Part D “Bundling”... and Media Bungling

As far as complexity goes, the Medicare system makes a Gordian knot look like an untied baby shoe, which is one reason why recent revelations over the budgetary savings behind an obscure part of the “fiscal cliff” deal amount to a cautionary tale.

The so-called American Taxpayer Relief Act – which preserved some of the 2001 and 2003 taxpayer relief laws but unwisely boosted tax burdens elsewhere – also contained a new “doc fix” that prevented Medicare reimbursement rates for doctors from declining.

One “pay-for” to absorb the costs of this policy involved a highly technical change to the process of how Medicare reimburses drug costs for patients with End Stage Renal Disease (ESRD). Instead of allowing certain oral ESRD medications to be absorbed into a “bundled” payment system next year, the legislation permitted separate, non-bundled reimbursement to continue until 2016. Although several changes to bundled payments were apparently under discussion in Congress for the better part of a year, they were included in the fiscal cliff deal on evidence suggested by the Government Accountability Office that doing so could help control other ESRD treatment costs for Medicare.

Shortly after passage of the fiscal cliff deal, the indignation erupted. The New York Times accused Congress of delivering “a gift” to a handful of biotech companies that make the excluded drugs, thereby costing Medicare as much as $500 million. The Washington Post chimed in (, calling the provision “a $500 million windfall.”

But then the sizzle turned to fizzle upon release of a Congressional Budget Office (CBO) cost estimate for the provision, which showed what its proponents had thought all along.

The CBO report, requested by Senate Finance Committee Republican staff, examined several scenarios associated with ESRD oral drugs, and determined that the two-year delay in putting the drugs into the bundled payment scheme amounts to a savings of $100 million. Extending the delay to 2017 pumps the savings up to $500 million, owing to a “competitive Part D market dynamic coupled with more intensive generic erosion.” Oops.

The provision and its surrounding brouhaha caught my eye because of our previous work on Medicare reform in general and ESRD in particular.

Several years ago National Taxpayers Union weighed in on what was at the time a patently ridiculous government policy that compelled ESRD patients receiving dialysis to make Medicare their primary provider (ahead of private insurance) after 30 months of treatment. According to testimony on various Medicare reforms NTU submitted in 2008 to the Senate Finance Committee:

This payment arrangement exists for only one disease – ESRD – and is unknown   anywhere else in the federal government’s health insurance system. …We find the       current policy of forcing privately insured ESRD patients undergoing dialysis treatments onto the Medicare rolls after 30 months to be fiscally unwise as well as disdainful toward consumers who may wish to remain under their primary carrier’s coverage. We agree with the Administration’s position that changing this rule should be a part of any effort to “rationalize Medicare payment policy” and in so doing save taxpayers considerable outlays.  The Administration has proposed extending the period of private insurance coverage [Patient Coverage Extension, PCE], from 30 to 60 months. 

The latter passage is also important to the current debate, since it illustrates that Medicare rules surrounding ESRD treatments have often been very narrowly drawn. Thus, it would not be unusual for ESRD-specific provisions to show up in later laws without them necessarily being tied to nefarious “giveaways.”

The past is prologue in another aspect. Back then doubters said that the concept of PCE could trap patients in private care settings whose quality and facilities would be inadequate, while claiming the burden of throwing more ESRD sufferers into Medicare was minimal. But then as now, CBO’s estimates got in the way of naysayers’ arguments. As we noted in 2008, “The 2007 CBO Budget Options publication includes an analysis of extending the PCE period from 30 to 60 months, a change CBO determined would save Medicare $1.02 billion over five years and $3.07 billion over 10 years.”

To be clear, we’ve had our disagreements with CBO’s scoring methods. Most recently, for example, the President called for extracting more “rebates” from pharmaceutical companies supplying drugs to Part D. The very term “rebate” is deceptive, since it amounts to a forced payment from manufacturers to the government (not consumers) while putting at risk the resources companies need to discover new blockbuster cures. CBO continues to score rebate proposals like the President’s as budget savings, even though their impact on private-sector drug development (and in turn cost-cutting therapies for government health programs) could be highly detrimental.

Yet, beyond all of the obtuse discussions over delays in ESRD drug bundling, it appears that several media sources may have jumped to conclusions about the fiscal cliff deal’s provision in pursuit of a “gotcha” story.

The ultimate upshot of this episode, however, is that unraveling the complexities of the Medicare system and finding a simpler way forward for patients and providers is an absolute imperative. Our 2008 testimony prescribes a host of still-relevant reforms ranging from comprehensive means-testing to allowing purchases of health insurance across state lines. Policymakers must focus on core issues such as these rather than allowing hype over topics such as Part D drug bundling to inordinately occupy their attention.