An overview of Medicare's history in the United States.

1. Understanding Medicare in
the United States
By Craig B. Garner, Esq.
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2. Understanding Medicare in
the United States
By Craig B. Garner, Esq.
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3. INTRODUCTION
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4. BEFORE MEDICARE
For much of its first two centuries in America’s history, the burden of caring for the sick
and injured fell to neighbors, friends and relatives, with additional support from individual
communities and religious groups.
Visits by an actual doctor were generally limited to the home and dictated by local
demographics. Almshouses and charity wards provided a certain degree of medical
service, as hospitals were few and far between.
Those who had the opportunity to visit a hospital prior to the twentieth century more
than likely did so after an accident or as the result of an unfortunate designation of
insanity.
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5. MEDICINE IN THE NINETEENTH CENTURY
For Through the 1800s the delivery of care
rendered by the few hospitals in cities like
New York, Boston and Philadelphia far
exceeded the treatment one would expect
from a local almshouse or charity ward.
The need to provide health care for an entire
nation was strong. With fewer than 200
hospitals in 1873, that number grew to nearly
5,000 by the 1920s, including mental
institutions.
The Medical Laboratory, University of Pennsylvania
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6. HOSPITAL AND COMMUNITY WORKING TOGETHER
In 1946 Congress sought to influence health care
nationwide through the Hospital Survey and
Construction Act (the Hill Burton Act) which
disbursed approximately $3.7 billion to hospitals.
The Hill Burton Act wanted to create 4.5 hospital
beds per 1,000 people nationwide.
Congress would eventually require participation in
Medicare and Medicaid as a condition to receive
Lister Hill monies under the Hill Burton Act. Harold H. Burton
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7. MEDICARE
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8. MEDICARE BEGINS
By the 1960s, America’s health care system was at a crossroads. Though the earlier Social Security Act of 1935 had
established a general welfare system for the elderly, it did not include health insurance. President Harry Truman had
wanted to create a system of national health insurance during his tenure, but his efforts were continually stalled by the
lobbying power of the American Medical Association (AMA).
Ultimately, a compromise of sorts was reached by diluting Truman’s grand ambitions with an addition to the Social Security
system created 30 years earlier. As President Johnson symbolically handed former President Truman the first Medicare
card on July 30, 1965, America’s commitment to government-sponsored health care became permanent.
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9. Medicare sought to provide coverage to all persons 65
years of age or older who could satisfy certain legal
residency requirements.
Within a year’s time, nearly 19 million elderly
Americans were enrolled in the program, with
Medicaid providing similar access to heath care on a
State level for qualifying low-income individuals.
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10. THE FOUNDATION OF MEDICARE
Part A provided health insurance coverage for qualified individuals requiring
hospitalization.
Part B initially offered a set of optional benefits addressing medically necessary services
such as doctor services, outpatient care, and home health services, and soon included
durable medical equipment, podiatric care, and outpatient physical therapy.
In 1972 the Federal government extended Medicare eligibility to people under the age of
65 with certain long-term disabilities and others with chronic kidney disease.
Medicaid eligibility for elderly, blind and disabled residents of an individual state became
linked to a newly enacted Federal program.
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11. HEALTH MAINTENANCE ORGANIZATIONS
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12. HMOS ENTER THE PICTURE . . .
In 1973, Congress passed the Health Maintenance Organization Act. The HMO Act
offered government subsidies and loans to HMOs, helping these managed care entities
to attain much needed financial stability, in part so they could carry Medicare’s increasing
burden.
As a result, a new power was extended to HMO administrators that authorized their
ability to challenge the medical judgment of licensed physicians.
The HMO Act represents the first instance of business concerns gaining the upper hand
over medical judgment in the health care system, and marked the first step toward the
discrepancy of power between the two that still exists today.
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13. . . . AND EXPAND
Thanks to the consistency of government subsidies, the HMO model expanded to
become the preeminent template for American health providers.
There were 168 HMOs in 1978, with 6 million enrolled.
By 1990, there were 652 HMO plans, covering 34.7 million people.
In 1996, the number of enrollees grew to 60 million.
In 2010 there were an estimated 154 million people enrolled in managed care (109.7
million in preferred provider organizations, and 44.3 million in HMOs).
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14. THE WAY OF THE DRG
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15. A NEW WAY TO PAY -- THE DRG
Prior to 1983, most patients remained in the hospital until the doctor decided it was time for
them to leave, which resulted in an inconsistent range of hospital days for treating similar
conditions.
To correct this issue, Medicare’s cost-based reimbursement policy was scrapped in favor of a
newly developed classification system designed to standardize patient care by devoting a set
price to a given procedure. Called the diagnosis-related group (DRG), this prospective payment
system did away with reimbursing providers for the actual cost of their services, creating instead
a predetermined rate per illness based on a patient’s diagnosis.
In doing so, the burden now fell on hospitals to provide the necessary care for a set procedure
that kept within the payment cap if they wished to see a profit.
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16. THE DRG (continued)
This shift away from Medicare’s earlier “fee-for-
services” policy was intended to curtail what
many saw as the overuse of testing and
treatments by doctors in a hospital setting who
knew these patient expenses would be covered
under Part A.
By providing a set fee per diagnosis, proponents
argued that providers would be motivated to
become more efficient in their diagnosis and
treatment
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17. THE DRG (continued)
Diagnosis-related units are assigned to almost every aspect of acute hospital care.
Today, the top ten most used DRGs include:
heart failure and shock
pneumonia
certain cerebrovascular diseases
psychoses
pulmonary disease
joint, limb and lower extremity procedures
angina
certain digestive disorders, such as esophagitis and gastroenteritis
gastrointestinal hemorrhage
nutritional and certain metabolic disorders
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18. CONGRESS FLEXES ITS MUSCLES AND MEDICARE EXPANDS
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19. EMTALA
In 1986, Congress passed the Emergency Medical Treatment and
Active Labor Act (EMTALA). Designed to counteract “patient
dumping,” EMTALA requires every hospital that receives federal
funding to treat any patient with an emergency condition.
Federal law defines an “emergency medical condition” as “a
medical condition manifesting itself by acute symptoms of
sufficient severity (including severe pain) such that the absence of
immediate medical attention could reasonably be expected to
result in . . . placing the health of the individual . . . in serious
jeopardy.”
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20. EMTALA, continued
Medicare’s annual reimbursements add up to nearly 20% of medical
expenditures in the U.S., so most hospitals have little choice but to
participate.
In 2008 the uncompensated medical care in the United States
approached $57 billion, about $43 billion.
Hospitals shoulder close to 60% of this uncompensated medical care,
mostly due to the nature of the services they provide for patients with
heightened levels of acuity.
Are hospitals becoming an endangered institution?
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21. PORTABILITY AND ACCOUNTABILITY
The Health Insurance Portability and Accountability Act of
1996 (HIPAA) sought to provide new Federal rules improving
continuity or "portability" of coverage in the large group,
small group, and individual health insurance markets, while
reinforcing the need to protect the privacy of patient health
records.
Health providers were instructed to comply with HIPAA’s
Privacy and Security Acts by 2003 or risk severe financial
penalties.
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22. MEDICARE+CHOICE (MEDICARE ADVANTAGE)
Enacted in 1997, the bill included an array of new Medicare
managed care and other private health plan choices for
beneficiaries, all of which were offered through a coordinated
open enrollment process.
The new regulations expanded education and information to help
beneficiaries make informed choices.
Created five new prospective payment systems (PPS) for Medicare services: (1) inpatient
rehabilitation hospital or unit services, (2) skilled nursing facility (SNF) services, (3) home health
services, (4) hospital outpatient department services, and (5) outpatient rehabilitation services.
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23. PART D
In 2003, the Medicare Prescription Drug, Improvement,
and Modernization Act established a voluntary outpatient
prescription drug benefit for Medicare beneficiaries.
Known as “Part D,” this prescription drug coverage was
made available to all Medicare beneficiaries as of January
1, 2006, through a variety of plans that had been pre-
approved by the federal government
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24. BRINGING RX DRUG COVERAGE TO THE SENIORS OF AMERICA
“With the Medicare Act of 2003, our government is finally bringing prescription drug coverage
to the seniors of America. With this law, we're giving older Americans better choices and more
control over their health care, so they can receive the modern medical care they deserve. . . .
Our nation has the best health care system in the world. And we want our seniors to share in
the benefits of that system. Our nation has made a promise, a solemn promise to America's
seniors. We have pledged to help our citizens find affordable medical care in the later years of
life. Lyndon Johnson established that commitment by signing the Medicare Act of 1965. And
today, by reforming and modernizing this vital program, we are honoring the commitments of
Medicare to all our seniors.”
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25. POLICING THE PROVIDERS
Also in 2003, the federal government initiated a three-year
demonstration program using Recovery Audit Contractors
(RACs) to detect and correct improper payments within
Medicare.
The program recovered more than $1.03 billion (96% of these
payments were overpayments collected from providers (85% of
which were collected from hospital providers) and the remaining
4% were underpayments).
In 2005, the federal government launched the Medicaid Integrity
Program (MIP), focusing on Medicaid payments. Medicaid
Integrity Contractors (MICs) work with CMS to carry out this
program.
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26. NEVER EVENTS
To improve patient safety and rein in health care costs, in 2007 CMS announced that Medicare
and Medicaid would no longer cover “conditions that could reasonably have been prevented.”
Medicare assembled a list of complications so egregious that they called them “never events,”
meaning they should never occur in a hospital setting. “Never events” included complications
stemming from operating on the wrong side of the body to leaving instruments in a patient
after a procedure.
According to CMS, patients developed 1.7 million infections in hospitals each year, causing or
contributing to the death of 99,000 people a year — about 270 a day.
Regardless of the health of a patient’s immune system at the time of admittance, hospitals
suddenly found themselves responsible for any and all hospital acquired illnesses.
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27. MEDICARE IN THE MODERN AGE
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28. HEALTH CARE GOES HITECH
Under the Health Information Technology for Economic and Clinical Health Act (HITECH). Seeking
to protect patient privacy and tighten the rules of accountability for the sharing of a patient’s
medical information.
HITECH made most of the HIPAA requirements for patient health information directly
applicable to business associates as well health care providers.
Hospitals were required to develop a system for identifying breaches and notify covered entities
following discovery of a breach.
We should be mindful of the speed with which technology changes, as well as the dilution of
privacy expectations progressing from generation to generation. HIPAA is a critical facet of
America’s march toward paperless medicine, though at times it may appear to be more of an
obstacle.
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29. PAPERLESS MEDICINE
In 2010, CMS proposed the adoption of what was to
constitute “meaningful use” of electronic health records
(EHRs), while also implementing financial incentive programs
through Medicare and Medicaid that would reward or penalize
hospitals and physicians for their ability to institute certified
EHRs within an established time frame.
CMS proposed that hospitals adopt “meaningful use” in three
stages of increasingly technological sophistication.
Hospitals and physicians must meet the initial requirements
and in the future enhance their EHR capability to receive
incentive payments and avoid penalties beginning in 2015.
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30. REFORM, RESTRUCTURE, REVIEW
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31. HEALTH CARE REFORM
On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act
into law (followed by the Health Care and Education Reconciliation Act).
Health Care Reform is a comprehensive plan embracing a multitude
of revisions to the structure of the American health care system.
Taking place over several years, it will include in part:
The prohibition of health insurers from denying coverage or
refusing claims based on pre-existing conditions
The expansion of Medicaid eligibility, including families who
did not previously qualify
Providing incentives for businesses to provide health care
benefits
Increasing support for medical research.
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32. THE FUTURE OF HOSPITAL REIMBURSEMENT
“The incentives we're putting into place have created a whole new way to think about hospital care."
Jonathan Blum, deputy administrator of CMS
Under Health Care Reform, in the future CMS will start paying hospitals Medicare “bonuses”
based upon overall performance, adherence to quality measures, and patient satisfaction.
This hospital value-based purchasing program is another step toward shifting the
reimbursement infrastructure from cost-based to performance-driven.
Beginning in October 2012, hospitals can share bonus money from an $850 million fund based
upon their performance scores.
The following year, hospitals will face a 1% reduction overall on Medicare payments under this
system.
By 2015, hospitals with poor performance ratings may be excluded from the bonus pool and
face additional cuts in reimbursement.
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33. HOSPITAL PERFORMANCE MEASURES
Hospitals must closely track their performance on various measures
of quality, patient experience, and operations. This includes the
following examples:
Readmission rates for cardiac cases
Readmission rates for pneumonia patients
Mortality rates for cardiac and pneumonia patients
Average waiting time in the emergency department
Patients who would recommend a hospital
Patients who were happy with their levels of communication with
doctors and nurses
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34. THE FUTURE OF MEDICARE FOR PHYSICIANS
In 2015, roughly 750,000 physicians in the Medicare program will
be asked to revalidate their individual enrollment records during a
massive anti-fraud effort mandated by PPACA.
Medicare will also require a value-based purchasing modifier that
adjusts physician fees based on quality and efficiency measures.
Although not starting until 2015, CMS measure physician
performance as early as 2013.
2015: CMS starts applying the modifier to specific physicians and
groups.
2017: CMS starts applying the modifier to all physicians and groups.
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35. ACCOUNTABLE CARE ORGANIZATIONS
Medicare encourages the formation of Accountable
Care Organizations (ACOs) to monitor the
collective quality and efficiency of doctors and
hospitals alike, while at the same time creating an
entirely new set of standards for compensation.
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36. ACCOUNTABLE CARE ORGANIZATIONS (continued)
Assignment of patients: a preliminary prospective-assignment method with beneficiaries
identified quarterly (there will still be a final reconciliation after each performance year based
on patients served by the ACO).
Quality: Measures: 33 quality measures in 4 domains.
Application: The first round of applications due in early 2012. In the beginning, ACOs will
also have some flexibility within each of the performance years, rather than the original
uniform 3-year agreement based only on a calendar year.
EHR: No longer a mandatory condition of participation, although it is retained as an
important quality measure.
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37. ACCOUNTABLE CARE ORGANIZATIONS (continued)
In addition to the October 2011 modifications surrounding
formation, other federal agencies have clarified issues of
concern in the revised regulations:
The Office of the Inspector General clarified the
implications of physician self referral laws and the federal anti-
kickback statutes.
The Federal Trade Commission clarified there will no
longer require mandatory antitrust review, and there will be
an antitrust “safety zone” for ACOs approved by CMS
The Internal Revenue Service clarified the ways in
which a charitable organization can participate.
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38. MEDICARE AND PREVENTATIVE CARE
“The Affordable Care Act helps stop health problems before they start.”
--HHS Secretary Kathleen Sebelius
Under Health Care Reform, the future of
Medicare is about:
Pilot Programs
Preventative Health Care Services
Forward Thinking Research
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39. MEDICARE AND PREVENTATIVE CARE, continued
Last summer, new regulations recommended
preventative services free for Medicare beneficiaries.
Health Care Reform also created the Patient-
Centered Outcomes Research Institute (PCORI) to
produce groundbreaking, evidence based information.
A report issued by the Prevention and Public Health
Fund estimates that a $10 per person investment
each year in community-based, preventative health
programs could result in an annual savings of more
than $15 billion over the next five years.
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40. ADDITIONAL INFORMATION
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41. WHAT IS A MEDICAL EMERGENCY?*
Possible Medical Emergency Potential Symptoms
Heart Attack Chest discomfort; discomfort in other areas of the upper body,
including one or both arms; shortness of breath.
Uncontrolled Bleeding Just about all bleeding can be controlled, but shock or even
death may result if left unattended.
Altered Mental Status The individual may be unresponsive. This may include fainting,
unconsciousness or any other sudden change in mental status.
Commonly known as “respiratory distress,” this may include
Difficulty Breathing sudden breathlessness and/or severe shortness of breath.
In some cases, a person makes a sound, followed by unusual
Seizures stiffening, progressing to possible jerking of the arms and legs.
Serious or body-altering physical injury, including blunt force
Physical Trauma trauma to the head, neck, spine and/or abdomen.
*This list is not a substitute for an examination by a medical practitioner. If you
are ever in doubt of whether a situation is an emergency, call 9-1-1 immediately.
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42. CALLING 9-1-1 DURING A MEDICAL EMERGENCY*
A few examples of medical emergencies when it is imperative to call
9-1-1:
Anaphylaxis (life-threatening allergic reaction) Stroke
Chest pain Sudden blindness
Drug overdose Serious burns
Heart attack Bleeding that will not stop
Shortness of breath Broken bones with an open wound
A few examples of when 9-1-1 should not be called:
For information To get a ride to a doctor’s appointment
When the power goes out For paying tickets
To report a broken fire hydrant For your pet
When your water pipes burst As a prank
*This list is not a substitute for an examination by a medical
practitioner. If you are ever in doubt of whether a situation is
an emergency, call 9-1-1 immediately.
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43. Craig B. Garner
Craig is an attorney and health care consultant, specializing in issues surrounding modern
American health care and the ways it should be managed in its current climate of
reform. Between 2002 and 2011, Craig was the CEO at Coast Plaza Hospital where he
was responsible for administration and oversight of this general acute care hospital providing
services in southeast Los Angeles County.
Last fall, he published his book Hospital Stay: Health Care Made Simple, a guide for patients and
family members who find themselves in the confusing confines of a hospital environment. Craig
regularly writes specialized articles for various health care publications, and in January 2012
he will be teaching a Hospital Law course at Pepperdine University School of Law.
1299 Ocean Avenue, Suite 400
Santa Monica, CA 90401
T. (310) 458-1560
E. craig@craiggarner.com
W. www.craiggarner.com
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44. Additional Resources
http://www.healthcare.gov
http://www.cms.gov
http://www.hhs.gov/
http://healthreform.kff.org/
http://www.craiggarner.com
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