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Archive for August, 2009



Medicare: A Mainframe Using Levers. Why Health Reform Is So Complicated

by Jaan Sidorov

Drive through Hartford, Connecticut on Route I-84 and you cannot miss Aetna’s huge corporate headquarters. Indianapolis’ Wellpoint’s headquarters is an impressive complex too. I’ve been in the hallways of both these insurance behemoths, but I can assure you that they’re pipsqueaks compared to what’s at 7500 Security Boulevard in Baltimore.

I recently visited our Centers for Medicare and Medicaid Services and was blown away by the size of the place. The buildings are not only colossal, the parking lot is probably visible from space. Two words occurred to me on its way out of the complex: mainframe and leverage.

The word ‘mainframe,’ coined by former HHS Secretary Leavitt, probably doesn’t do it justice, because CMS is obviously far more, well…. organic … like the DNA controlled machines in the movie District 9. Armed with a unique combination of information technology and human resources, this nation-state has a budget that exceeds most countries’ GDP. It somehow manages to move hundreds of billions of dollars around in an opaquely complex system of policies, regulations, claims processing and provider billing. It probably uses more processing power and full time equivalents than what was used to put men into space and study Britney Spears’ behavior combined.

It’s the money that also prompted me to think about one of the earliest and simplest tools known to mankind: the lever. Since CMS is a payer, its administrators understand that economic incentives can be used to incent or disincent the provision of health care services. While CMS’ influence is far more complicated, a bottom line is that its machinery is increasingly being used to manipulate provider and patient behavior.

Why is this important? Aside from the observation that big bureaucracies with imperfect levers seek to become even bigger bureaucracies with more levers:

1. The ability of so vast an enterprise to fine tune its leverage across an even more complicated U.S. health care landscape is questionable. For example, DRG-based prospective payment reform was successful in decreasing hospital lengths of stay, leading to earlier discharges. The line that separates early from premature discharges is thin, however, especially when good discharge planning is lacking and patients get readmitted. CMS is now piloting paying for the former and increasingly not paying for the latter. Think hospitals won’t respond by doing everything they can to not re-admit patients, even if that would be in their best medical interest? Can the mainframe develop a new lever to address this, or will there be even more unintended consequences? How will this work in various health care settings, such as downtown LA, in Peoria and in Boise?

2. Man lives by more than bread alone. The rich web of relationships that exist between doctors and patients are driven by far more than money, but when all you have is a lever, all the world looks like a moveable object. Leaving aside the conflict of interest in a health insurer trying to promote living wills, I doubt CMS’ paying for living will counseling will meaningfully increase its use. It’s already easy for physician to ‘bill’ CMS for patient encounters that include such discussions, but it’s not happening. The reasons for this lapse are multiple and most are not a function of an undersupply of shekels from CMS.

3. Which leads to the combination of mainframe reforms and new levers appearing in the health reform bills before Congress. Critics complain they are too complicated. Pay a visit to CMS outside of Baltimore and you’ll understand why.