Forecasting the costs of the new Medicare legislation beyond its initial 10-year timeframe involves too many unknowns to nail down a true estimate, a group of economic experts said last month. Even as President George Bush was signing the Medicare prescription drug benefit package into law at the White House in early December, economists debated the law's costs at the Heritage Foundation (Washington), a conservative organization promoting a smaller, fiscally conservative government. Estimating the law's costs requires consideration of several factors that may or may not prove correct, according to Douglas Holtz-Eakin, director of the Congressional Budget Office (CBO; Washington), the agency created by Congress to analyze a bill's potential economic impact.

"This bill, now law, is the Rorschach test for any healthcare reform attempted in the U.S. in the future," said Holtz-Eakin. "Seniors will spend about $1.8 trillion between 2004 and 2014 on prescription drugs, which accounts for about 50% of the current Medicare program. Our projections are based on an assumption that prescription drug costs grow faster than healthcare costs as a whole, which right now averages about 9% a year," he said. The measures included in the new law that could make the prescription drug program either more or less costly than estimated include demonstration projects on competition, requiring wealthier seniors to contribute more in premiums, and the so-called "doughnut hole," where the government provides no benefit coverage, Holtz-Eakin said. The unknowns could prove to help rein in escalating costs for Medicare or prove to be just a bad idea, he noted.

"The demonstration projects on competitive bidding, for example, could be the end of Medicare as we know it, or an ineffective fig leaf," said Holtz-Eakins. The law should cost around $395 billion in the initial 10 years, he noted, but will actually be an eight-year period because the bill doesn't become effective until 2006. "The law arrives at roughly the same time [baby] boomers enter the retirement market. Between 2009 and 2013, the number of retirees entering the market will double," he said. That's when estimating costs becomes trickier, he explained, due to two wild cards: the economy and legislative policy.

"Looking into the future requires considering the path of the economy. In this case, we need to consider the relative costs of prescription drugs rising much faster than the rate of the overall economy," according to Holtz-Eakin. The CBO estimates the growth rate for prescription drugs will be 3% faster than healthcare as a whole at that point, which will then decrease to 1% over the next 10 years, according to Holtz-Eakin. The policy wild card could mean future changes to the law, he noted. "There could be policy-making changes we don't know about. Congress could revisit this issue in the future, which could change the projected costs significantly." One certainty, however, is that the law will likely not follow cost estimates. "The law does not have well-known initial year costs and benefits. It's highly unlikely we'll end up where costs were set," he said. "The second conclusion is that we need to take a good look at entitlement programs past the year 2014."

Jeff Lemieux, senior economist at the Progressive Policy Institute (Washington) and executive director of Centrists.org, painted a more calamitous picture of the law's impact on the U.S. "When you add the four biggest entitlements Social Security, Medicare, Medicaid and the interest on public debt by 2030, these entitlements will account for 8% of the GDP. It will exceed the current federal budget," Lemieux said. The reasoning for predicting such dire consequences is based on several factors, he said. "First, it makes sense to project the law's cost on its current trajectory so policymakers will know what they are up against, in terms of more reforms and other actions." The legislation is neither landmark legislation nor an overhaul of the Medicare program, Lemieux argued. "This law was described as landmark and a transformation. [But] there's nothing in this law that's transformational. The final law didn't address chronic care as well as the original bills did. The competition aspects will improve the HMO sector and give room for PPOs to enter Medicare, but the competitive bidding system isn't understood yet, and the combination of these isn't enough to describe it as a transformation."

Lemieux also said that technical changes to the legislation are inevitable. "My two conclusions are that this law is not a transformation and will cost a lot more than projected. Second, we don't know what we've got now that the law has passed."

Liability affecting specialty, residency choices

Medical students are thinking twice before signing on to practice a high-risk specialty due to the nation's medical liability crisis, according to a new survey. What's more, medical students are hesitant to apply for a residency in one of the 19 states currently affected by the crisis. A survey conducted by the American Medical Association (AMA; Chicago, Illinois) included responses from 4,000 students from 49 states and the District of Columbia.

This is the first survey conducted of medical students to determine what impact the nation's medical liability environment is having on medical students' decision-making, according to the AMA. A vast majority of the respondents 96% said the medical liability situation was a crisis or major problem. Furthermore, 61% said they were "extremely concerned" it was decreasing the ability of physicians to provide quality medical care. Half of the respondents indicated the medical liability environment was a factor in their specialty choice, and 39% indicated it was a factor in their choice of states for residency training.

"It's very sad that our nation's medical students are being forced to make career decisions based on factors other than their passion for medicine and where they would receive the best training," said medical student trustee David Rosman in a statement. "We watched, horrified, as the crisis was forcing our nation's experienced mentors to stop performing high-risk procedures or providing care in crisis states. It is frightening to realize that because this crisis is affecting specialty choice, there may not be anyone to take their place," he added.

The medical liability dilemma also is affecting medical education practices. About 69% of students stated their professors discussed the liability situation and taught them about defensive medicine, including increasing unnecessary or excessive care to counter potential liability claims.

Donald Palmisano, president of the AMA, said the survey is an important benchmark to monitor the medical liability crisis. The survey helps to gauge how the crisis affects patients' access to medical care, he added. "The students' responses underscore the need for America's lawmakers to listen," Palmisano said. "Fix the crisis now. Enact meaningful medical liability reform legislation." The AMA has been vocal in its support for a Senate bill, The Patients First Act of 2003 (S. 11), which would place monetary caps on jury awards for non-economic damages. However, the bill did not come up for a vote before the Senate adjourned for the year. A similar bill passed the House earlier this year.

Healthcare IT: more federal funds needed

The federal government spent $100 million on information technology (IT) for healthcare in 2001, just a drop in the bucket compared to the $364 billion it spent on healthcare services in the same year. And if more federal money had been focused on healthcare IT, a byproduct of that investment would have been better quality healthcare a consensus view expressed by various panelists participating in a New America Foundation (Washington) held recently in Washington. IT is not only showing great potential in improving the quality of healthcare, it also is achieving significant cost savings, Janet Marchibroda, chief executive officer of the eHealth Initiative (Washington), told attendees. The eHealth Initiative is a publicly financed project funded by the U.S. Department of Health and Human Services. "The healthcare field spent only 2.2% of its total revenue on IT during 2002, which is far too little," said Marchibroda. And the only way large-scale investment in healthcare will take place is through direct federal government involvement, she added.

Bill Bernstein, partner and co-chair of the government advocacy and policy division of Manatt, Phelps and Phillips (New York), said that the government should model its involvement in building an IT infrastructure in the same way that it built a physical transportation infrastructure. "There are many aspects to healthcare IT development, but fundamentally it's a problem of community infrastructure development," said Bernstein, who recommended a federal revolving loan fund program that would operate through local non-profit organizations. The loan program should include permanent, self-sustaining sources of capital, as well as a shared, integrated capacity across caregivers and institutions, he explained. "An initial amount of capital is used to lend money to qualifying projects and then recycle the debt repayments into further loans," he said.

Funding the $5 billion program would be spread over a five-year period, with $800 million coming from federal coffers and $200 million through state matching commitments, Bernstein suggested. The federal funds could either be appropriated or allocated from Medicare or other healthcare funds, he said. The program is a "tried and true" approach, argued Bernstein, because it is based on the revolving loan fund the government created to finance local transportation projects. Investment in IT based on government involvement makes sense because the federal government is the single largest purchaser of healthcare services, he said. "Plus, the private sector can't overcome the structural divisions within the healthcare system."

An IT infrastructure that utilizes online medical consultations as one way of improving patient/physician interaction was described by one insurer represented at the meeting. The program, called Relay Health, has resulted in fewer physician office visits for Blue Shield of California's (San Francisco, California) enrollees, said Jeffrey Rideout, president and chief executive officer of the managed care organization. Relay Health was developed by Healinx (Alameda, California). The web-based visits are for non-urgent medical problems from a physician's current list of patients. Patients send free encrypted messages, but also have the option of participating in a structured visit. Blue Shield reimburses the physician $20 for each web visit, said Rideout, adding that physicians aren't reimbursed for time spent talking on the phone with patients.