Healthcare reform challenges in Medicare and Medicaid systems

¶ … Future of Healthcare Operations

The current state of healthcare is facing a number of different challenges, with the increasing amounts of uninsured and rising costs posing as the greatest threat to the system. This is a drastic change from the predictions made during the 1980's that health care costs would remain stable. As it was largely expected that a physician surplus; would allow prices to remain stable well into the future. (Blendon, 2003) However, since that time the number of consumers requiring medical services has only continued to increase. As the number of baby boomers becoming older are putting the most pressure on the system. A good example of this can be seen by looking no further than the total number of Americans who have no health insurance, which is 47 million. This number is expected to increase by at least 25 million, as more Americans loose their health insurance coverage. (Lylte, 2009) This is despite the fact that the health insurance industry reported a profit of $12.2 billion in 2009, up from $4.4 billion that was reported in 2008. (MacDonald, 2010) as a result, the American health care system is facing the precarious challenge of dealing with increasing amounts of uninsured and selective insurance companies. This is troubling because the insurance industry is exempt from anti-trust regulation and can easily collude with other companies, when determining the premiums that will be paid. Over the course of time, this has meant that consumers are forced to pay more for various health care services. In the case of Medicare and Medicaid, they are facing similar kinds of challenges as they are forced to decrease the total amounts of reimbursements paid to health care providers. These changes are reflecting a model that is out of date and in desperate need of reform. As emotions, become more heated as to how to effectively address the current and possible reforms of the system. It is through examining this aspect of situation facing Medicare and Medicaid; that will provide the greatest insights as to how to both programs can be reformed to address the changes that are occurring

To fully understand the true scope of the problem that is encompassing both Medicare and Medicaid; requires that you use various corporate finance principals. This is because the American health care system is largely dominated by the private sector. In the case of Medicare and Medicaid, certain components are used in conjunction with private services. When you are using the different principals of corporate finance you are examining the supply and demand problems in the industry. This is the first step to determine how to fix both programs, so that they can continue to remain a viable entity into the future.

Medicare Issues

The primary goal for any kind of organization is to reduce the overall amounts of risk as much as possible, while providing value. Because Medicare is a government sponsored program, means that any kind of proposed changes often face heated debate. This has allowed the program to use a business model based on health care services delivered during the 1980's. As a result, the overall services provided continue to face the issues of declining reimbursements and rising costs. A good example of this can be seen with Medicare Part D, which is the prescription drug program offered to senior citizens over the last few years. The idea was that as prescription drug prices were rising meant that many seniors were faced with increasing financial challenges. To help offset these different costs, Part D was created. (Anderson, 2009) Under the program, the government would increase spending on prescription drugs, while reducing reimbursements to hospitals and physicians. However, according to the Kennedy School of Government at Harvard University, since the program was enacted in 2003, the costs associated with paying for prescription drugs have soared. While, the total number of reimbursements to health care facilities have increased as well. (Anderson, 2009) This is troubling, because the program was intended to reduce the effects of: the costs of prescriptions drugs and total reimbursements. What this shows is that the government is not effectively addressing the forces of supply and demand, to reduce the overall amount of costs.

This has caused a ripple effect to occur in the system where many other Medicare reimbursement programs are facing sharp reductions to include: a $110 billion reduction in reimbursements to health care providers, $22 billion in imaging services and a $75 billion reduction for prescription drugs. ("President Cuts Medicare, Medicaid to Help Reform Costs," 2009) the reason why this is occurring is: the Medicare entitlement program has created large inefficiencies and cost overruns due to the business model that they are using. To prevent the costs from spiraling out of control the government is reducing the total reimbursements to health care providers, by $313 billion over 10 years. ("President Cuts Medicare, Medicaid to Help Reform Costs," 2009) Commenting about the proposed changes the White House said, "Any honest accounting must prepare for the fact that health care reform will require additional costs in the short-term in order to reduce spending in the long-term. This will rein in unnecessary spending and increase efficiency and the quality of care. These savings will come from common sense changes." ("President Cuts Medicare, Medicaid to Help Reform Costs," 2009)

While the reduction in reimbursement programs is a good first step, the situation can create a problem of reducing the overall amounts of care provided at various health care facilities. Based upon the macro economic principal of corporate value all entities will seek to increase profits, while reducing the risks (losses) as much as possible. (Lumby, 2003) Where, those patients who are suffering from more severe health problems are more expensive to treat; due to the fact that they were not able to have their conditions treated early. Then, when you reduce the amounts for reimbursement the different services, means that many consumers will postpone health related issues for financial reasons. At which point, the condition could become more severe and expensive. In most cases, preventive medicine could significantly reduce the overall amount of costs for treating patients. This is a sign, that unless the federal government is serious about health care reform by changing the overall model. A major crisis will face Medicare in the next few years, as the reductions in costs will lead to less health care services. This is because health care providers will require the consumer to make up the difference that they are not receiving from reimbursements; which means that Medicare recipients will face a more troubling situation.

Medicaid Issues

Medicaid is facing similar challenges to Medicare, as the overall costs are rising sharply. However, the biggest issue that is contributing to this program can be seen in the bureaucracy itself. An example as to the overall severity of the problem can be seen with the fact that Medicaid has seen price increases of 40% in just five years, according to a report released from the National Governor Association. Then, when you combine this with the fact that Medicaid serves 53 million people with an annual budget of $329 billion, means that rising costs is severely affecting this program. ("Medicaid Reform," 2005) the inflexibility of this program has contributed to problem as a one size fits all approach is taken. Then, when you combine the different state programs offered through Medicaid, means that an uneven standard of inflexibility is used. An illustration of this can be seen by looking no further than the overall focus of Medicaid, where an emphasis is placed on addressing major health issues. This is problematic because like with Medicare, an approach must be taken of dealing with the patient once they are facing major health issues. Then Medicare has to engage in multiple functions to include: comprehensive acute / primary care, long-term care services (for those who qualify), a source of funding for uncompensated care at hospitals and it helps finance health care services for those who are suffering from chronic illnesses (i.e. HIV / AIDS). ("Medicaid Reform," 2005) This inflexibility adds to the overall costs, where some people could face dual coverage to include: those who are eligible for enrolment in both Medicare / Medicaid and those who receive reimbursements for out of pocket expenses. In total, these people account for just 7 million of the Medicaid beneficiaries and 42% of all Medicaid expenditures. ("Medicaid Reform," 2005) However, because they have access to multiple options, means that they are using more health care services. This is because those who are eligible for both programs are more likely to: have worse health conditions, they are from a lower economic class and the costs for institutional care are far higher. As a result, the government has been cutting back on the overall amounts of services that they are reimbursing. This is a similar to the corporate value principal that the government is using in Medicare. Where, they are reducing their overall amounts of costs by requiring the consumers to have to pay more out of pocket health care services. The thinking is, that by increasing the costs of various programs you can effectively control costs for those who require the most expensive services. The problem with using such an approach is it does not eliminate the overall amounts of bureaucratic waste that is created from this program.

This can be seen by looking no further than what Medicaid is paying for prescription drugs. In this particular situation, Medicaid has been known for having overpays, as a system of determining the cost has proven to be outdated. The reason why is: because Medicaid serves a wide variety of families and individuals, as each one that has its own needs. Then when you combine this with increased enrollment since its inception, means that you are looking at program that was designed in the 1960's to address the health care needs of today. As a result, the government is focused on using an ineffective policy and inflexible approach in the reimbursement of medication. Then, when you combine this with the fact that the law prohibits Medicaid from applying co payments to select groups, makes the situation more untenable. As the government, has no way of determining if the beneficiary will pay a percentage of their medical costs. This allows for the overall reimbursements to increase more, because there is no accountability in the Medicaid program. ("Medicaid Reform," 2005)

Another way that bureaucracy is affecting Medicaid is through the cumbersome procedures to make changes that are occurring in the field of health care. For any state to make even smallest changes to their Medicaid policies / procedures, requires that they must receive a waiver from the Department of Health and Human Services. ("Medicaid Reform," 2005) This was intended to provide the states with an effective guideline. The inflexibility of the system and the changes that have occurred in the field of health care are causing, the overall number of waivers to rise dramatically. This is due to the inflexibility that the federal government is giving the states in regards to adjusting and adapting Medicaid policies. Then, various court decisions have made the situation even more confusing. An example of this can be seen in the State of Arkansas, which can not make any changes to the fees paid to physicians unless receiving court approval. This is because the state entered into an agreement with the Arkansas Medical Society. As a result, the state is forced to waste time and resource going to court to be incompliance with different agreements. These funds could be used to improve the overall quality of care of provided to the recipients of Medicaid. The effect that this has on the Medicaid policy of the states can be far reaching; as previous court decisions are cited by both lawmakers and the legal community, pertaining to the Constitutionality of various policies. Once this take place, it makes it very challenging to adapt to the needs of citizens and the changes that are occurring in the field of medicine. ("Medicaid Reform," 2005)

Medicaid Reforms

In spite of the overall challenges, an approach of giving state officials more flexibility can help reduce the overall cost that are being paid for various improvements. One way to do this is to mirror the S. CHIP Program. This program is designed to provide children in low income families with additional coverage. Under this program, the overall amounts of costs have been more restrained, as families have more flexibility in choosing which options make the most sense for them. What makes it so successful is: that it does not become caught up in the different legal distinctions that have often affected the coverage of Medicaid. A good example of this can be the difference between mandatory and arbitrary populations. These legal distinctions matter in Medicaid because they are used to determine the overall levels of eligibility. This distinction is significant, because it gives programs like S. CHIP greater amounts of flexibility to: eliminate redundancy, establish employer buy in programs, determine co payment schedules and to offer a variety of different benefits packages (some that can be targeted to geographic regions). As a result, the overall costs are less while the number of people covered are higher on a percentage basis. This type of model can be used to effectively address the issue of Medicaid reform as it will provide the program with greater flexibility. This will have ripple effects, as it will allow the state to adapt to changes that are occurring in the industry, lowering costs. ("Medicaid Reform," 2005)

To address increasing prescription drug prices, the state should engage in a policy that takes a multi-prong approach to include: increasing the number of rebates that states / consumers can use, requiring the use of authorized generics, requiring immediate discounts on prescriptions drugs, eliminating those areas that offer similar coverage as Medicare Part D and greater flexibility in establishing co pay structures. Together, these different elements will reduce the overall costs associated with prescriptions drugs. This means that the overall amounts of reimbursement will begin to decline. ("Medicaid Reform," 2005)

Clearly, both Medicare and Medicaid are two entitlement programs that are being affected by rising costs. This has led to an increase in the overall number of cuts, as the different services that were reimbursed by the government are reduced. However, from a corporate finance perspective this issue is reflecting the idea of corporate value. This is where you are attempting to increase profits while reducing risks (costs). In this particular case, the government is not trying to increase profits from both programs. Instead, their objective is to reduce reimbursement costs as much as possible. To effectively address these issues requires that the both Medicare and Medicaid begin using a system that gives recipients a choice on: various health care services, provides increased flexibility for adapting these programs to changes that are occurring, focuses on preventive care and uses multiple strategies for controlling prescription drug prices. These ideas will require having to see the short-term costs rise, as the system focuses on addressing these issues. However, over the long-term these changes will make drastic reductions in the total expenditure in health care services as they provide each program with flexibility. This is the key to addressing the pressing issues of cost reimbursement in both Medicare and Medicaid. It is through understanding this aspect to the issues surrounding these programs; that will provide the greatest insights for reforming them.