PUBPOL 2350 Prelim 2

Who is covered by Medicare?

• Elderly age 65+ covered if they/spouse paid payroll taxes for at least 10 years

• Disabled under age 65 covered after 2-year waiting period

• ESRD patients: end-stage renal disease patients

What were the effects of Medicare and Medicaid in the 1960s?

Decreased out of pocket medical spending and increased male life expectancy by 1 year

How many parts does Medicare have?

4 (A, B, C, D)

What is Medicare Part A?

Hospital services

• hospital inpatient, SNF, home care

• 100% enroll

• no monthly premium

• Deductible, co-insurance

What is Medicare Part B?

Medical insurance

• Physician, outpatient facility, infused drugs

• Over 95% enroll

• $203 monthly premium

• Deductible, co-insurance

What is Medicare Part D?

Drug coverage

• 86% enroll

• $35 monthly premium

• Deductible, co-insurance

What is Medicare Part C?

Otherwise known as Medicare Advantage

Bundles Parts A and B and usually D

Receive medicare benefits through a private insurer who contracts with the government

Comes with less choice, more PA

May also include:

• Dentures and dental care

• Eyeglasses

• Hearing aids

How is Medicare financed?

Part A

• Pay as you go system

• Current workers pay for current 65+ year olds, future workers pay for current workers when they are 65+

• Employees and their employers split a 2.90% medicare payroll tax on wages + 0.9% for high income workers

• Part A trust fund is expected to run out in 2033

Part B and D (physicians and drugs)

• General federal tax revenues cover 76% of part B and D costs. No taxes are earmarked for these parts

• Elderly pay premiums for remaining portion of Part B and D

  • Premiums are slightly higher for high-income beneficiaries

Is Medicare spending increasing or decreasing?

Increasing

How many workers were there per Medicare beneficiary in 2000 vs expected in 2029?

4 in 2000

2.5 in 2029

Explain the Medicare loophole or site of service payment differential

Hospitals can acquire independent physician practices and classify them as hospital outpatient departments, allowing them to bill Medicare a higher facility fee for services that may still be performed in the same physical office. This increases Medicare spending and patient cost-sharing without necessarily changing the care provided.

What will happen if medicare costs continue to grow at historic rates (even with recent slow down)?

• 1) Pressures: more people are retiring, elderly living longer, medical costs rising steadily in inflation-adjusted terms even with recent slowdown

• 2) to finance Medicare's projected Part A deficit through 2048

  • Medicare payroll taxes would have to increase immediately from 2.9% to 3.4% 

  • If we wait until 2030, tax would have to increase to 11%

  • If taxes are not raised, part a spending would need to be cut 11% 

• 3) Other taxes will have to rise to cover part B and D subsidies

• 4) Or, the federal government can cut other programs 

• 5) Or, the federal government can issue more debt

What percent of the federal budget went towards health care in 2025?

• Total spending = $6.7 trillion

  • Medicare and medicaid = 27%

  • Social security = 22%

  • Interest = 14%

  • Non-defense discretionary = 13%

  • Defense 13%

  • Other mandatory = 11%

What are possible Medicare restructuring policies and about how much would they save?

• Increase eligibility age from 65 to 67 (100 billion)

• Increase Part B and D premiums so they cover 35% of the costs instead of 25% (418 billion)

• Raise payroll tax by 1 percentage point (651 billion)

• Turn medicare into a premium support program; everyone must shift into Part C (275 billion)

• Change cost sharing rules for medicare and restrict medigap (116 billion)

How is Medicaid financed?

Pre-ACA Medicaid states receive FMAP (federal medical assistance percentage) based on per-capita income. States receive at minimum 50% from the federal government, and the poorest state (Mississippi) receives 77% from the federal government.

Post-ACA Medicaid expansion population receives an enhanced FMAP of 90%.

How did the ACA expand Medicaid?

Expanded coverage to adults with incomes up to 138% of the poverty level.

What is the ratio of state government spending on Medicaid to higher education?

About 2.

What percent less does Medicare pay physicians and hospitals than private insurers? Medicaid?

• Medicare pays physicians about 25% less and hospitals about 50% less than private insurers

• Medicaid pays physicians and hospitals about 50% less than private insurers, on avg.

  • Varies by state for medicaid— some higher some lower

Why is it that medicaid patients may not actually have access to high-quality medicare?

Since Medicaid does not pay physicians very generously, physicians do not accept new medicaid patients as frequently, and these patients thus do not receive as many medical services.

How many people are in the Medicaid coverage gap?

almost 2 million

By how much will OBBBA reduce Medicaid spending per year and how?

OBBBA will reduce Medicaid spending by about 90 billion/year.

• Places restrictions on states’ ability to receive funding from the federal govt to pay for Medicaid (larger impacts on 40 states that expanded Medicaid under ACA)

  • Eg: phases out provider taxes

• Work requirement: 80 hours per month of work, education, or community service required of non-disabled ACA-Medicaid-expansion beneficiaries between the ages of 18 and 64 who do not have a dependent under age 14

  • Required in ACA expansion states; optional in the other 10

• States could respond by

  • Increasing state taxes (not likely)

  • Paying MDs and hospitals even less than they do now (likely)

  • Vigorously enforcing work requirements 

• Restrictions begin in 2027, but states are already imposing

OBBBA will lead to this many people becoming uninsured:

Estimated 10 million people

OBBBA work requirements will lead to this many people becoming uninsured:

Estimated 5 million people

Why will Medicaid beneficiaries likely lose coverage due to the OBBBA work requirements?

They are unaware of rules or confused as to how to report work hours.

How does Medicare pay MDs?

Through Resource-Based Relative Value Scale (RVRBS)

How does RVRBS work?

• Patients are categorized into one of 8,000 diff current procedural terminology (CPT) codes for office visits, consultations, and surgery

• Each CPT is assigned three separate relative value units 

  • Practice expense RVU

  • Malpractice expense RVU

  • Work RVU

• Each RVU is adjusted by a geographic practice cost index (GPCI) to reflect the relative cost of practice expenses in different areas

• Congress sets payments for each RVU units (conversion factor $33.6 in 2026)

• Product of RVUs for the CPT and payment per unit determines how much the MD is paid

• Medicare forbids MDs from balance billing (above patient’s co-insurance); MD must accept Medicare’s RBRVS payment amount as final 

• MDs can decide whether or not to participate in Medicare; about 97% of MDs do

What type of physician does the RBRVS system favor?

RBRVS pays specialists/physicians who perform procedures much more per hour than primary care physicians.

What percent of physicians are in practices with 10 or fewer physicians (2024)

48%

Why are physicians opting to join larger health systems?

• Operating a physician practice is becoming more expensive, complicated, and risky

  • Health systems can negotiate higher fees for MD practices

  • Private health insurers and medicare are trying to shift physicians and hospitals away from FS to take more responsibility for population health and costs 

  • To succeed under these new reimbursement models, physicians and hospitals need to be more united

  • MDs want to install expensive electronic medical record (EMR) system to improve quality and reduce costs; hospitals can help pay to install these systems

• Lifestyle choice: hospitals can help run the practice, allowing physicians to spend more time on patient care 

Implications of practice acquisitions for patient care:

• Employed physicians gain access to enhanced clinical infrastructure

• Employed physicians use a common electronic health record with other hospital-based clinicians

• Presence of employed physicians within same hospital system promotes care coordination and continuity

• Acquisitions can offer expanded access for underserved patients

• Hospital systems leverage acquired practices as a patient touch point for population health initiatives

• Practice acquisitions lead to care disruptions for some patients whose insurance network doesn’t include the acquiring hospital

How long is Med school and how long is a residency program?

Med school: 4 years

Residency: 3-5+ (must be at least 3)

Reasons for physician shortage in USA

• In 1981, GMENAC (Graduate Medical Educaiton National Advisory Committee) predicted surplus of 145,000 physicians by 2000

  • Thus recommended restricting enrollment in US med schools and flow of immigrating foreign-trained physicians

  • Congress responded by eliminating med school subsidies

  • And no new med schools opened between 1980 and 2002

• There are not enough residency positions for the number of aspiring physicians

What is the ratio of allopathic med school applications per available position?

2-3

How is it that substitutes have acted to alleviate the physician shortage?

• # of osteopathic students (DOs) has increased by 77% over the past 10 years

• Mid-level practitioners are less expensive than physicians, so there are incentives for them to take over more physician tasks

• 27 states have expanded nurse practitioners’ scope of practice, giving them greater independence from physicians

• There are now as many nurse practitioners providing primary care services as there are primary care physicians

• This is why avg. wait times for primary care appts have not grown that much

Has non-MD or MD provider training expanded faster since around 2000?

Non-MD (DO, NP, CRNA)

When does match day occur?

During the 4th year of medical school.

Why are there not enough residency positions for the amount of applicants?

• Medicare pays teaching hospitals about 160,000 per resident per year, but Medicare has essentially frozen the # of funded residency positions since 1998

• Residency positions are still increasing without federal funding, but hospitals claim they need more federal funding in order to train enough physicians to solve impending physician shortage

What percent of US allopathic medical school students receive a match?

~93%

As the average salary of a desired medical specialty increases, the unmatched rate _____

Increases

What is the specialty with the highest unmatched rate?

Orthopedics

The 20 specialities with the lowest salaries tend to be…

pediatric and primary care specialties

Average debt at (private) medical school graduation (2025)

$245,000

Why are grad students today facing issues with financing their medical education?

• The OBBBA creates limits on what grad students can borrow from fed govt

• Annual borrowing limits of 20,500 and cumulative limits of 100,000 for most students

• Students in law, med, and dentistry will face limits of 50,000 annually and 200,000 total

• 28% of grad students taking out loans from 2015 to 2024 would exceed today’s new limits, and about 4 in 10 of them would have trouble getting supplemental private loans without a co-signer 

What is the evidence that educational debt may not actually affect med students’ specialty choices?

NYU’s tuition-free med school students choose primary care and pediatric specialties (lower salaries) at lower rates than the US average and peer institutions that are not tuition free.

Is activity shifting inside or outside the hospital setting in the US?

Outside

Explain the medical arms race before the 1980s

Occurred because health insurance would finance technology by paying hospitals a high percentage of what they charge and because hospitals needed to attract physician loyalty to make a profit.

Hospitals competed with one another by buying newer technology to offer the highest quality care for physicians and their patients. Hospitals did not have to worry about the cost of these technologies because they were largely covered.

How did Medicare respond to the increased medical spending of the 1960s-1980s spurred by the medical arms race?

Medicare instituted the Diagnosis-Related Group payment system in 1983

How does the Diagnosis-Related Group (DRG) payment system work?

• Medicare cost estimation

  • Govt. estimates average cost of treating Medicare patients in each of the 750 diff DRGs across all of the hospitals in the US

• Payment = estimated costs

  • Government pays each hospital about 90% of the estimated national average cost for each DRG (so hospitals lose money, on average)

• Hospitals with high costs will lose money

  • Payment is the same regardless of services/stay length

• An efficient hospital can make money on the DRG system

Which Medicare payment system is for hospitals and which Medicare payment system is for physician services?

DRGs are for hospitals and RBRVs are for physicians

How long were hospital stays in 1983, and how long are they now, on average?

1983: 8 days

Now: 4.5 days

What are the 4 different payment methods for US hospitals and their incentives?

• DRG, either set by Medicare or Medicaid, or negotiated with a private health insurer

  • Treat many patients but manage/control costs carefully

• Per diem payment (e.g. $2,000/day) set by Medicaid or negotiated with a private health insurer

  • Similar to above. Health insurers can refuse to pay for days deemed to be “excessive”

• Percent of a hospital’s charges (e.g., 40%) set by Medicaid or negotiated by a private health insurer

  • Same as above

• Pay-for-performance or value-based care: the first three methods with extra payments if a hospital provides high-quality med care

  • Provide the medical care that is being monitored and measured (like low infection rates)

Medicare used to pay hospitals their average costs, but now only pay 90% of their costs. Given this, how can hospitals still run?

Hospitals recoup their losses on privately insured patients.

How many times more $ do health systems receive from private health insurers than Medicare, on average?

About 2.7 times more.

Insureres are trying to shift hospitals and MDs from volume-based payment methods to _____-based payment methods…

Value-based: high-value = low cost and high quality

What insurer payment methods incentivize hospitals to execute higher-value care?

• 1) pay-for-performance

  • Higher pay for higher quality and lower pay for lower quality (discussed more later)

• 2) Bundled payments

  • Ask MDs and hospitals to divide a single payment. Fosters coordination

• 3) accountable care organizations (ACOs)

  • An insurer shares cost savings with a health system and its MDs

How do Accountable Care Organizations work?

• A group of MDs and and hospitals coordinate care for their patients.

• Medicare forecasts those patients costs based on prior three years of medicare spending

• Hospitals and physicians continue to be paid FFS

• If quality and cost targets are met, the ACO receives about 50% of the savings

What percent of US hospitals are for profit and nonprofit?

for profit: 18%

nonprofit: 82%

Why can hospitals be nonprofit?

They are expected to provide substantial benefits to their communities

Do for profit or nonprofit hospitals devote a larger percent of their costs to charity?

For profit hospitals

AI is a response to the _____ problem, driven in party by physician shortage and high patient cost sharing in health insurance in US

Access

What does Sword (AI platform) do?

improves advice by having clinicians cull/improve/train “general” AI and having AI AND a clinician interact with a patient in real time

What does Doctronic do?

informs/educates patients before they meet with a physician

• Utah is allowing Doctronic to authorize certain Rx re-fills w/o a human physician’s approval

What are the 3 characteristics of AI that could allow it to add substantial value in health care?

• 1) large volumes of structured, labeled historical data

• 2) human-in-the-loop feedback process: ongoing human decisions that generate correction signals the model can learn from continuously

• 3) outcome signal clarity: optimization target must be observable quickly, unambiguously, and in direct connection to the action being taken

How many minutes per day, on average, do physicians spend using an Electronic Medical Record?

90 minutes per day

What are the typical stages of drug development?

• Discovery

• Preclinical testing

  • labratory and animal testing

• Phase 1

  • 20-80 healthy volunteers used to determine safety and dosage

• Phase 2

  • 100-300 patient volunteers used to look for efficacy

• Phase 3

  • 1,000-5,000 patient volunteers used to look for efficacy in a large sample

• FDA review

• Additional post-marketing testing

When in the development process is a patent filed?

During the discovery phase

What percent of drugs that start phase 1 are approved by the FDA?

7%

How many years, on average, does it take for clinical testing and FDA approval

8 years

How does the FDA make a decision on approval?

Are the health benefits (actual or expected) better than or same as the contrl group? If so, do the health benefits outweigh the possible side effects or safety issues?

Does not consider price