater than targeted spending, payment rates for physicians would have been reduced by the statutory formula in recent years. Legislation has blocked such reductions. However, the large gap between spending targets and actual spending has raised concerns that the current payment system will not be able to ensure access to care for Medicare beneficiaries.  For example, under the formula, the update would have been cut by ten percent in 2008 but that has been delayed until July 1, 2008.

Congress could repeal the SGR and instead encourage physicians to offer lower cost and higher quality health care.  This alternative proposal recommends replacing the SGR formula with a system of expenditure targets based on geographic area or types of service.

 4.  What can be done to improve Medicare and offer more value?

Although some improvements are being made, the Medicare program largely pays for volume rather than outcomes.  The program should allow for faster implementation of new technologies and therapies.  It should be re-engineered to reward the practice of evidence-based medicine and the prevention of disease and serious illness.

Variation in health care delivery and resulting disparate health outcomes is well documented.  Utilizing clinician training and continuing medical education to disseminate information is one key way to reduce this variation.  Delivery can also become more effective by promoting the integration of care around a patient-centered, evidence-based medicine model. 

In addition, research has shown that working in teams across disciplines and among care providers results in better outcomes.  However, this is not the current culture within the health care delivery system. A new way of delivering care is needed that emphasizes this team approach, focused on evidence-based medicine. Care coordination teams will also be better able to deliver patient-centered, evidence-based care that focuses on prevention of and intervention with chronic diseases which drive the majority of health care spending. Medicare as the largest payer should insist upon this care coordination and structure financial incentives accordingly. 

5. What are the benefits of Medicare Advantage plans?

Medicare Advantage (MA) plans offer more health coverage options to beneficiaries, including special needs programs, screening services and chronic care management.  MA plans must pass along any rebates they receive from the Federal Government to beneficiaries in the form of lower premiums, added benefits, additional benefits and/or reduced cost sharing. 

In medically underserved areas where there are fewer doctors, MA plans traditionally pay providers more than the traditional Medicare program.  In these ways the services for beneficiaries are constantly improving.