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Q: Medicare cuts and damages ( Answered 3 out of 5 stars,   2 Comments )
Subject: Medicare cuts and damages
Category: Business and Money
Asked by: roy888-ga
List Price: $200.00
Posted: 23 Sep 2006 07:23 PDT
Expires: 23 Oct 2006 07:23 PDT
Question ID: 767807
Congress has approved cuts to payments for services provided by
hospitals, why did they approve these cuts? What is the background. I
understand The Veterans administration pays at least 30% less for its
medical services than Medicare can you find the exact amounts and why
the difference? Also Allen Greespan said in a congressional meeting
Meidicare is costing the country over a trillion dollars in damages a
year. Can you find this testimony and the reasons why the damages are
so high?
Subject: Re: Medicare cuts and damages
Answered By: keystroke-ga on 25 Sep 2006 07:26 PDT
Rated:3 out of 5 stars
Hello roy888,

Thank you for your question! The shortest answer to the first part of
your query is that this is a perennial issue that Congress faces.
Medicare costs are above what Congress has budgeted them to be; at the
same time, Congress passed the Part D prescription drug benefit, which
will cost up to $700 billion over the next few years, so they are
looking at cutting other programs. Every year, Congress spends more
money than it has, so the deficit is growing larger constantly. (There
is a very interesting "debt clock" in Union Square in New York City
which shows this phenomenon quite jarringly.) At the same time,
Medicare is over budget and costs are continually going up, so it is
inevitable that a debate will occur over how to fund it and whether to
fund it completely or only mostly. The VA does actually have
legitimate ways of buying drugs and care at smaller costs than
Medicare, which I'll explain in the second section of my answer. And
finally, I go through what Alan Greenspan said, why he said it, and
what it means.

First, Medicare.

The Balanced Budget Act of 1997 included a clause that regulated
Medicare payments. If Medicare payments exceeded inflation growth for
a year, the next year payments would be cut by a certain percentage,
measured by a formula, in order to keep the budget balanced. In
previous years, Congress has kept the rates the same (except for a
five percent cut in 2002), and simply decided to cut the rates even
more in future years. However, this method of staving off the
inevitable is getting harder to accomplish as the years go on and
Medicare gets more and more off its spending targets. Now, in order to
meet the bill's targets, the law will require annual cuts of five
percent until the year 2010 to get to its spending targets-- so in
other words, by the year 2010, physicians would experience a 25
percent cut in payments for Medicare services.  If Congress doesn't
take any action between now and January, across-the-board cuts in
Medicare payments to providers of 5.1 percent begin on January 1.

Obviously, for doctors, these cuts are not popular. In previous years,
cuts have been discussed but always put off for another year. Last
year, a 4.4 percent cut was approved, went into effect in January
2006, and in February, one month later, Congress moved the rates back
to 2005 levels. Any time a cut like this is debated, pressure from
senior groups and doctors' advocates like the AMA is fierce to undo
them. The current cuts may still be rolled back. Last July, Rep.
Michael Burgess of Texas introduced a bill that would raise payments
to doctors by more than two percent for 2007. However, lawmakers have
still not voted against the spending cuts and so as of now they are
still set to be in place next year.

If the cut is rolled back, the increased payments will amount to a
cost of $13 billion over the next five years for the Medicare program.
If Congress grants physicians the spending reimbursements that they
are asking for (above and beyond even today's rates), the
Congressional Budget Office estimates that the burden on taxpayers
would be $90 billion over 10 years.

Doctors protest that the rates set for total target spending of
Medicare are unrealistic because they are based on how the total
economy is doing, not on the rate of medical inflation itself.

There are possible disadvantages to the cuts-- doctors say that they
can't afford to take Medicare patients when they don't get paid as
much as the care costs them to provide, and when other patients have
private insurance which will pay the doctors something closer to the
actual cost of the services. In addition, prices for those with
private insurance go up when Medicare payments go down-- the Medicare
payments going down don't change how much it costs the doctors to
provide the care, and they have to make up the difference somehow.
Services for Medicare patients will be cut and their access to care
may be affected.

On the other hand, however, the costs of health care are continually
going up and not reining them in costs the taxpayers billions of
dollars every year. As more and more money budgeted for Medicare goes
to pay for the prescription Part D drug benefit, Congress has a duty
to look at the growing budget deficits and try to balance the budget
somehow. To do so, they must cut programs. In addition, Medicare
beneficiaries pay about 25 percent of their medical costs in premiums.
So if Medicare payments to doctors go up, the actual treated senior
citizens' direct costs will rise, as they have to pay 25 percent of
whatever the government pays.  This could affect whether these seniors
are able to seek care or whether they can afford the services they're

So, seniors' and taxpayers' costs will go up if the cuts are kept, but
doctors  will see increased costs without them and might start
refusing to take Medicare patients at all. There is a continual debate
over which of these is a greater harm and how the negative effects of
each result can be balanced.

Congress has to try to do something, because the current rate of
growth of Medicare is unsustainable.

The New York Times wrote last year, "A confidential memorandum to Mr.
[Michael] Leavitt [the Secretary of Health and Human Services]
describes the situation this way: 'Keeping Medicare physician fees at
the current 2005 level - a 10-year freeze - would cost about $110
billion in federal dollars, increase the federal deficit by the same
amount, and increase beneficiary premiums by about $35 billion.'" (1)

Some declare that the physicians' organizations such as the AMA, which
lobbies for the cuts to be reduced, are only interested in
representing doctors, as a doctors' organization, and not patients or
the interests of the uninsured. The AMA says that rural patients will
have a hard time getting access to care because they have access to
fewer doctors, and those doctors will start to refuse to take Medicare
patients. However, some groups make counterclaims that very few
doctors would ever refuse Medicare patients, especially in rural
areas, because these patients make up so much of their caseload.
"?Medicare?s a hard program to walk away from,? said one House
Democratic aide. Medicare patients make up a large share of many
doctors? caseloads, and, therefore, income." (2)

In addition, every year when the proposition is set forth by the AMA
that fewer doctors will see Medicare patients when payments are cut,
other groups come forward with studies refuting this idea. The
Government Accountability Office and the Congressional Budget Office
have conducted studies that determined that not many physicians would
stop seeing Medicare patients due to cuts.

Psychiatric News--
"The Government Accountability Office (GAO) reported in late July
[2006] that its study of physician participation in the Medicare
program following the reduced and stagnant reimbursements allowed
under the program in recent years indicated that few physicians
stopped participating. Moreover, said the GAO, there was little
evidence to suggest that beneficiaries had difficulty accessing care.

The GAO study, which used records and surveys compiled by the Centers
for Medicare and Medicaid Services (CMS), found that the number of
physicians billing Medicare for services and the proportion of
services for which Medicare's fees were accepted as payment in full
increased during the study period, from April 2000 to April 2005. Less
than 4 percent of physicians said that they did not accept any new
Medicare patients in that time."

The chair of the Senate Finance Committee, Charles Grassley, said of
the study's findings:
"'I'm relieved to know that access to physicians improved even with
the -5.4% payment update in 2002,' Grassley said. 'The GAO information
will be especially useful to Congress this year as it reviews ways to
promote efficiency and quality, while considering the potential impact
of upcoming reductions in physician payments in 2006.'" (3)

From the Hill News:
"'Physicians focus on the threat that lower payments would make it
harder for Medicare beneficiaries to get healthcare services for
political reasons, [healthcare scholar Joseph] Antos commented. ?It?s
kind of the only argument they think will tug at political
heartstrings,? he said.'" (2)

Some say that the problem with Medicare payments lies in the formula
that calculates how much doctors receive. Some say there is no reason
for a doctor not to do as many treatments as possible, even if
unnecessary, on a patient, in order to receive a maximum Medicare
payment, since payments are on a per treatment basis. The federal law
that governs the formula sets a national goal for spending, while not
providing any regulations on how that goal is to be met.

The Economist summarizes the situation:
"Since most bills are paid by a third party (the insurance company or
the government), neither patients nor doctors face real pressure to
control costs. Overall, Americans pay only $1 out of every $6 spent on
their health care out of their own pockets. Doctors are generally paid
for individual services and so have an incentive to perform too many
procedures." (4)


VA vs. Medicare

From what I can see in my research, the Veterans' Administration's
payment rates to physicians are about the same as Medicare, although
they used to be much higher. However, the difference in rates can be
seen in how the VA is indeed able to secure much lower prices than
Medicare does for many of the same services and devices which can be
contracted for in bulk, such as home oxygen or cataract surgeries in a
popular area for veterans, where many will have the surgeries. A 1997
report by Congress studying this effect concluded that the VA can
negotiate such a better price because it has much less paperwork and
administrative costs for the treatment provider than Medicare
requires. If one added 30 percent to the price of a VA treatment, one
would have the cost it would have required to treat that same person
under Medicare, with the added burdens of complicated administration.

Government Accounting Office
"Medicare: Comparison of Medicare and VA Payment Rates for Home Oxygen"

"We analyzed differences between the Medicare and VA oxygen programs that
could make servicing a Medicare patient more costly than servicing a VA
patient. Our analysis included consideration of the administrative burden
associated with Iiling Medicare claims. On the basis of this analysis, we
concluded that adding a 30-percent adjustment to VA?s payment rates
adequately reflects the higher costs suppliers incur when servicing
Medicare beneficiaries."

In addition, contractors and service providers get paid for services
in advance by the VA and after the fact by Medicare. In other words,
at the time of service, there's a possibility that there will be no
Medicare reimbursement. Contractors adjust their costs accordingly,
with many adding an automatic five percent surcharge onto Medicare
bills for this reason.

"When a supplier under VA contract is told by the VA medical center to provide
home oxygen for a patient, the supplier knows that it will be paid for those
services. For Medicare patients, the supplier is told by the prescribing doctor
to provide oxygen services. However, it is only after the service is provided
that the supplier will know for sure whether Medicare will pay for this service.
The industry study previously noted quantifies this risk as adding 5 percent to
VA?s payment rate to make it comparable to Medicare?s payment rate."

The report laid out a number of reasons why the VA pays less for
services than Medicare does. First of all, the VA contracts work out
to suppliers-- it actively seeks bids for supplies and equipment and
agrees to buy certain numbers from the winning bidder. Because the VA
is buying in such huge quantities, it can secure lower rates. However,
Medicare does no such contracting, and only reimburses physicians and
patients for whatever care they decide to seek on their own (that
complies with Medicare fee schedules), which may vary between many
different health care providers. Medicare cannot negotiate in bulk,
even though it is the nation's largest payer of health care. Secondly,
the VA deals with a smaller number of patients and a smaller number of
claims, and also pre-pays in many cases, which saves much paperwork on
the part of providers. For instance, when a specialist performs
surgery on a VA patient, the VA has already pre-approved that surgery
and pays the specialist. When a specialist performs the same surgery
on a Medicare patient, the specialist does not get paid until he or
she can submit the required paperwork to Medicare, stating that the
patient needed the surgery. The paperwork takes time to be processed,
and is lengthy to complete. Thirdly, Medicare patients have a
copayment for many services, which the provider bills them for. VA
patients usually do not have copayments on services, which reduces
paperwork on the part of the provider.

"Industry representatives stated that the administrative burden of complying
with Medicare requirements is onerous and accounts for a major portion of the
difference between VA and Medicare payment rates. One major burden they
cited is the certificate of medical necessity that must be completed by the
prescribing physician before the claim can be submitted to Medicare for
payment. Every supplier we interviewed complained about the difficulty in
quickly obtaining this document. The industry study estimated that the cost of
complying with Medicare?s administrative requirements, including documenting
patient eligibility, is equivalent to adding 4 percent to VA?s payment
rate to make it comparable to Medicare's payment rate."

"The Medicare home oxygen benefit requires that beneficiaries pay an annual
deductible and 20 percent of the allowed reimbursement amount every month.
Industry representatives contend that the cost of billing and collecting this
copayment adds to the cost of providing services to Medicare beneficiaries. In
addition, they point out that a portion of the copayment owed to them may
never be collected. Under the VA program, in contrast, VA pays 100 percent of
the contract price. The industry estimate states that this accounts for 6
percent of the difference between the cost of the VA program and Medicare."

Here is a study on the phenomenon of the VA paying less for health care devices:

Pubmed Abstract--
"Methods to estimate and compare VA expenditures for assistive devices
to Medicare payments."

Recent studies have also determined that a VA patient can pay up to
$1,000 less per month for the same drugs than a Medicare patient, due
to the VA's bargaining power. The VA can bargain with drug companies
when buying en masse, while the federal government and Medicare have
been specifically barred from doing so by legislation passed along
with the Part D benefit. Here is a report on that situation:

Department of Health and Human Services report
"Comparing Drug Reimbursement: Medicare and Department of Veterans Affairs"

The root of this can be found 15 years ago. Prior to 1991, the
Department of Defense, which administers the VA program, was paying
physicians at rates that were up to 50 percent higher than Medicare
rates. To save money, Congress directed the VA to lower rates down to
Medicare levels. A report to a Congressional committee in 2001 stated
that VA's payment rates now "generally equal Medicare rates." After
this 2001 report, Congress allowed the VA to raise its payment rates
in areas such as Alaska, where specialists are few and wanted higher
rates to treat VA patients. Increasing rates are highly monitored by
Congress, and the VA is not allowed to increase its rates in more
populated areas or in areas where a certain type of technician is not
scarce. While direct comparisons to Medicare aren't really possible,
because Medicare bills each treatment at different, preset levels for
that type of treatment, the VA does pay less than 70 percent of the
billed rate for the treatment, which is often about what Medicare will
pay also. In fact, the VA is required by law to set its payment rates
based on Medicare's. It does allow for bulk negotiation with
contractors, however, which Medicare does not. The report concluded:

GAO Report to Congressional Committees
"Defense Healthcare: Across-the-Board Physician Rate Increase Would Be
Costly and Unnecessary."

"Changing the TRICARE reimbursement rate nationally to the 70th
percentile of billed charges would be costly, inflationary, and largely
unnecessary. We estimate that such an increase could cost DOD and its
beneficiaries an additional $604 million annually with most of this being
paid by DOD. Moreover, an across-the-board increase is unnecessary at
this time because the vast majority of military beneficiaries are obtaining
the care they need through military physicians and civilian physicians who
accept TRICARE?s reimbursement rates."

This is what the report states about VA payment schedules:
"DOD is statutorily required to use HCFA?s Medicare fee schedule to set its
CMAC rates.  The Medicare fee schedule is developed by assigning relative
weights to medical procedures, reflecting the resources required to
perform them. The weights are multiplied by a dollar amount?the
conversion factor?to determine payments. HCFA annually calculates the
conversion factor based on a congressionally mandated formula designed
to control overall spending over time while accounting for cost factors.
DOD?s CMAC rates are always at least equal to the current Medicare
physician fee schedule, although network physicians may agree to accept
reductions from CMAC amounts in exchange for network referrals and the
potential for increased numbers of patients."

Here are the VA health system (called TriCare) rates:

In another Congressional hearing, a health company CEO testified that
VA rates can be 30 percent lower than the billed rate (or, what a
private insurer or individual would pay) and in urban areas, where
Medicare and thus the VA pays more, 10 to 20 percent below what a
private insurer will pay.



Alan Greenspan's testimony

On February 25, 2004, Alan Greenspan, then the Federal Reserve
Chairman, spoke at a Congressional hearing and said that if future
Social Security and Medicare benefits were not cut, taxes would be
required to make up the difference, and the resulting tax increases
could severely damage the US economy. People would not buy new
products and businesses would suffer. Many people believe that
increased spending in Medicare will be paid for by simply increasing
taxes, but Greenspan warned that increasing taxes for everyone would
have devastating effects on the economy and cause the trillion dollars
in damage you refer to.  He recommended that the most economically
sound solution is for Medicare and Social Security payments to be cut,
and Bush's tax cuts be kept to stimulate the economy.

Here is his testimony:

Testimony of Chairman Alan Greenspan
"Economic outlook and current fiscal issues"
Before the Committee on the Budget, U.S. House of Representatives
February 25, 2004

Here are some excerpts from his testimony:

"This favorable short-term outlook for the U.S. economy, however, is
playing out against a backdrop of growing concern about the prospects
for the federal budget. As you are well aware, after having run
surpluses for a brief period around the turn of the decade, the
federal budget has reverted to deficit. The unified deficit swelled to
$375 billion in fiscal 2003 and appears to be continuing to widen in
the current fiscal year. According to the latest projections from the
Administration and the Congressional Budget Office (CBO), if current
policies remain in place, the budget will stay in deficit for some

"In 2008--just four years from now--the first cohort of the baby-boom
generation will reach 62, the earliest age at which Social Security
retirement benefits may be claimed and the age at which about half of
prospective beneficiaries choose to retire; in 2011, these individuals
will reach 65 and will thus be eligible for Medicare. At that time,
under the intermediate assumptions of the OASDI trustees, there will
still be more than three covered workers for each OASDI beneficiary;
by 2025, this ratio is projected to be down to 2-1/4. This dramatic
demographic change is certain to place enormous demands on our
nation's resources--demands we almost surely will be unable to meet
unless action is taken. For a variety of reasons, that action is
better taken as soon as possible.

The budget scenarios considered by the CBO in its December assessment
of the long-term budget outlook offer a vivid--and
sobering--illustration of the challenges we face as we prepare for the
retirement of the baby-boom generation. These scenarios suggest that,
under a range of reasonably plausible assumptions about spending and
taxes, we could be in a situation in the decades ahead in which rapid
increases in the unified budget deficit set in motion a dynamic in
which large deficits result in ever-growing interest payments that
augment deficits in future years. The resulting rise in the federal
debt could drain funds away from private capital formation and thus
over time slow the growth of living standards."

"Most experts believe that the best baseline for planning purposes is
to assume that the demographic shift associated with the retirement of
the baby-boom generation will be permanent--that is, it will not
reverse when that cohort passes away. Indeed, so long as longevity
continues to increase--and assuming no significant changes in
immigration or fertility rates--the proportion of elderly in the
population will only rise. If this fundamental change in the age
distribution materializes, we will eventually have no choice but to
make significant structural adjustments in the major retirement

"I certainly agree that the same scrutiny needs to be applied to
taxes. However, tax rate increases of sufficient dimension to deal
with our looming fiscal problems arguably pose significant risks to
economic growth and the revenue base. The exact magnitude of such
risks is very difficult to estimate, but they are of enough concern,
in my judgment, to warrant aiming to close the fiscal gap primarily,
if not wholly, from the outlay side."

"History has shown that, when faced with major challenges, elected
officials have risen to the occasion. In particular, over the past
twenty years or so, the prospect of large deficits has generally led
to actions to narrow them. I trust that the recent deterioration in
the budget outlook and the fast-approaching retirement of the
baby-boom generation will be met with similar determination and

In testimony in September of that year, Greenspan acknowledged the
difficult situation Congress and America finds themselves in-- the
country can't afford Medicare, and as the years go on, Medicare will
cost more and more. Yet, people expect Medicare to be there for them
when they are 65 and will be extremely upset if it isn't.

Testimony of Chairman Alan Greenspan
"Economic outlook"
Before the Committee on the Budget, U.S. House of Representatives
September 8, 2004

"In 2003, outlays for Social Security and Medicare amounted to about 7
percent of GDP; according to the programs' trustees, by 2030 that
ratio will nearly double. Moreover, such projections are subject to
considerable uncertainty, especially those for Medicare. Unlike Social
Security, where benefits are tied in a mechanical fashion to retirees'
wage histories and we have some useful tools for forecasting future
benefits, the possible variance in medical spending rises dramatically
as we move into the next decade and beyond. As with Social Security,
forecasting the number of Medicare beneficiaries is reasonably
straightforward. But we know very little about how rapidly medical
technology will continue to advance and how those innovations will
translate into future spending. Technological innovations can greatly
improve the quality of medical care and can, in some instances, reduce
the costs of existing treatments. But because technology expands the
set of treatment possibilities, it also has the potential to add to
overall spending--in some cases, by a great deal. Other sources of
uncertainty--for example, about how longer life expectancies among the
elderly will affect medical spending--may also turn out to be
important. As a result, the range of future possible outlays per
recipient is extremely wide.

Developing ways to deal with these uncertainties will be a major part
of an effective budget strategy for the longer run. Critical to that
evaluation is the possibility that, as a nation, we may have already
made promises to coming generations of retirees that we will be unable
to fulfill. If, on further study, that possibility turns out to be the
case, it is imperative that we make clear what real resources will be
available so that our citizens can properly plan their retirements.
This problem raises a more-general principle of public policy
prudence. If, as history strongly suggests, entitlement benefits and
tax credits, once bestowed, are difficult to repeal, consideration
should be given to developing a framework that recognizes that
potential asymmetry."

"Democratic candidates blast Greenspan comments"
February 25, 2004

Government Accountability Office "Medicare Physician Payments" Study

Modern Healthcare

Wikipedia Medicare Entry

U.S Medicine, July 2001 issue

New York Times
"To Trim Deficit, Greenspan Urges Social Security and Medicare Cuts"
by Edmund L. Andrews
February 26, 2004

1. New York Times
"Doctors Lobbying to Halt Cuts to Medicare Payments"
by Robert Pear
published April 4, 2005

2. Hill News
"Physicians issue warning over Medicare pay cut"
By Jeffrey Young
September 13, 2006

3. AMA News
"Battle begins in Congress over Medicare pay cut"
By David Glendinning, AMNews staff. Feb. 28, 2005.

4. The Economist
"Desperate Measures"
January 26, 2006

Search terms:
greenspan medicare damages
medicare cuts approved (on Google News)
lobby medicare cuts
government accountability office medicare payments cuts doctors study medicare
va pays less medicare
veterans administration rates less than medicare
va medicare rate compare (on Google and Google Scholar)
va cmac rates
va champus rates comparison medicare
greenspan testimony medicare 2004

If you have any additional questions or need any further
clarification, please let me know and I'll be glad to help.


Request for Answer Clarification by roy888-ga on 25 Sep 2006 11:46 PDT
We are getting closer to the answers I am looking for. I wanted you to
concentrate on the Hospitals and the differences in the payments of
Diagnostic Related Groups (DRG's). Compare hospitals, under Medicare
Part A & B to the Veterans Administration. Also explain why the their
has been tremendous groth in health care prices while the actual costs
have gone down. You will find there is fewer people going to hospitals
and there stays are shorter. There is a tremendous difference in
actual costs, what are they and why?

Request for Answer Clarification by roy888-ga on 25 Sep 2006 13:29 PDT
We are getting closer to the answers I am looking for. I wanted you to
concentrate on the Hospitals and the differences in the payments of
Diagnostic Related Groups (DRG's). Compare hospitals, under Medicare
Part A & B to the Veterans Administration. Also explain why the their
has been tremendous groth in health care prices while the actual costs
have gone down. You will find there is fewer people going to hospitals
and there stays are shorter. There is a tremendous difference in
actual costs, what are they and why?
Up to 1984 the increase in health care spending matched the same
increase as the CPI. In 1984 Medicare introduced the Prospective
Payment System and that is when health care expenditures began to
accellerate. The percentage of increase in health care expenditures
were 2 to 3 times larger than the increase in the CPI, Why? The other
question is the amount the government paid for health care services
went from about 33% to 65%, withiout any real population changes or
per capita changes, Why? Why are we paying so much?

Clarification of Answer by keystroke-ga on 26 Sep 2006 12:06 PDT
Hello roy888,

I would have certainly responded to your question to your satisfaction
before you rated my answer if I had been given time to do so. It is
courteous and customary to do so as can be seen in the Google Answers

Your original question asked about Congress, the VA's overall rates
compared to Medicare, and Alan Greenspan. There was no mention of
hospitals, so I could not infer from your question that your main
concern was hospitals. As I said in my original question, "If you have
any additional questions or need any further
clarification, please let me know and I'll be glad to help." That
means that I am happy to help you and provide you with an answer that
satisfies you. I do need a reasonable amount of time, however.

Also, a researcher wrote this that is helpful for askers:

What to do after you ask a question on Google Answers

When you ask a researcher for clarification, it is feasible to give
them a bit of time in order to answer. Researchers do not get email
notifications of clarification requests, so it is customary to give
more than one day to respond, and to earn a higher rating.  (The
rating cannot be changed once it is posted.) Anyway, here is
clarification of my original answer.

The VA does say that it pays at the same levels for medical care as
Medicare does, in all its official documents, and I cannot find any
information that states that it does not. There may be differences in
the costs between the two insurances, but they are not explained by
differing fee structures. VA care is based on Medicare costs, but the
VA does pay for less for some services through its bulk buying and
contracting. Medicare does not participate in these schemes, because
it pays contractors for the service after it's done. The VA prepays
and buys services in bulk, such things as cataract surgeries or
wheelchairs or home health care or health devices such as special
beds. Medicare pays at 70 percent of what is billed in most cases, and
the VA does also. However, in things like specialty surgeries such as
cataracts, the VA can use its bulk buying to buy these surgeries from
doctors in bulk and have less cost than Medicare would. Some vendors
and contractors will even add 30 percent onto the cost for Medicare,
because of the added administration burden.  You can read about this
in detail in the "VA vs. Medicare" section of my original answer.

The VA does pay on DRG rates, as determined by Medicare, and bases its
payments on those.

Tricare Payments

The rates paid at actual VA hospitals may be lower than those paid by
Medicare, but that is for the reasons stated above. The VA owns those
hospitals, the doctors and technicians are all its employees, and it
contracts with specialists to buy certain services in bulk. Medicare
does not do this.

Why are there fewer people going to hospitals, their stays are
shorter, and costs are going up? Patients are divorced from the cost
of healthcare-- if you have insurance, and you think there is a 10
percent chance that that MRI (which costs $5,000) will help you,
you'll get it. If you had to pay for that MRI yourself, for $5,000,
would you get it on the 10 percent chance that it might help you? Most
people would not. But for a $20 copay, they are willing to get any
treatment even if it may not help them. And doctors are certainly
willing to provide that $5,000 MRI, because they are getting paid for
it, not from the patient but from the patient's insurance. Of course,
this all comes out of the government, company, and uninsured people's
pocketbooks. As Medicare pays less on a per treatment basis, and
treatments are getting less costly and easier to do, it is a natural
result that doctors will push patients to have more procedures done. A
patient may spend less time in the hospital, but they might have
x-rays and other lab work done that is not entirely necessary "just in
case" it will help.

There is also much greater and more expensive technology in existence
today than 10 or 20 years ago. Now, things like MRIs are done on a
routine basis, and people have $50,000 or $100,000 surgery when they
would have died 20 years ago. (I hate to put it so bluntly, but that's
the truth.) The technology is fantastic, but it is costly and someone
must pay for it. That usually turns out to be the taxpayers and
companies who are paying dearly for their employees' insurance.

As for your second question, I'm not sure what you mean. I believe
that new technologies and an aging population that has not taken care
of itself (and suffers rampant heart attacks, diabetes, etc. as a
result) are more to blame than the prospective payment system. In
fact, according to my research, the costs were rising incredibly above
inflation BEFORE the PPS went into effect, when Medicare was still
fee-for-service, and it implemented PPS to stem the rising costs of
healthcare, and the costs went down from what they were before.

"Effects of Medicare's Prospective Payment System on the Quality of Hospital Care"

"Faced with sharply escalating Medicare costs in the early 1980s, the
federal government completely revised the way Medicare pays hospitals
for treating elderly patients. The governing agency, the Health Care
Financing Administration, switched from a retrospective
fee-for-service system to a prospective payment system (PPS). Under
PPS, hospitals receive a fixed amount for treating patients diagnosed
with a given illness, regardless of the length of stay or type of care

PPS proved effective at curbing cost growth. However, because it
contained incentives for hospitals to shorten stays and to choose the
least expensive methods of care, PPS raised concerns about possible
declines in the quality of care for hospitalized Medicare patients."

To sum up: Why are we paying so much? The answer: new technologies and
doctors who are willing to perform any unnecessary treatment that has
no real effect on care. Other countries which have complete
socialized, national health care for everyone pay half the percentage
of GDP that Americans do in their healthcare, and in many cases they
live longer. The United States has the most costly health care system
in the world, but are way down on the life expectancy list. This is
mostly due to lifestyle, however. Some technology is fantastic and
prolongs lives, while some is just unnecessary in many cases and
sounds cool but won't actually help that much.

Additional sources:
VA-- Methods of Calculating Medicare Reimbursement

Search terms:
champus drg-based payment system
"prospective payment system"

I hope this has clarified my original question. If you need anything
else, let me know!


Request for Answer Clarification by roy888-ga on 27 Sep 2006 16:52 PDT
I apologize for being so quick with my rating.

You said two points which have to be clearified. You said the Va pays
less for services then Medicare. My point is this what is the average
cost of a VA patient compared to the average paid by Meidcare, include
co-payment and deductible. The second point you said is Medicare pays
70% of charges for costs. Where did you get this statistic? Is it
true? Just concentrate on hospitals. Also, don't believe the hype put
out by the industry about the cost of technology, this is all
B******T. I have talked to enough hospital people, in that they do not
know there costs, they charge what they can get for a service.

Clarification of Answer by keystroke-ga on 27 Sep 2006 17:16 PDT
Hello roy888,

I will try to clarify what I said on those two points tomorrow. Thanks.


Request for Answer Clarification by roy888-ga on 29 Sep 2006 01:13 PDT
Hi Keystroke-ga

If you really want to know where I am coming from, put my name into
google, Roy J. Meidinger, then follow the link set up by the FTC, and
read "Great Intentions Gone Bad". Only a few people realyze the high
cost of health care i this country is caused by the breakdown of law
enforcement. Even fewer understand the economic forces at work when we
allowed the anti-trust laws to go un-enforced in the health care
industry. The industry fed us a pack of lies when they said the high
costs are caused by new technologies or malpractice lawsuits. If you
compare other health care systems around the world you will find we
pay 5 times as much for the quality we get. The other countries have
greater numbers of elderly then we do but pay less. Our greater costs
come from lack of competition. Once the government began to throw
money at the problem, the industry no longer needed to compete. The
only reason the government throws money onto the health care system is
because of the lies the industry tells it. Now go deeper find out the
true cost of services provided by the VA and compare the cost to
Medicare. Do not be fooled by literature which states they charge the
same as Medicare. There costs are much lower. Find averages.

Clarification of Answer by keystroke-ga on 30 Sep 2006 07:09 PDT
Hello roy888,

Thank you for your patience. I didn't think I would be as busy as I
have been for the past few days at work. I will be able to answer you
as best I can tomorrow (Sunday). Thank you for your patience again!


Request for Answer Clarification by roy888-ga on 03 Oct 2006 09:26 PDT

Any Progress? I put a second question up for clarification if you need more funds.

Clarification of Answer by keystroke-ga on 04 Oct 2006 13:15 PDT
Hello roy888,

Again, thanks for your patience. I've been much busier than expected
over the past few days.

The link which was on the FTC website was very interesting. I agree
that many things are wrong with the healthcare industry. I do not know
if a VA patient costs less to treat overall than a Medicare patient;
it seems that a VA patient does, and I listed a number of reasons in
my earlier answers-- fewer administrative costs, the bargaining power
of the VA, the VA owns its own hospitals, etc. I can't come up with
anything more than I have already found to prove this point. I can
find the official VA champus rates and the official Medicare rates
(which are about the same for most treatments) for you, but as far as
what a VA patient vs. a Medicare patient would be charged for the
exact same service at a given hospital I cannot speculate. I do not
have this information. Even a hospital insider would only know the
practices of their individual hospital and would not be able to speak
of the entire industry's practices. I have done the best I can with
the information I have available to me. As I have laid out in my
previous answers, VA may say that they pay on the same rates as
Medicare, but they buy things in bulk and negotiate for certain
services so as to get a cheaper rate. Therefore, the average VA
patient would cost less to treat than an average Medicare patient. The
report on the home oxygen which I provided in my original answer
stated that companies would start by charging Medicare 30 percent
above what they would charge the VA, simply because of administration
costs. This seems to indicate that the average VA patient would cost
less than a Medicare patient would, to treat, and thus be charged
less. I've provided you with as much information as I can find on this
issue. In sum, the VA does pay less, but I cannot find exact figures.
You may want to post a separate question and perhaps another
researcher would be able to find this for you.

roy888-ga rated this answer:3 out of 5 stars
He only concentrated on physicians when I was asking about hospitals,
Medicare Part A, hospital outpatient Medicare part B.

Subject: Re: Medicare cuts and damages
From: shock123-ga on 30 Sep 2006 19:28 PDT
the clock in union square is not a debt clock, but shows the actual
time down to the tiniest fraction of a second. so something like
2139849586 is actually 9:39 pm.
Subject: Re: Medicare cuts and damages
From: keystroke-ga on 01 Oct 2006 09:47 PDT
You're right, shock123, the debt clock is actually in Times Square,
not Union Square... the debt goes up by $20,000 every second. Amazing!

(It was actually taken down in 2000 after Clinton balanced the budget
but put back in use in 2002... it will probably be going for a while)


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