Book Review

Medicare Prospective Payment and the Shaping of U.S. Health Care

N Engl J Med 2007; 356:2116-2117May 17, 2007

Article

Medicare Prospective Payment and the Shaping of U.S. Health Care
By Rick Mayes and Robert A. Berenson. 245 pp., illustrated. Baltimore, Johns Hopkins University Press, 2006. $48.95. ISBN: 978-0-8018-8454-2

In Medicare Prospective Payment and the Shaping of U.S. Health Care, Rick Mayes and Robert Berenson chronicle Medicare's 30-year odyssey of transformation as it shifted from cost-based reimbursement of institutions and charge-based payment to physicians (adopted from the private sector) to prospective payment systems designed to encourage more-efficient use of resources. Whether discussing the Social Security Amendments of 1972 or the Balanced Budget Act of 1997, Mayes and Berenson entertain readers with insider anecdotes about the ideological and practical battles government policymakers fought with powerful provider lobbies. Because Medicare per-capita spending growth has been 1% lower than that of private spending over the period from 1970 to 2002, the authors conclude that Medicare's prospective payment systems represent an important governmental success, despite strong ideological resistance from private market enthusiasts.

The focus of policymakers on designing payment systems, which is so well documented in this book, has unfortunately diverted attention from ensuring the best care systems for beneficiaries. Fifteen separate payment systems create provider silos lacking well-aligned incentives to ensure the best possible care for beneficiaries. Within each silo, providers play a budget-neutral, zero-sum game, wherein gains obtained by politically influential players (e.g., area wage reclassifications, indirect medical education and disproportionate share payments, selective upgrades in physician fees) are offset by losses for everyone else in that silo. No one party is accountable for how well the system as a whole functions. No one is paid to coordinate care across the silos, whether the hand-offs from providers of acute care to providers of postacute care or the communication between specialists caring for patients with multiple coexisting conditions. Furthermore, in part because of the ideological struggle over whether Medicare should be publicly or privately run, the claims records documenting resource use within one silo (e.g., prescription drugs) cannot be easily combined with claims from other silos, complicating government efforts to establish transparency or accountability for an episode of beneficiary illness.

We are now facing, as we did in the 1970s, a Medicare program that is financially unsustainable, with a congressionally mandated “45% trigger” (a limit on Medicare funding from general tax revenue) expected to require a presidential proposal and congressional debate as early as 2008 to “rethink” Medicare financing, benefit design, and provider payment. Medicare cost growth has exceeded growth in the economy by close to 2% annually since its inception. The federal budget deficit and unfunded promises of future benefits made by Social Security, Medicare, and Medicaid programs have created a national debt that exceeds 90% of American household net worth. The authors conclude that Medicare payment systems have created a stable funding base for the nation's providers but have not made Medicare fiscally sustainable.

Medicare must create a stable, high-quality system of care that is focused on the changing needs of elderly beneficiaries, within fiscally sustainable limits. The evolution of Medicare payment systems took 35 years and established an army of entrenched providers whose political agility in protecting their interests is well documented in this book. I hope that an update, 5 years from now, will focus instead on how policymakers have improved the value of Medicare for beneficiaries and taxpayers — not just for providers.

Nancy M. Kane, D.B.A.
Harvard School of Public Health, Boston, MA 02115