A number of Governors are considering working together on Medicaid reform in an effort to present a united front to the Bush Administration and Congress. As we have been reporting here, Medicaid reform, a major goal of Bush et al, has been stymied by the refusal of Governors to make major concessions, a refusal backed by their allies in the Senate.
This has led to a stalemate, as States are seeking to preserve the Federal dollars that fund a large part of their Medicaid programs in a time when their own budgets are under pressure. On the other end of the seesaw is the Bush Administration, which has made cutting the Federal deficit a primary goal of the second term.
The Governors in question are evidently circulating a “straw man” memorandum in an effort to gain consenseus and present a united front to the Administration. While the contents of the memorandum are closely held, the following details about the memo have been reported:
–it includes a proposal that would make it more difficult for seniors seeking to qualify for nursing home benefits to transfer their assets to family members or others.
–Another proposal would allow the state to investigate more thoroughly a beneficiary’s finances and seek repayment for government-provided care
— one section floats a “trial balloon” re the establishment or increase of deductibles and copayments for beneficiaries. The idea is this would require beneficiaries to contribute to the cost of the program and discourage overuse and abuse.
–“The proposals also would try to discourage businesses from eliminating retiree health benefits or otherwise shifting employees to Medicaid, by establishing incentives such as tax credits” (Tanner, AP/Long Island Newsday, 4/25).
The good news here is this represents a serious attempt on the part of state legislators to address the Medicaid crisis. It also reflects their power and influence, a strength that the Bush Administration appears to have seriously discounted in their early calculus.
Reforming Medicaid is a critical component of national health reform, and some of these measures make a lot of sense. However, as most states have frozen physician reimbursement levels, and there have been no reports re any increases in their compensation, it is highly likely that there will be fewer docs who will accept Medicaid, thereby reducing access and therefore quality of care.
What does this mean for you?
Freezing MD reimbursement is a blunt instrument, which will have serious consequences not only for the health of Medicaid and Medicaid recipients, but also lead those docs to seek higher reimbursement from commercial payers.
Cost shifting will increase, and so will pressure on commercial loss ratios.

Dr. Paul Ginsburg of the Center for the Study of Health System Change has stated that technology and the increasing income of the US population are the top drivers of health care costs. The two are interrelated, as health care is a “luxury good” as defined by economists, so the more income one has, the more “luxury” one can afford. While everyone “knows” this, they might not be aware of the “share” of the medical dollar that goes to technology.
Here are a few factoids that may put this in a little clearer perspective.
Total medtech market is about $200 billion annually, and is growing 10% per year.
Medical equipment costs account for 3-6% of total US health care costs.
For radiology, equipment costs account for 10% of procedure costs.
43% of the medtech industry is located in the US, 24% in the EU, and 15% in Japan. So, while we spend a lot for technology, we also benefit from salaries paid to US medtech company workers, taxes paid by the workers and their employers, as well as profits and downstream expenditures from these firms.
The history of the Magnetic Resonance Imaging machine (MRI) in the United States provides an excellent perspective on technology in health care. Originally approved by HHS for very limited use in a handful of settings, MRIs were quickly found to have much broader application than assumed in the original license (American creativity at its best). Physicians, manufacturers, and MRI owners were able to fill the available time slots with patients so quickly that a new, and quite large, market for advanced diagnostic imaging was created within a very short time. This is but one example of the ability of technology and technologists to find lots of new billing opportunities for their new creations.
Interesting sidebar
Qatar, a particularly wealthy Gulf oil exporter with a tiny population, will be spending $150 million per year on research and development. In fact, the Emir (leader) has set aside all income from a substantial portion of their liquid natural gas exports for investments in medical research. Qataris know their petroleum revenues will run out over time, and they’ll need to replace a substantial portion of those revenues. Medtech looks like a potentially promising source.
What does this mean for you?
If you’re a medtech company, prospects are rosy, although watch out for India. For the rest of us, technology is a curse if someone else is using it and you are paying for or attempting to “manage” its use; a blessing if your doctor is using it to diagnose or treat you or someone you love. Technology’s impact on costs is likely to increase over time, as new devices are created to perform new tasks and better perform tasks that used to be done by older (and usually cheaper) technology.