Government

Financial trouble predicted for Medicare

Congressional action to clamp down on program spending could be triggered within two years.

By David Glendinning — Posted Jan. 2, 2006

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Washington -- As Federal Reserve Board Chair Alan Greenspan prepares to depart his position at the end of this month, he is leaving behind dire warnings about the long-term financial health of the Medicare program.

Cutting-edge advances in medicines prescribed by physicians to senior patients were singled out by Greenspan in a recent speech as one of the major causes for concern.

"Technological innovations can greatly improve the quality of medical care and can, in some instances, reduce the costs of existing treatments," Greenspan said to a Dec. 2, 2005, forum at the Federal Reserve Bank in Philadelphia. "But because technology expands treatment possibilities, it also has the potential to add to overall spending."

If the added costs of these physician-prescribed services significantly outweigh any savings derived from reducing the need for more extensive treatments, the Medicare program will have a difficult time maintaining its funding side over time, he said.

Potential increased costs stemming from the use of new medical technology already have caught the attention of Centers for Medicare & Medicaid Services Administrator Mark McClellan, MD, PhD. The agency launched an investigation into recent surges in spending on physician services to see whether doctors are overprescribing certain treatments.

Physician groups such as the AMA counter that doctors simply are following approved guidelines that stress more preventive care and lead to the increased use of new therapies. In the long run, according to these organizations, reduced hospitalizations and fewer medical complications will result in savings to the entire system.

But the more immediate fiscal situation does not appear to be improving. Greenspan's comments came at a time when the federal government was steeling itself for the launch of the Medicare drug benefit, which the Bush administration expects to add more than $700 billion to the bill over the next decade.

The historical difficulty that lawmakers have encountered in trying to take back such entitlement commitments after they are already firmly in place suggests that Congress must make a tough assessment of the financial future of Medicare now, Greenspan said.

"I fear that we may have already committed more physical resources to the baby-boom generation in its retirement years than our economy has the capacity to deliver," the Fed chair said. "If existing promises need to be changed, those changes should be made sooner rather than later."

Medicare's alarm system

If Congress doesn't heed this latest call to address increased costs to the federal government of medical technology and health care, it may soon hear a more forceful alarm set up by lawmakers themselves.

A little-known provision in the 2003 Medicare reform law will trigger congressional action to rein in spending if the program's trustees predict its drain on the U.S. Treasury is getting too large. The alarm will be tripped after the second time in a row that the caretakers issue an annual report saying that 45% or more of total expenditures will need to come out of general tax revenues in one of the following six years.

The provision may kick in as early as 2007, Medicare Payment Advisory Commission analyst Rachel Schmidt, PhD, told the panel at its November meeting. Many experts expect that the Medicare trustees will issue a report in March projecting that the program will exceed the funding threshold in 2012. If the following annual report, which would be issued in March 2007, projects the same timetable, it would cause the legislative alarm to sound.

If this were to happen, President Bush would be required to send proposed legislation to Capitol Hill in early 2008 that would relieve the strain on the general tax pool -- by cutting reimbursements to doctors and others, increasing beneficiary cost-sharing, or raising payroll taxes.

Such a scenario could raise fears that the federal government will stage a repeat of the Balanced Budget Act of 1997 by tightening its belt when it comes to paying physicians and other Medicare players. But MedPAC Chair Glenn Hackbarth, whose commission also will discuss long-term Medicare financing in its March report to Congress, said Capitol Hill needs to hear the financial warnings loud and clear.

"I see signs that this is becoming a more urgent matter from the perspective of the users of the health care system and the people who pay for it."

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