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Article on birth of Medicaid by Joseph Califano

Article on birth of Medicaid by Joseph Califano

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Published by The Washington Post

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Published by: The Washington Post on Mar 12, 2012
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The Washington PostApril 1, 1993
The Last Time We Reinvented Health Care
By Joseph A. Califano
Jr. As the president, Hillary Rodham Clinton and Congress set out to reinvent health care inAmerica, they are wise to consult widely, since we got into much of the current mess byacting on the best of intentions without foreseeing the worst of unintended effects.The hand of government in shaping health care grew strong in the 1960s -- and herein liethe most important lessons for the Clintons and Congress. In 1960 Congress passed theKerr-Mills Act -- sponsored by the powerful Oklahoma senator and the Arkansascongressman who chaired the House Ways and Means Committee -- to get health care to poor rural Americans. The legislation required the federal government to pay 50 percent to80 percent of the funds states spent for medical assistance to the needy aged, with the poorest states targeted to receive the highest federal match.The Kerr-Mills package covered everything from hospital, surgical and physician care todrugs and (a special need of the elderly rural poor) false teeth. To the dismay of Kerr and Mills, by 1964 five large industrial states (California, New York, Massachusetts,Michigan and Pennsylvania) with only 32 percent of the over-65 population, grabbed 90 percent of the Kerr-Mills dollars.When Lyndon Johnson asked Congress to enact Medicare for the elderly, he seized upon
the angry frustration of Ways and Means Committee Chairman Wilbur Mills. Johnsonand Mills cooked up the idea that Kerr-Mills could be changed to cover welfare recipientsand other "medically indigent" individuals without regard to age. That, Johnson told Mills,
would get funds to "poor mamas and babies" in rural and southern states, and limit theshare going to big industrial states. To enhance the attractiveness of the program, Johnsonadded coverage of nursing home care.Thus was Medicaid born, with little appreciation of the imminent aging of America(accelerated by the health care provided by Medicare and Medicaid) or the separation of family generations that a mobile society would encourage. LBJ and Wilbur Mills wouldturn in their graves to learn that today Medicaid spends almost a third of its $ 140 billion onnursing homes, having created a $ 75 billion-a-year industry -- up from less than a billiondollars in 1965, when the program was enacted. And they would chortle to learnthat Medicaid is eating up the budgets of the big industrial states.
The ripple of unexpected consequences did not end there. To pry Medicareand Medicaid out of the Senate Finance Committee, Johnson had to agree to pay hospitalson a cost-plus basis, and doctors' fees that were "reasonable," "customary" and "prevailing"in their communities, thereby giving physicians the power to raise their own fees.When LBJ asked what that compromise would cost, he was told, "Half a billion dollars.""Only $ 500 million," Johnson snapped, "Get the bill out!" His single-minded focus onaccess for the poor and elderly led him to grossly underestimate the price of givinghospitals and doctors the keys to the federal Treasury.The next unpleasant surprise came from our well-intentioned effort to increase the number of physicians. We feared that with too few physicians to handle the increased demand fromthe new federal programs, the price of their scarce services would rise.Over the opposition of the American Medical Association, we rammed through legislationto increase competition by doubling the number of doctors graduating from medical schooleach year from 8,000 to 16,000. We have since discovered that more doctors only meanmore care and higher health care costs. Even our determination to democratize access tothe best medicine by training more specialists bit back, as we have learned that morespecialists mean more referrals to specialists and a spiraling medical bill.To arrest booming costs, LBJ and every president since have sought reform of the healthcare system, trying everything from price controls to promoting health maintenanceorganizations and managed care. To hold down doctors' fees, Medicare established a list of  procedures for reimbursement, capping the amount to be paid for each one.That effort created gigantic insurance company bureaucracies to play catch-up withdoctors who simply created additional procedures and performed them more frequently.When the Johnson administration ended, there were 2,000 medical procedure paymentcodes. Today, there are about 7,000, most with subcategories.Stunned by the explosion in high-ticket technology and the expansion of hospitals well beyond necessary capacity (prompted by the Hill-Burton Act, which financed hospitalconstruction, and by Medicare, which reimbursed capital costs), in 1974 Congress passedthe Health Planning Act, requiring hospitals to obtain certificates of need before they couldincrease the number of beds, build new wings or buy new equipment.Surprised again! When the government tried to eliminate almost a half-million unnecessaryhospital beds, the cumbersome certificate-of-need program became an incentive for hospitals to resist. They feared that if circumstances changed (say, because of an AIDS or TB epidemic), they would never get permission to expand. Next came the attempt to hold down hospital costs by creating Diagnosis Related Groups(DRGs), to limit lengths of stay and intensity of care for Medicare hospitalizations. Theresult: Doctors ratcheted patients up to the highest-intensity care they could, and hospitalshiked up charges to private plans that don't have DRG limits in order to compensate for theMedicare shortfall.

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