Healthcare Management: It’s All About Medicare

Medicare has been a hot topic in the world of healthcare and healthcare management for some time now. Some things in the Medicare debate are clear- like the fact that being on the wrong side of it could cost a political party its shot at the 2012 Presidential election. Approximately 78% of Americans do not want to make any cutbacks to the Medicare program.¹

There are 40 million people over the age of 65 in the United States- approximately 13% of the total population- and healthcare costs consist of about one third of that senior population's disposable income. It is a topic of growing interest, as those aged 45-65 increased by 31.5% between 2000 and 2010, putting the number of seniors and soon to be seniors who may be needing Medicare benefits at a whooping 121.5 million people.²

With such a large portion of the population thinking about Medicare, many changes are being proposed, discussed, and made as politicians vie for favor. A recent report by the Institute of Medicine (IOM) suggests that the division of Medicare benefits is flawed based on the fact that 40% of hospitals receive exemptions for how their adjustments are calculated. The institute feels that if so many exemptions are required, something must be wrong with the system.

In their report the committee suggests that, because salaries and benefits make up one of the largest costs of providing care, the Bureau of Labor Statistics data on health sector salaries should be used to calculate wage adjustments for hospitals and private practice health professionals.

Another recommendation from the IOM is to use the Office of Management and Budget’s metropolitan statistical areas to set payment areas, labor markets, and develop a new source for office rent data.

As is often the case, not everyone agrees that these payment formulas are the best way to assess compensation needs. Reuters writes in a recent article³ that the American Hospital Association questions using BLS data because it ignores hospitals’ pension, benefit and overtime costs. Because the sector of the population that is nearing retirement has recently grown by 81 million, pensions, benefits, and overtime costs may be critical in the assessment of Medicare payment formulas.

The folks at ThinkProgress.org have yet another proposal for the future of Medicare⁴. I have included a shortened version of their threefold plan:

1. Empower Medicare To Negotiate For Lower Drug Prices: This would allow Medicare to use its bulk purchasing power to negotiate with drugmakers for lower prices. Rep. Peter Welch (D-VT) estimates that doing this could save as much as $ 156 billion over 10 years.

2. Allow Drug Reimportation From Canada: One of the major costs in the U.S. health care system that drives up the costs not only in the private sector but also among Medicare are the costs of prescription drugs. The free importation of prescription drugs from our neighbors like Canada would help offset these costs. Sens. Byron Dorgan (D-ND) and John McCain (R-AZ) estimated in 2009 that doing so would save consumers $ 80 billion.

3. Globalize Medicare: Seniors currently aren’t allowed to use their Medicare insurance system outside of the United States. An alternative to this would be to drop these trade barriers and allow seniors on Medicare to seek care abroad, where services are much cheaper. Economist Dean Baker estimates that if fifty percent of Medicare beneficiaries opted for this globalized option, then taxpayers would save more than $ 40 billion by 2020.

1 http://www.fiercehealthcare.com/story/medicare-uses-flawed-data-pay-hospitals-docs/2011-06-02

2 http://www.census.gov/prod/cen2010/briefs/c2010br-03.pdf

3 http://www.reuters.com/article/2011/06/02/us-usa-campaign-medicare-idUSTRE7516MI20110602

4 http://thinkprogress.org/politics/2011/04/30/162565/three-ways-save-medicare/