Dave Durenberger
Introduces Tom Scully
While
Democrats in Washington D.C. were trying to subpoena the former CMS
administrator, he was at the St. Paul Hotel with a couple hundred friends
of NIHP. On April 5th, Tom Scully was “on travel” to D.C.
reporters, while in St. Paul explaining in frank detail the architecture of and the
various roles played by architect of the Medicare Modernization Act (MMA)
of 2003. Even those of us who
disagree with parts of MMA as good policy for good practice, are now among
the few in this country who understand why it happened as it did.
Tom
Scully is now a partner in the Washington Law firm of Alston and Bird and
of an investment firm in New York City.
He cannot lobby his former CMS colleges for a year. He said he does
benefit from having an office at Alston that is next door to former Senate
Leader and former GOP Presidential Candidate Bob Dole.
Scully presented and answered questions before an audience of 170 for more
than one hour and spent another few hours with members of NIHP answering
their questions. When we receive it, his PowerPoint presentation to the
public event will be posted on our web site.
The following is a highlighted summary of both of the Scully
presentations courtesy of the work of our colleague Sheila Delaney Moroney.
The narrative reflects the comments of Mr. Scully and, in most
cases, are direct quotes. Sheila,
like every one else in the room observed that Scully “talks faster than
anyone I’ve ever met”.
We at the College of Business of the University
of St. Thomas are grateful to all who participated in this event, and to
all the NIHP members whose financing made it possible.
Notes from Tom
Scully's Public Remarks
Tom
Scully's Opening
Comments on the MMA
- Three people were chief architects: Tom Scully,
CMS administrator, Doug Badger, White House counsel, and Mark
McClellan, FDA administrator, now CMS administrator.
- Medicare prices are exploding – with or
without drugs. The system
needs competition to control cost drivers which include an aging
population; an insatiable desire to build new things; and, increasing
costs of health care goods and services.
- This is a very good bill for poor seniors.
- The bill will save seniors money by reducing the
need for medi-gap and drug supplementals, and offers an alternative to
government price-fixing.
- Rx spending will dominate Medicare policy
decisions starting in 2006. At
present, no one at CMS/Medicare has drug expertise.
It will take a significant amount of time to ramp up the right
staff and thus “it will take some time to get your questions
answered. They have to build agency expertise in this area.”
- The 4% administrative costs associated with
Medicare efficiency are correct.
We have very low administrative costs, compared to the private
plans, but all we really are is an efficient check-writing machine.
We are flying blind. It
will be a lot better to pay a plan for 8-9% in administrative costs
and really know what is going on.
Provider
Issues
- The average hospital gets 65% of payments from
government payers, 30% from private insurance and 5% is charity care.
Where is the incentive for hospitals to change when the single
largest payer fixes the rates? Congress and this administration intend to move to a system
in which 65% of people are in private plans and price and quality are
differentiated. There is
no motivation for behavior change when prices are fixed by the
government.
Beneficiary Issues
- This is a giant benefit for people who need it.
The donut hole only affects those who can afford it, and even
then, there is a $1400 subsidy for high-income people.
“It still burns me that people like Bill Gates’ father will
get a $1400/year inflated subsidy.”
- Low-income people have 1st dollar
coverage with 1984 deductibles. This is a massive revolution in your
life if you are low income. (Represents 10-11 million people). This is
the biggest thing that has happened to poor seniors since SSA.
In fact, I think we might have overdone it and I predict
massive over utilization.
- AARP, the beneficiary’s advocate, supported
this effort because “they saw it as the only train to get on in the
next 10 years.”
Medicare
Advantage vs. Medicare Original
- Medigap is generally a mess and provides a very
thin benefit. The new
Medicare program, which will be available in 2006, will blend the best
of all the fragmented options—Original Medicare + Drugs + Medigap—that
seniors have today into one plan.
- The new option can be likened to a Blue
Cross Blue Shield-like PPO. A
loosely designed network model has taken over the US but is not
currently available in Medicare.
Medicare Advantage will be one community-rated product with one
design that looks a lot like what most people (70% of country) are
buying through age 64. Why should
you lose the option to choose once you are 65?
- (Scully referred to Department of Defense
Health Program TriCare as model for regional plan design).
MMA might advantage the bigger plans, but the design allows for
smaller plans to collaborate to bid for the business and offer a
package; the model to look at is TriWest Health Alliance out of
Phoenix, AZ.
- The strength of
the regional design is that it prevents the large plans from
cherry-picking the most lucrative counties and forces them to offer
the same community-rated benefit to every community across their
region.
- Among the 15
currently proposed regions, the Upper Midwest region includes MN, WI,
SD, ND, and MI.
- “In a perfect market the doctors, plans,
and hospitals should all hate each other a little bit.
No one should have too much power or it corrupts the market.”
Drug
Prices and the Drug Card
- The fundamental problem is that seniors are
cost-shifted against in the health care system in a big way. The under-65 population gets the benefit of group purchasing
for drugs. Seniors buy in
a “group of one.” The
drug card will allow seniors to get together into a group purchasing
cooperative through the discount drug card—a “small but helpful
step.”
- The $600 subsidy coming to low-income seniors in
June, 2004 should be a huge help.
- The federal government has 50% of the market
share, and in some cases 95% of the market share.
With that leverage, the government is not negotiating prices
they are fixing prices. We
had to break up the market into big chunks to achieve fair price
negotiation. If the
government was to be in the price fixing business for drugs, it would
be a 100% political process.
- The government has to provide food, housing and
healthcare, but we don’t fix prices for the first two.
Healthcare should be a consumer good with competition over
price, quality, and consumer satisfaction.
- PBMs cannot afford not to get into this business.
We are counting on vastly increased price transparency and
complete disclosure about rebates. Drug companies will have very low prices and will make their
money off of high volume.
- The drug money in this bill will initially foster
high over utilization of drugs by seniors.
There is no way around it.
- CMS will implement drug tiering for the discount
card plans, which will control and change behavior.
Today, the FDA approves a drug and it becomes widely available
no matter what it’s therapeutic advantage.
In the future there will have to be some debate about where a particular drug falls on the formulary.
Give Backs
- There was no other way to keep large employers
from dropping their drug benefit plans for retirees except to give
them a huge buy-out. GM,
for example, should see about $3000/head.
Clawbacks
- This is also a giant buy out for the states.
It will be a significant windfall for every state—some more
than others—but no one will lose. There are really big winners and winners.
Quality
and Disease Management
- Disease management will be a huge emphasis for
CMS. Of the $300 billion
that Medicare spends, $200 billion is Fee-for-Service (FFS).
But, there is no incentive in FFS to change behavior.
The MMA will establish disease management demonstrations on the
FFS side. We know that a
diabetic will cost $65K in a given year.
The demonstrations will give the money to the disease
management companies and put them at risk for the outcomes.
Provider Issues
- Hospitals and physicians should be worried about
the deficit. Congress
will be looking to trim $140 billion from the budget and hospitals and
physicians are likely to be the target.
They will be looking at a payment rate that is not full market
basket for hospitals. These
will be painful times for provider organizations.
- In 10 years, the market will be driven by private
payers rather than through government price fixing.
- Medicare should be a boring, low margin business.
Historically, Medicare financing has kept providers on a
financing roller coaster that creates great uncertainty and stress.
If you are running a hospital, you should not have to worry
about any Medicare bill currently in Congress.
-
We will eventually have to correct the
flawed formula that resulted in a huge physician payment mistake that
Congress made in 1997. Rather than taking the time and money it will
cost to redo the formula now, Congress will continue to move the
eventual payment rate cut out two years.
Notes from Member
Lunch with Tom Scully
These notes reflect questions posed by NIHP
members and Mr. Scully’s response to those questions.
Member questions are in italics.
Medicare Advantage vs.
Medicare Original
-
Medigap:
The bill obviates the option to
offer Medigap coverage. What are you offering as an alternative that will work in MN
where Medigap is very popular (there are 170,000 enrollees at BCBS,
for example)?
TS: You
might be able to get a waiver to still offer Medigap in MN but you won’t get
it for drugs.
TS: CMS
currently has 70 risk-adjusted categories, but in three years, when the whole
bill is rolled out, risk selection and cherry picking will not be rewarded.
TS: You
will certainly be able to operate as a local plan unchanged.
Some consultants will be running around and trying to patch together
plans for bidding against the nationals.
TriWest is an example. Regional
cooperatives will be popular and PPOs will be hotly competitive.
From 2006-2010 we are just offering them some extra money to get them
up and going.
CMS will be very sympathetic to regional
cooperation among local plans. Though
it is also important to get the big plans into a region in order to ensure
choice.
The big players will have to make a huge
investment to get into a region and will be less than enthusiastic to leave
once they have done so. Unlike
the current system, there will be no incentive for the big plans to cherry
pick and move in and out of a market on a whim.
The regional plans will ideally want to
partner with the local HMOs and take advantage of their delivery system’s
efficiency and lower cost of care.
TS:
We looked for natural markets where people would be likely to do
business together. FEHBP (Federal
Employee Health Benefits Plan), with 8 million enrollees, is a fairly good
model. It represents one national
region where the Blues make transfer payments among regions.
MMA regions build on the strengths and successes of the FEHBP model.
We split up the country to ensure plan
entry into the Rocky Mountain States. We want everyone, even in the most
remote areas, to have access to Medicare Advantage.
Quality
TS: I love the idea of paying
differentially for quality but, through Premier, we had to drag the hospitals
kicking and screaming to get acceptance for a 1% payment adjustment based on
outcomes. Differential payment in FFS is a great idea but so far all
we've been able to accomplish is modified price fixing.
TS: No, CMS is
not a big policy-making apparatus.
Beneficiary
Issues
TS:
What can you do about it? Everybody
should practice medicine like you do in Minneapolis and in Seattle.
You should be happy with the 84% subsidized benefit that you do get.
Complaining about geographic inequity is not going to make it go away.
Keep in mind that there is a difference in the cost of doing business
in New York compared to Minnesota. One
possible hope is that consumer-driven efforts to drive change will reform the
high-volume states.
TS: They
will lose it more slowly because of this bill.
TS: There is nothing for seniors to be
upset about except that their children will have to pay more taxes. The only other people who might be mad about the $400 billion
we are spending on this bill, are the hard-working laborers whose taxes are
still going to subsidize the benefits of rich seniors. I am happy to pay taxes for the drugs of poor people, but I
am not happy to send a check to a rich person playing golf in Naples—which
is what this bill’s designed will do.
Provider Issues:
TS:
This is not a model that will impact provider organizations.
It will, however, force a consolidation of plans.
Dave Durenberger’s
concluding comments:
-
I would like to compliment Tom for his
conviction and service.
-
I would feel better about getting my
health care from a doctor in MN instead of from a national corporation. The fundamental question is whom do we trust to change
behavior?
-
In MN we have taken care of each other
for a long time. The evidence
is our 4.9% uninsured rate and our near universal access.
Compare that to TX at 24% uninsured and we know we don’t want to
be like the other states. You
have designed a national solution that I can’t completely discount, but
what you have heard stressed today by NIHP leaders in five states is that
one size does not fit all.
-
What is the Bush administration’s
policy on Medicaid, the uninsured and long term care?
What are we likely to see in terms of national support for MN, WI,
and the rest of the UMW states for our Medicaid programs?
Tom Scully’s response to
D. Durenberger
-
There will be plenty of opportunity to
roll back pieces of MMA. We
have only changed the direction of this ship by two degrees.
-
If I had my way, we would have taken
care of the issue of the uninsured first but I think that Medicaid reform
is impossible. There are 50
different deals in 50 different states.
It all comes down to money and if you separate acute care from LTC,
half the states will win and half will lose depending on which way you
split it.
-
We have slowly, quietly begun to
deregulate Medicare and make it a good thing.
But the under 65 market is a disaster.
We can pay for the uninsured without more money.
I think we should get rid of ERISA.
and get rid of insurance rules that keep people out of the system.
We spend $35 billion on care for the uninsured in the system we
have. It would only cost $30
billion more to cover everyone. The people in this room are over-subsidized and the poor
people who are not here are under-subsidized.
No one has the guts to put a cap on tax subsidies.
There is plenty of money in the system, it is just maldistributed.
Your
thoughts and opinions are welcome on the Tom Scully event and on MMA 2003
in general. As
always, if you have any questions or comments, please contact me: E-mail Dave Durenberger
or sign on to our website: www.NIHP.org
and click on the discussion link to contribute your opinion.
Links
to Information about the Medicare Drug Bill
Medicare Trustees Report
http://www.ssa.gov/OACT/TRSUM/tr04summary.pdf
HHS Drug Discount Card Press Release
http://www.cmwf.org/programs/healthbeat15.asp#seniors
Medicare Rights Center
http://www.medicarerights.org
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