Social Security: Foreword

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Medicare: Advancing Towards the 21st Century

This special issue of the Health CareFinancing Review commemorates and cel-ebrates 30 years of the Medicare program.It contains the articles presented at a sym-posium held in Austin, Texas, hosted bythe Lyndon Baines Johnson PresidentialLibrary and the Lyndon B. Johnson Schoolof Public Affairs. With personal stories, aswell as facts and figures, these articlesdocument the enormous impact Medicarehas had on the lives of beneficiaries, onproviders of health care, and on Americansociety as a whole. They look to the futureand examine how the program may evolveas we enter the 21st century.

Few public programs in the history of the United States have brought as muchbenefit. Medicare meant access to healthcare coverage for millions of Americanswho had none; it opened up our hospitals topeople of all races; and it relieved some of the financial burden of health care, helping ,

move many elderly out of poverty.Medicare was signed into law by Presi-

dent Johnson on July 1, 1965, in Indepen-dence, Missouri. The program was up andrunning a year later. President HarryTruman summed it up well at the signingof the Medicare legislation when he said:

"These are the days that we are trying tocelebrate for our nation's senior citizens.These people are our prideful responsibil-ity and they are entitled, among other ben-efits, to the best medical protection avail-able." For 30 years, the Medicare programhas been operating under that assumption.

Today, more than 38 million Americansare Medicare beneficiaries. Since 1966, morethan 79 million Americans have enjoyed

the benefits of Medicare coverage.HEALTH CARE FINANCING REVIEW/ Winter 1996/Volume 18, Number 2

It is only appropriate that Medicare is amajor issue, right now, for both policy-makers and the public at large. After all,Medicare is one of the most far-reachingand successful things our Governmentdoes, not to mention one of the most expen-sive. Recently, the discussion has taken ona special edge because of the wide public-ity given to projections that the Hospital In-surance Trust Fund will be exhausted by2001. However, it should be noted, particu-larly as we look back at the past 30 years,that the Hospital Insurance Fund, like theother Social Security Act trust funds, has infact been in comparably bad shape before.

The projected rapid growth in spendingby entitlement programs such as Medicareis widely viewed among policymakers, ana-lysts, and the public as a very serious prob-lem. This perceived problem has led tonumerous calls for reducing growth inentitlement spending, through program re-forms, means-testing, privatization, andother measures. Recently, for example,Congressional proposals to slow projectedMedicare spending have been introducedin an effort to eliminate the Federal budgetdeficit. The focus, again, is on addressingthe perceived problem that Medicare costs

have been increasing too rapidly and areprojected to continue to do so in the future.The prevailing view, however, largely

overlooks the most important fact underly-ing these concerns. Specifically, the highprojected cost of entitlement programs re-flects the growth in economic- and health-security needs that will arise as the popula-tion ages. In other words, the fundamentalproblem is attributable to demographic

changes. Dorothy Rice highlights some of



these demographic trends in her article inthis issue of the R ev iew .What is clear isthat this country's elderly and disabledMedicare beneficiaries will consumehealth care services that will need to be fi-nanced in some way. If Medicare is not

available to pay for those services, andthere are no other options, people will gowithout needed care.

In practice, both Medicare and Social Se-curity are highly efficient in the provisionof health care and retirement income. Ad-ministrative expenses for Medicare repre-sent less than 2 percent of total programexpenditures and the corresponding figurefor Social Security is even lower. Thus, the

future cost increases associated with theseprograms primarily reflect the growth inthe number of beneficiaries, wage in-creases and inflation, and (in the case of Medicare) increases in the utilization andintensity of medical services. As such, theexpected cost increases are attributable tothe expense of providing n e e d e d healthcare services and retirement income for anaging society, and should not be viewedautomatically as deficiencies.

As the Health Care Financing Adminis-tration (HCFA) thinks about the future of Medicare, we are not thinking solely aboutthe budget deficit or even the Trust Funds.We look at Medicare not as a budget prob-lem, but as a great solution to some of thepressing social problems of this age: theproblems of poverty and illness among theelderly. We think about ways to strengthenMedicare through a carefully plannedstrategy that will take us into the 21st Cen-tury. Our goal is to make Medicare a morecost-effective purchaser of high qualityhealth care that meets the needs of all ourbeneficiaries, especially the most vulner-able. We want to make Medicare a betterprogram, not a lesser program. Some of these changes will come about through

Congressional action and some are alreadyhappening and will continue to happenwithin HCFA.

There are several major areas on whichthe current Administration is focusing itsefforts, including (1) preserving and en-

hancing beneficiary choice, (2) moderniz-ing Medicare, and (3) improving qualityand payment for post-acute care.

Beneficiary Choice

A stronger Medicare means a Medicarewhich offers beneficiaries a wide range of choices to meet their health care needs,whether through managed care or fee-for-

service care. While preserving andstrengthening the fee-for-service program,we want to make a broader range of man-aged care delivery systems available thanis currently permissible by statute.

Last year, HCFA announced the Choicesdemonstration project to demonstrate thebenefits of offering a wider range of man-aged care options. The Choices demonstra-tion will give us an opportunity to work with Provider Sponsored Networks andPreferred Provider Organizations (PPOs)and to test risk adjusters in certain mar-kets. We also are seeking statutory author-ity to contract generally with PPOs, PSNs,and other alternative delivery systems thatmeet strong consumer protection standards.

Beneficiary choice also requires makingmore and better information available tobeneficiaries in a timely way. Through our"HCFA Online" project, we are developinga range of communications techniques,from the most technologically advancedInternet messages to a revised set of publi-cations in multiple languages. We also areengaged in systematic and continuing mar-ket research to better understand what in-formation beneficiaries want, and how theylike to receive it.

HEALTH CARE FINANCING REVIEW/ Winter 1996/Volume 18, Number2



As we strive to expand beneficiary choice,we have taken steps to protect Medicaremanaged care enrollees. For example,HCFA has: implemented the Anti-Gag Rulepolicy to assure that beneficiaries have in-formation about all the health care optionsappropriate for them; implemented thePhysician Incentive regulation so that abu-sive financial arrangements between physi-cians and health plans will be prohibitedand permissible arrangements more fullydisclosed; taken the lead in setting qualitystandards for managed care through ef-forts such as the implementation of HEDISfor Medicaid and Medicare and our part-nership with the Foundation for Account-ability; and we also are planning to improvethe managed care grievances and appealsprocess.

Modernizing Medicare

Over the past several years, private sec-tor purchasers of health services have de-veloped a variety of innovations in the waythey pay for health services. It is ironic thatHCFA, the largest purchaser of healthservices in the United States, has beenshackled by outdated statutory paymentprovisions which prevent us from makingsimilar adaptations to today's marketplace.These rules have limited our ability to pur-sue cost savings and quality.

HCFA's "Beneficiary Centered Purchas-ing Initiative" proposals, if approved by

Congress, would give Medicare the author-ity to adopt the following payment methodswhich are currently allowable only asdemonstrations:

*Centers of Excellence contracting, inwhich Medicare pays selected, highquality facilities a flat fee for all servicesassociated with a given surgical proce-dure, such as knee replacement;

HEALTH CARE FINANCING REVIEW/ Winter 1996/volume 18, Number 2

• Competitive Bidding, through whichMedicare would set payment rates for non-physician Part B services such as medicalequipment and laboratory services;

• Global Payment purchasing, in whichMedicare would selectively purchaseservices directed at specific conditionsor individual needs;

• Flexible Purchasing Authority, in whichMedicare would be able to negotiate al-ternative administrative arrangementswith providers, suppliers, and physicianswho agree to provide price discounts toMedicare.

Improving beneficiary services is alsocritical to modernizing Medicare. Ex-amples of these initiatives include: 24-hour,toll-free telephone access to highly trainedindividuals capable of helping with basiceligibility and reimbursement issues; and aMonthly Summary Notice, similar to a creditcard statement, to replace the tons of papernow consumed by Explanation of Benefitsnotices. This notice would provide beneficia-ries with the status of all claims, includehealth reminders about health needs such asflu shots and mammograms, send alerts onsupplier scams and other fraudulent activity,and eventually coordinate fully with medigapand primary payer coverages.

As we improve the Medicare program,we are cleaning up after years of insuffi-ciently aggressive management. In 1994,the Secretary of HHS and the President, in

launching the anti-fraud and abuse cam-paign known as Operation Restore Trust,declared "zero tolerance" for fraud. HCFAhas developed parallel initiatives to achieveour goal of ending the practice of "payingand chasing" in favor of paying right thefirst time. We have developed standards forall providers, and now have a system togather and verify provider informationprior to dispensing a Provider Identification



Number. Our anti-fraud initiative has beenfurther strengthened by the Health Insur-ance Portability and Accountability Actwhich gives Medicare greater flexibility incontracting for program integrity work.

Medicare Post-Acute Care Services

This year, Medicare will spend morethan $30 billion on post-acute services, de-spite serious questions about the effective-ness and appropriateness of those servicesin meeting the needs of our beneficiaries.Judith Feder and Jeanne Lambrew look atsome of these expenditures in their articlein this issue of the Review. It is past time for

Medicare to have a long-term care policy.At HCFA, we are laying the foundation

for a more rational long-term care system,starting with Medicare post-acute careservices. The model we are developing forpost-acute care is one in which payment,care-planning, quality assurance, and pro-gram monitoring will be driven accordingto the individual beneficiary's needs. Thissystem will build on current assessmentand tracking tools, such as the UniformNeeds Assessment Instrument (UNAI),the nursing home Minimum Data Set(MDS), and the Outcomes and Assess-ment Information Set (OASIS) for homehealth care, to evaluate beneficiaries' func-tional and medical needs to permit case-mix adjusted payments. The integratedapproach to patient assessment also willgive providers in different settings more

information about a beneficiary's previousmedical and health history to better planand manage patient care, and give us allthe tools for better quality assessment andmonitoring.

All of these activities-expanding benefi-

ciary choice, modernizing Medicare, andrationalizing Medicare post acute care-are central elements of a strategy to im-prove and strengthen Medicare for futurebeneficiaries.

The articles presented in this issue of the Review comprise an important resourcethat can be used to understand the historyand impact of the Medicare program. It iscritical not to lose sight of the influential

role the program has had on this country'shealth care system, and the benefits it hasbrought to all our citizens. Prior to the sym-posium at the LBJ School of Public Affairs,I received a letter from CongressmanCharles Vanik, who was a member of theWays and Means Committee that helpedsend the Medicare legislation to PresidentJohnson, expressing his regrets that hecould not attend, and sharing some of histhoughts on the subject: "I tell my youngfriends that three generation of Americanswere spared the awesome task of takingcare of their parents so that they could con-centrate on the care and education of theirchildren. The security of the elderly andthe health of the American people shouldbe built on the experience and the founda-tion provided by Medicare and Social Secu-rity." How right he is.

Bruce C. Vladeck, Ph.D.Administrator

HEALTH CARE FINANCING REVIEW/ Winter 1996/Volume 18, Number 2

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Social Security: Foreword