The Urban Grind

Basically, under Obamacare, primary care doctors will suffer financial penalties for referring their patients to specialists. The government will also get to control what medical devices doctors use.

Via The Wall Street Journal

Democrats are touting the American Medical Association’s endorsement of President Obama’s health plan. But there’s an important reason why the American College of Surgeons and 18 other specialty groups are opposed.

The plan’s most tangible efforts to restrain medical costs are through its controls on specialist physicians. Based on the government’s premise that they often make wasteful treatment decisions, the health-care legislation in Congress will subject doctors to a mix of financial penalties and regulations to constrain their use of the most costly clinical options. The penalties and regulations are aimed first and foremost at surgeons and the medical devices that they use, largely because that’s where the bulk of spending is.

It all starts with the sweeping power that the Senate bill gives to the Centers for Medicare and Medicaid Services. The agency will be given the authority to unilaterally write new rules on when medical devices and drugs can be used, and how they should be priced. In particular, the Obama team wants to give the agency the power to decide when a cheaper medical option will suffice for a given problem and, in turn, when Medicare only has to pay for the least costly alternative.

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Primary-care doctors who refer patients to specialists will face financial penalties under the plan. Doctors will see 5% of their Medicare pay cut when their “aggregated” use of resources is “at or above the 90th percentile of national utilization,” according to the chairman’s mark of Section 3003 of the bill. Doctors will feel financial pressure to limit referrals to costly specialists like surgeons, since these penalties will put the referring physician on the hook for the cost of the referral and perhaps any resulting procedures.

Next, the plan creates financial incentives for doctors to consolidate their practices. The idea here is that Medicare can more easily apply its regulations to institutions that manage large groups of doctors than it can to individual physicians. So the Obama plan imposes new costs on doctors who remain solo, mostly by increasing their overhead requirements—such as requiring three years of medical records every time a doctor orders routine medical equipment like wheelchairs.

The plan also offers doctors financial carrots if they give up their small practices and consolidate into larger medical groups, or become salaried employees of large institutions such as hospitals or “staff model” medical plans like Kaiser Permanente. One provision, laid out in Section 3022, allows doctors to share with the government any savings to the government they achieve by delivering less care—but only if physicians are part of groups caring for more than 5,000 Medicare patients and “have in place a leadership and management structure, including with regard to clinical and administrative systems.”

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While these payment reforms are structured as pilot programs in the legislation, this distinction has little practical meaning. Medicare is being given broad authority, for the first time, to roll these demonstration programs out nationally without the need for a second authorization by Congress.

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The regulation of medical devices and their pricing will also have consequences for patients by discouraging innovation. Most improvements in medical devices come incrementally, with each generation of a device having small but clinically relevant advance over prior versions. This owes to the underlying hardware, which turns on embedded software and microprocessors that themselves undergo constant upgrades.

But if Medicare starts pricing similar devices off one another—a form of the same “reference” pricing schemes used in Europe—manufacturers will start holding back the small changes. Instead, they will introduce new models every four or five years that are sufficiently unique to fall outside of Medicare’s pricing scheme. Meanwhile, patients will have lost the benefit of regular improvements and annual upgrades that characterize medical devices today.

The impact of these provisions won’t be confined to Medicare. Private insurance sold in the federally regulated “exchanges” will take cues from Medicare, since they’re both managed from the same bureaucracy. Medicare will set the standard for medical care across the entire marketplace.

Posted December 25th, 2009 under Health Care. RSS 2.0 feed. Leave a response, or trackback.