CRS Issue Statement on Medicare Reform

CRS Issue Statement on Medicare Reform

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CRS Issue Statement on Medicare Reform
Patricia A. Davis, Coordinator
Specialist in Health Care Financing
January 15, 2010
Congressional Research Service
7-5700
www.crs.gov
IS40347
CRS Report for Congress
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repared for Members and Committees of Congress
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CRS Issue Statement on Medicare Reform

edicare is the nation’s federal insurance program that pays for covered health services
for most persons 65 years and older and for most permanently disabled individuals
M under the age of 65 years. It consists of four parts, each responsible for paying for
different benefits, subject to different eligibility criteria and financing mechanisms.1 The rising
cost of health care, the impact of the aging baby boomer generation, and declining revenues in a
weakened economy continue to challenge the program’s ability to provide quality and effective
health services to its 45 million beneficiaries in a financially sustainable manner.
Similar to other purchases of health care, Medicare spending has been growing much faster than
the general economy, and concerns about Medicare’s long-term sustainability continue to
intensify. Studies by the Congressional Budget Office, the Medicare Payment Advisory
Commission and others attribute most of the cost growth to the development and increasing
utilization of new treatments and other forms of medical technology. The Medicare trustees
estimate that if Medicare benefits and payment systems remain as they are today, the Hospital
Insurance trust fund will become insolvent by 2017. These financial pressures are likely to result
in Congress considering changes to control Medicare expenditures, such as reducing provider
payments or program benefits, and/or to raise additional revenues, such as through increasing
taxes or beneficiary cost-sharing.
As an entitlement program, Medicare is required to pay for services provided to eligible persons,
so long as specific criteria are met. Medicare is also, by statute, prohibited from interfering in the
practice of medicine or the manner in which medical services are provided. Medicare therefore
pays for virtually all covered products and services if they are determined to be medically
necessary. In such a system, there are inherent incentives for providers and suppliers to focus on
the volume of procedures and services provided rather than on beneficiary health outcomes. As
part of the broader discussion of health care reform, the 111th Congress has explored proposals to
create incentives to provide efficient and quality care through such means as care-coordination,
quality monitoring, and program oversight.
Congress confronts a delicate balancing act in weighing financing issues against the need to
provide and maintain access to appropriate, high quality medical care for Medicare beneficiaries.
While Medicare provides coverage for the aged and disabled, it does not guarantee access to care.
Beneficiaries under traditional fee-for-service Medicare must seek care from available and
accessible providers. However, the decision to participate in Medicare (and the extent of such
participation) is at the discretion of the provider or individual practitioner. Recent physician
payment freezes and the potential for future reductions have accelerated concern that a growing
number of Medicare beneficiaries will be unable to find a provider who will care for them.
Patient advocates are concerned that certain groups (racial minorities, lower income individuals

1 Part A, the Hospital Insurance program, covers hospital services, up to 100 days of post-hospital skilled nursing
facility services, post-institutional home health visits, and hospice services. Part B, the Supplementary Medical
Insurance program, covers a broad range of medical services including physician services, laboratory services, durable
medical equipment, and outpatient hospital services. Part B also covers some home health visits. Part C provides
private plan options, such as managed care, for beneficiaries who are enrolled in both Parts A and B. Part D provides
optional outpatient prescription drug coverage.

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CRS Issue Statement on Medicare Reform

or beneficiaries in rural areas) may face even greater obstacles in accessing necessary health
services.
In the face of ballooning Medicare costs, particular attention is being placed on stemming the
rapid growth in program spending. Generally, potential solutions focus on restricting provider
payments through curtailing payment updates. Within this framework, payment changes affecting
physicians, practitioners, suppliers, and providers are likely to spark discussion and warrant
attention. Consideration is also being given to reducing payments to Medicare Advantage plans so
that they are more in line with costs under the fee-for-service portion of the program. At the same
time, however, policymakers are confronting the challenge of determining how to finance
increases in physician payments and improvements to the current benefit structure, such as
closing the prescription drug benefit doughnut hole.
Additional changes are being considered to improve financial incentives for providers to produce
appropriate, high-quality care at an efficient price. Changes could include the development of
new service delivery and payment methods such as bundled payments, value-based purchasing
and accountable care organizations (in which a group of providers share responsibility for the cost
and care of patients). Methods are also being considered to reduce vulnerabilities in program
integrity, such as improving the screening of potential Medicare providers and identifying
overpayments more quickly. Health care delivery models established within Medicare could
stimulate similar improvements in the broader health care delivery system.

Issue Team Members

Patricia A. Davis, Coordinator
Mark Newsom
Specialist in Health Care Financing
Analyst in Health Care Financing
pdavis@crs.loc.gov, 7-7362
mnewsom@crs.loc.gov, 7-1686
Jim Hahn
D. Andrew Austin
Analyst in Health Care Financing
Analyst in Economic Policy
jhahn@crs.loc.gov, 7-4914
aaustin@crs.loc.gov, 7-6552
Paulette C. Morgan
Barbara English
Specialist in Health Care Financing
Information Research Specialist
pcmorgan@crs.loc.gov, 7-7317
benglish@crs.loc.gov, 7-1927
Holly Stockdale
Marc Labonte
Analyst in Health Care Financing
Specialist in Macroeconomic Policy
hstockdale@crs.loc.gov, 7-9553
mlabonte@crs.loc.gov, 7-0640
Julie Stone
Edward C. Liu
Specialist in Health Care Financing
Legislative Attorney
jstone@crs.loc.gov, 7-1386
eliu@crs.loc.gov, 7-9166
Sibyl Tilson
Jennifer Staman
Specialist in Health Care Financing
Legislative Attorney
stilson@crs.loc.gov, 7-7368
jstaman@crs.loc.gov, 7-2610
Cliff Binder
Kathleen S. Swendiman
Analyst in Health Care Financing
Legislative Attorney
cbinder@crs.loc.gov, 7-7965
kswendiman@crs.loc.gov, 7-9105

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CRS Issue Statement on Medicare Reform

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