This Tiny Agency Carries Big Sway on Medicare Policy. Meet the Man Who Led It.

Mike Chernew (MC): So my appendix burst, which isn’t a fun thing. I’m lying in bed hoping that the parts of my body that aren’t working the way they should start to work the way they should. And the physicians that came in to treat me, they would come in early. They would listen to all of my crazy questions. They would come back late. And I’m lying there and I’m thinking, “These people really deserve more money.” 

Dan Gorenstein (DG): Because…

MC: Because they’re working so hard. They were so good to me. I mean, when you have something that happens to you in the health care system, you know, you’re really grateful that people like them honestly exist, which makes what I’m about to tell you something that I’m mildly ashamed of, but nevertheless true, which is, these people are so dedicated. We could probably get ’em for less. 

DG: Mike, this is why everyone hates economists. 

MC: Look, I understand. I told you, I have internal conflicts about this. I would be lying if I told you I didn’t have internal conflicts about this. But that’s what the economics is gonna push you to. If we pay more, what do we get? 

DG: Today, Harvard economist Mike Chernew reflects on his time advising Congress on Medicare — the program that serves more than 60 million older Americans — what he’s learned about how Washington works, and where Medicare may be headed next.

From the studio at the Leonard Davis Institute at the University of Pennsylvania, I’m Dan Gorenstein. This is Tradeoffs.

*****

DG: I’ve known Mike Chernew for more than a decade.

A thing about Mike: He calls it like he sees it.

MC: This is going to offend everybody on your podcast. Health policy is sometimes a bit like an unkempt dog park. There’s a lot of policies lying around that sort of need to be cleaned up, but no one really wants to do it. 

DG: Mike has just spent the last six years leading the obscure but highly influential, nonpartisan agency that advises Congress on all things Medicare.

It’s called MedPAC — for the Medicare Payment Advisory Commission.

And when I heard Mike’s time on MedPAC was up, I knew I wanted to talk to him about the behemoth that is the Medicare program and what it’s like for an academic to walk the halls of Congress. 

Here’s our conversation edited lightly and in some places heavily, because, you know, it’s Mike.

DG: Alright, Mike, so can you describe MedPAC’s charge — this commission you’ve been a part of for nearly 15 years in one role or another?

MC:  Sure, so the Medicare program’s extremely complicated. There’s a lot of moving pieces and what MedPAC does is, with a stunningly small and incredibly dedicated staff, provide analytic support and advice to Congress on ways that they might be able to improve the program — the way it functions. So that would be things like how to get better access to care, how to get better quality of care.

DG: This MedPAC work, Mike, took you from the bowels of academia — a place you’re very comfortable — to one in Washington that I gotta think was pretty foreign. I’m wondering if you have, like, a Wizard of Oz moment you can share with us when it first hit you that, like, holy shit, I’m not in Kansas anymore. Kansas, in your case, being Harvard.

MC:  Yeah, so one of my very first meetings, we were discussing how the Medicare program should pay for services that require expensive capital-intensive equipment. Think of a PET scanner just for the purposes of conversation. 

DG: A PET scanner is a machine that doctors use to check your body for cancer. 

MC: Right, and in some parts of the country that are very densely populated, the organizations that are providing these services have a lot of demand. They can run them essentially 24/7, and so they can spread the fixed cost of these things across a lot of different patients. But if they’re existing in a much more sparsely populated area, you’re just not gonna have as much demand for these types of services, so you’re not going to be doing as many. And the question was: How should these be priced? 

And then you realize when you’re sitting there, there is no answer to that question that’s simple. 

If you pay high enough to support access in the sparsely populated places, you’re overpaying in the densely populated places. If you drive the price down to what you would pay in the densely populated places, you’re not providing enough support for the places that are more sparsely populated. 

And so the sort of you’re not in Kansas moment is really when you understand the complexity of different policies, and the challenges with moving from what you think you might draw up on a chalkboard to what you could just put into the program. And there’s a ton of those examples all across health policy. 

DG:  And like, in that moment with that particular example, why was it not more simple? Why can’t it be more, like, academic?

MC:  Well, I think there’s a number of sort of structural reasons. But the broader reason is because you don’t get to control the question in MedPAC the same way you might control the question if you’re doing research. As an economist, you might think the best solution is to redesign the way we pay for PET scans or have the price vary in a complicated way across markets, but that’s not the question that Congress is asking MedPAC. We are being asked how much more should  the fee be for a PET scan this year relative to last year, keeping the same basic payment structure the same.

And then, of course, the other component is you realize these things actually really could matter — that if you do X, Y, or Z, there’s going to be some hospital system that might really be hurt, and the patients that rely on that hospital might not be able to get their care. And I think the MedPAC staff and all the commissioners have really thought about what their recommendations mean in a way that is deeper when you’re just writing for a, say, publication.

DG:  Like you understood that this could have a real-world impact on, what doctors get paid, what care is delivered, people’s jobs. Did you like that part? 

MC:  I loved that part and I take it very seriously. I think the challenge is, you know, it’s tempting, for example, to say, “We should just pay way more because then people will get access to all the care they need for sure,” but you realize we can’t. We don’t live in a society with unlimited resources. 

DG:  What surprised you the most about working with policymakers, Mike?

MC:  Well, first let me say I’ve become much less cynical, and in particular, I will say I find the Hill staff very sincere. I think I appreciate much more that policymakers have a really tough job. They need to serve their district. They need to serve the country. They’re getting information from many, many sources, and they have stunningly little time to do this. They’re so busy. 

More concretely, I think policymakers are asking questions about the impacts on patients, on the providers in their district, and they care about that way more than, say, what an economist might consider. 

DG: What’s an example, Mike, of this pressure that policymakers are facing?

MC: So let me consider the example of site-neutral payment. 

MC: The basic principle behind site-neutral payment is we should pay the same for a service no matter where it’s delivered.

DG: To illustrate Mike’s point, MedPAC found that a shot to numb pain costs $740 dollars in a hospital-owned clinic but just $255 bucks at the doctor’s.

That price gap drives hospitals to buy up physician practices — the kind of health care consolidation that leaves all of us paying more. 

And lawmakers understand closing that gap might help us in the long run.

But Mike says they’re just more focused on what’s right in front of them.

MC:  They’re going to ask you questions like, “What does it mean for the, providers in districts like mine?” If it turns out, for example, that if you put in a site neutral payment recommendation, and in some districts, those hospitals lost a lot of money, and they were no longer able to provide the service, what does that mean for the survival of a hospital that might be struggling? How do you think through that? 

DG: Mike, how do you think through that — or rather how does MedPAC help policymakers think through that? 

MC: If I were just an academic, I might say, “We should do a site-neutral recommendation because as a matter of principle, we should pay the same for the same service, period.” On MedPAC, you would say, “It makes sense to pay the same for the same service at different sites of care, but you probably want to know, if you do that, here’s what it’s gonna mean for these types of places, these types of providers.” 

When you’re doing things in the real world, you just can’t assume that all hospitals have enough money to survive. You can’t just make an assumption when you’re recommending a real policy. You actually have to think about all the consequences. 

DG: When we come back, Mike dives into the great debate over Medicare Advantage, shares some tips for younger researchers and a couple of to-do’s for the next Congress.

BREAK

DG: Welcome back. We’re talking with Harvard economist Mike Chernew, who recently wrapped a six-year stint as chair of MedPAC. That’s a nonpartisan agency that advises Congress on all things Medicare.

One of the biggest questions facing the Medicare program right now: What to make of the rise of Medicare Advantage?

Mike’s team spent a lot of time analyzing what it means that more than half of America’s seniors are now enrolled in plans run by private insurance companies. 

And while they offer consumers lower premiums and more benefits, like vision and hearing, MedPAC found that these private plans cost taxpayers a lot more money. 

$76 billion more — every year — a figure some industry groups dispute.

MC: We’re in a fiscally constrained environment. If you are paying more for people in one segment of the Medicare program, Medicare Advantage, I think it is reasonable for policymakers to ask, “What are we getting for the extra money?” 

DG: When it comes to that extra money, Mike, Medicare Advantage proponents argue that yes, we are spending more but beneficiaries are getting more. So what does the evidence say? Do people in these plans get better care? Better benefits?

MC: They absolutely get better benefits — lower premiums, less cost sharing, more supplemental benefits, vision, dental, hearing, things that really do add value. The question is how much value and how much would be lost if we paid less? We used to be offering the equivalent of $80 or $90 in benefits a month. Now we’re offering a little bit north of $200 a month in benefits, right? So the question becomes if policymakers try and pay less than $200, which benefits are going away?

DG: Mike’s best guess, based on his research and others: If the feds did trim payments to Medicare Advantage plans, for roughly every dollar a plan lost, they’d turn around and cut seniors’ benefits up to 40 cents — mostly on things like delivering meals or covering hearing aids. Mike expects insurers would keep premiums and most other out-of-pocket costs flat.

Mike, what about quality? Is the quality of the actual care people get in these Medicare Advantage plans better than the care they would get if they stuck with traditional Medicare?

MC:  This, you know, is a somewhat more complicated question. Most of the academic work suggests that on average, MA plans provide better or similar quality, but that doesn’t mean that there aren’t some plans or some clinical situations where quality isn’t worse for a whole range of reasons. Quality itself is very hard to measure. This remains a topic of academic discussion. It remains a topic of MedPAC discussion.

DG: I want to pause you right there for a second, Mike. This continues to be an active discussion because there’s a lot of variation in how doctors practice medicine, right? Like the tests they order, the drugs that they prescribe…

MC: Yes. So doctors practice differently and we’re not sure what the right way to practice is in all situations. Medicine is very complicated. 

Let’s take an example of hospital readmissions. Hospital readmission rates is a common quality metric, and it makes sense because you would think if quality was done poorly, the person might be more likely to be readmitted to the hospital. It turns out that there’s several problems with that. One problem is you could change your readmission rate by keeping people healthier, or you could change your readmission rate by just not admitting people who are at the margin. So you’re not sure the readmission rate is really capturing health as opposed to your decisions about who to admit to the hospital or not. 

DG:  What I’m taking from what you’re saying is that one of the reasons it is so difficult to measure quality with this in Medicare Advantage versus traditional Medicare is because there are so many variables. And there are still actors who may game the system and it’s just really very difficult to tease out signal from noise. 

MC:  That’s right. It is easier to observe the quality of a car or a couch, than it is to observe the quality of healthcare. 

DG:  It’s clear that you’ve spent a lot of time thinking about Medicare Advantage. MedPAC has spent a lot of time studying Medicare Advantage. But at the end of the day, MedPAC’s job here kind of ends after you drop all this data and analysis on Congress’s doorstep. 

What is it that you hope they do with it, Mike? I mean, what’s the big picture decision, the judgment, Congress needs to make about Medicare Advantage going forward in your mind?

MC: I think Congress has to decide how much they want to spend on Medicare Advantage, more broadly, how much they want to spend on the Medicare program, and that discussion places the Medicare program in the context of our broader fiscal situation. How do they think about our debt? How do they think about tradeoffs between the Medicare program and the Medicaid program or funding schools or the military?

These are big policy decisions that people on the Hill have to make. Within the Medicare program, my hope would be that Congress would try and structure the program as efficiently as possible. But the overall amount of money going to Medicare relative to other priorities is fundamentally a policy question.

DG: And it strikes me that part of the point of the reports and recommendations you and all the people who came before you at MedPAC have done is to create a kind of roadmap for Congress to make the Medicare program more efficient — if that’s something they want to do. Is that right?

MC: So you asked if there was a roadmap to what Congress should do, and I would say there is, but it is really the accumulation of a number of reasonably modest technical fixes. There’s recommendations about alternative payment models. There’s recommendations about fee updates. There’s recommendations about site-neutral payments. It is, I think, less of a unified, “Here’s how we should reform the health care system,” or, “Here’s how we should reform the Medicare program,” and more a topic-by-topic set of recommendations that can help the Medicare program be more efficient. 

DG: Final question, Mike. Your MedPAC stint is over. As you get back into your work as an economist, as an academic but also as a mentor, right? Like, you’re on the backside here of your career. You’ve lived in and out of Washington for a couple decades.  There are a lot of people who are going to come into your classes who want to do the kind of thing you’ve done. What advice do you have for them?

MC: I think it’s very hard in the policy space to direct your career to be, “I want to do this,” or, “I want to do that.” I think as a researcher you just have to do the best work you can and try and pay attention to the conversation that’s going on. So what I often tell people is: You’re not just writing a paper. You’re taking part in a conversation. Know what that conversation is and try and think how you can contribute to that conversation. And if you do that well, you will have somewhere, sometime an opportunity to engage in the policy process. I certainly did, and I’m incredibly grateful for it.

DG:  Mike, thanks so much for taking the time to talk to us on Tradeoffs. 

MC: Dan, it is always a pleasure. Thanks so much for reaching out. 

DG: I’m Dan Gorenstein. This is Tradeoffs.