Federal maneuvers will take toll

The Baltimore Sun

America's physicians are holding their breath as they wait to see how Washington will resolve the latest mess resulting when the methods of "Madman Muntz" meet Medicare.

Earl William "Madman" Muntz was the pioneer pitchman who explained his low prices by saying, "I lose money on every one I sell, but I make it up on the volume."

His business model is being tested by Medicare, which tries to keep its budget balanced in response to the increasing number of services that doctors provide by reducing the price paid per service. Doctors complain about the resulting pain and threaten to quit the program, an outcome that would displease beneficiaries likely to take revenge on their elected officials for permitting it.

The numbers paint a clear picture. From 1997, when Congress passed a bipartisan budget-balancing law, to 2005, Medicare payments to doctors rose by 79 percent and payments per beneficiary increased by more than 34 percent. Meanwhile, the price paid per service delivered was cut by nearly 5 percent.

During this period, Washington has repeatedly postponed the day of reckoning without amending the basic policy; doing so would be an expensive act of candor that would boost the projected budget deficit by acknowledging that the cuts will never take place. Habitual delay is an honored government technique that allows politicians to eat their cake (keeping doctors happy by increasing reimbursement) and have it too (retaining the anticipated budget savings).

This contest began when the government asserted control over Medicare reimbursement and quickly found that such efforts could be overwhelmed by volume growth. That's not just because doctors like to make more money; it also reflects the growing number of options that research has some up with.

Americans live longer than they did when Medicare began, in part because we have lifesaving therapies that didn't exist then. Some of them can be quite expensive.

That's the basic reason why health spending gobbles up a growing part of the budget. There may be inefficiencies around the edges that could be solved by fixing medical malpractice laws or mandating computerized medical records, but the potential savings are modest.

The current debate has been deftly crafted as a contest between doctors, whose concerns make their patients nervous, and Medicare Advantage plans, which the White House and many Republicans see as a way of using market forces to control costs. Congress wants to pay doctors more and plans less, a strategy that seems sensible because the government now pays more per beneficiary in a Medicare Advantage plan than it does for other participants.

But such a solution doesn't solve the true problem; it only delays the day of reckoning. Mr. Muntz was thwarted by laws too basic to be amended by Congress; he quit making cars and concentrated on other businesses when he learned that each of the 400 high-speed autos he sold went for $1,000 less than his production costs. Ultimately, Congress, too, will have to come up with a new strategy.

Jim Jaffe is public affairs vice president at the Center for the Advancement of Health, a nonpartisan Washington health think tank. His e-mail is jimjaf@gmail.com.

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