Centers for Medicare and Medicaid Strategy Statement by Matthew Szybalski

Centers for Medicare and Medicaid Services

Strategy Statement

Term Paper

MGMT700

Matthew Szybalski

12/3/2009

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Centers for Medicare and Medicaid Strategy Statement by Matthew Szybalski

Contents

I. Summary:............................................................................................................................................3
II. CMS Background:................................................................................................................................4
III. Long Term Goals..............................................................................................................................7
IV. Scope:..............................................................................................................................................7
V. Competitive Advantage:....................................................................................................................12
VI. Logic:..............................................................................................................................................12
VII. Conclusion.....................................................................................................................................19

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Centers for Medicare and Medicaid Strategy Statement by Matthew Szybalski

I. Summary:
With a budget of approximately $650 billion and serving approximately 90 million beneficiaries,

the Centers for Medicare & Medicaid Services (CMS) plays a key role in the overall direction of

the health care system. CMS has an unparalleled opportunity to improve care and to make it

more affordable for everyone, while balancing the long term solvency of the programs.

CMS aims to expand its resources in a way that both improves health care quality and lowers

costs. CMS will do this by being stewards accountable for resources and effectiveness.

CMS’s current objectives for achieving improved health care quality, lower cost for beneficiaries

while still sustaining long term solvency of their programs, include:

 Skilled, Committed, and Highly-Motivated Workforce

 Accurate and Predictable Payments
 High-Value Health Care
 Confident, Informed Consumers
 Collaborative Partnerships

Also, with the current Healthcare Reform Plan looming there needs to be a further emphasis on

structural flexibility to expanding capabilities to accommodate legislations to include

modernization of information technology and increased database capacity.

Since CMS is a government agency and not activity competing for business with other firms they

do not have competitive advantages per se, but they do have a number of valuable resources that

for profit companies would use as a competitive advantage:

 Governmental Power
 Healthcare Expertise
 Extensive Healthcare Databases
 Scale of Economies
 Relationships with Healthcare Providers
 Customer Relationships

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Centers for Medicare and Medicaid Strategy Statement by Matthew Szybalski

 Positional Advantages
As a government agency CMS does not compete in the marketplace. CMS’s motivations are

different from private firms. They are not concerned with making a profit; they are funded by

tax dollars. They are concerned solely with the welfare of the citizens of the United States. It is

because CMS has altruistic motives and that they are empowered by the federal government that

CMS is able to utilize their valuable resources to change the healthcare industry for the benefit of

the country. By using their governmental power , healthcare expertise, extensive healthcare

databases, scale of economies, relationships with healthcare providers, customer relations and

positional advantages, CMS can achieve their goals of improved health care quality, lower cost

for beneficiaries and further healthcare reforms while still sustaining long term solvency of their

programs. CMS is in an incredibly powerful position create a healthcare system in this country

by restructure the value chain to put the patients needs first.

II. CMS Background:

The Centers for Medicare & Medicaid Services (CMS) is an agency within the Department of

Health and Human Services (HHS). Created in 1977, CMS brought together the two largest

Federal health care programs, Medicare and Medicaid under a unified leadership. In 1997, the

State Children’s Health Insurance Program (SCHIP) was established to address the health care

needs of uninsured children. With a current budget of over $650 billion and serving

approximately 90 million beneficiaries, CMS has become the largest purchaser of health care in

the United States.

CMS accomplishes its mission through the efforts of over 4,800 employees and many partners.

CMS employees are located in Central Office as well as 10 Regional Offices throughout the

country. Their partners include contractors, States, territories, tribes, health care professionals

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Centers for Medicare and Medicaid Strategy Statement by Matthew Szybalski

and providers, health care groups and associates, beneficiary and consumer organizations,

accrediting bodies, and researchers. CMS continually examines and renews our definition of

partnership to allow for meaningful two-way exchange and true collaboration for all CMS

programs and special HHS initiatives, such as the New Orleans Health System. Thanks to CMS

employees and partners, they has been able to accomplish tremendous programmatic changes in

Medicare and Medicaid, all while providing continuous service to our beneficiaries.

In 2003, the Medicare Modernization Act (MMA) provided extraordinary changes to the

Medicare program, including creating the prescription drug benefit, Medicare Part D and the

Medicare Advantage (MAPD) option. In 2006, CMS achieved a phenomenally successful roll-

out of the largest expansion of Medicare in 40 years, with over 38 million beneficiaries with

prescription drug coverage. CMS is committed to continuous quality improvement to make

Medicare Part D even better. CMS will work to do this through streamlined and better choices

for beneficiaries; willing participation by plans; improved relationships with States and

pharmacists; increased use of electronic technology to streamline benefit delivery; and continued

outreach and education to ensure that our beneficiaries and partners understand our programs.

The demographic changes that will occur as the post-World War II Baby Boomers age are well

known. The impact of the retirement of the Baby Boomers, together with declining birth rates

and continuing improvements to health care that extend life expectancy means there be more

older persons than working-age people, beginning in 2010. Currently, there are 3.9 workers for

each person with Medicare. By 2030, when all of the Baby Boomers are eligible for Medicare,

there will be only 2.4 workers for each beneficiary. The expected drop in the ratio of active

workers to retirees is one of the reasons people project that Medicare payroll tax revenues will

not keep pace with expected Medicare expenditures. Also, as the number of elderly beneficiaries

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increases, they may need long-term care. This will affect Medicaid, in part because Medicaid

covers long-term care services. CMS will work to improve the long-term sustainability of our

programs. They will develop strategies for price and quality transparency and “value incentives”

for consumers and providers. Many of these strategies will be supported by our research and

demonstration programs. In doing this, CMS will fulfill their fiduciary responsibility.

In 2006, Congress passed the Deficit Reduction Act (DRA) to help sustain Medicare and

Medicaid. The DRA requires CMS to ensure that Medicare and Medicaid beneficiaries continue

to have access to high-quality medical care in the most appropriate setting. CMS is making

progress toward addressing long-term solvency while providing better care and sustainable

coverage, CMS is doing this by adopting Health Information Technology, increasing the focus

on prevention, and creating more transparency in our programs. CMS is developing better

information on quality and costs of health care, and is starting to pay more for quality care to

ensure their beneficiaries get the best care at the lowest possible cost.

Sparked by the passage of the DRA, CMS is also on the cusp of redefining and modernizing the

Medicaid program. Medicaid now has tremendous potential to give beneficiaries more choice,

as the States have many new options for delivering benefits beyond basic services to consumers.

A key part of Medicaid reform is to provide up-to-date benefit choices and to support consumers

in making the best choices for them. Medicaid reform also includes a focus on reforming long-

term care options and increased integrity efforts. Over the next three years, CMS will continue

to work with our partners to redefine and modernize Medicaid.

Since coming into office in 2009 the Obama Administration’s main focus has been Health Care

Reform. The administration has proposed initiative that would change the healthcare system of

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the United States dramatically. The majority of the responsibility for implementing these

healthcare reforms would fall to CMS and depending on the legislation that passes and the

regulations that are written, these reforms could have an incredible impact on the organization’s

Long Term Goals.

Currently, the language of the Baucus SFC Health Reform Bill is being debated in the House and

the Senate. Though the majority of the legislation discussed to date falls within the auspice of

CMS’s long term goals of improving healthcare, making it more affordable and working towards

a sustainable Medicare/Medicaid program, many of the initiative discussed such as Electronic

Health Records, a Public Health Insurance Option and government subsidized insurance for

lower income individuals would require significant changes in the structure of the organization

and change the allocation of resources within the organization.

III. Long Term Goals

With a budget of approximately $650 billion and serving approximately 90 million beneficiaries,

the Centers for Medicare & Medicaid Services (CMS) plays a key role in the overall direction of

the health care system. CMS has an unparalleled opportunity to improve care and to make it

more affordable for everyone, while balancing the long term solvency of the programs.

CMS aims to expand its resources in a way that both improves health care quality and lowers

costs. CMS will do this by being stewards accountable for resources and effectiveness.

IV. Scope:
CMS’s current objectives for achieving improved health care quality, lower cost for beneficiaries

while still sustaining long term solvency of their programs, include:

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1. Skilled, Committed, and Highly-Motivated Workforce

 CMS will have proper resource allocation (pg. 369) the right people with the right

expertise in the right positions to help deliver the Strategic Action Plan to

accomplish the agency’s mission.

 CMS senior management will assure its workforce is resilient, competent, diverse,

flexible, and motivated to accomplish the mission.

 CMS will complete and implement the Human Capital Management plan which

establishes a framework for developing an organizational structure that is citizen-

centered, results-oriented and market-based. Our approach is strategic, dynamic,

and aligned with the agency’s current and future business needs. The HCM process

will: (1) integrate recruitment policies and systems to allow us to identify and

quickly hire highly-competent employees; (2) retain high-performing employees

through innovative incentive structures; (3) reward CMS employees by linking

performance awards to specific program performance goals; and (4) develop and

refine organizational structures that are efficient and effective.

 To make sure that the daily work of CMS reflects the goals in this plan, CMS will

establish Enterprise Portfolio Management. This system will inventory all CMS projects

and assign resources. Doing this helps senior leadership prioritize employee workload.

2. Accurate and Predictable Payments

 CMS will effectively oversee its providers and aggressively deliver provider

education and outreach. Doing so will help us achieve strong financial performance

for our programs and operations. Oversight will include expanded, modernized

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program integrity for Medicare and Medicaid and ways to prevent overpayments and

improper payments.

 These modernization objectives will better facilitate CMS preparedness in

emergencies and pandemic planning.

 By developing strategies for transparency and value incentives for consumers and

providers, CMS may improve the long-range sustainability of CMS programs and

reduce costs and improve long-range solvency for Medicare.

 Additional modernization initiatives include implementing a Health Care Integrated

General Ledger Accounting System and a National Provider Identifier; transitioning the

legacy system of Intermediaries and Carriers to the Medicare Administrative Contractor

system; increasing electronic claims processing using upgraded Information Technology

systems; and reforming the Prospective Payment Systems.

3. High-Value Health Care

 CMS must support the transformation of the health care system to one in which

patients and doctors can make informed decisions together about the most effective

medical care, based on timely access to the latest evidence, and in a way that delivers

the highest value care.

 This transformed system will include SMART health care (Science-driven

opportunity for Management of personal health through Affordable, Reliable, and

Targeted care); secure electronic records; e-prescribing; transparency based on

immediate, accurate and comparative quality and cost information; disease

management programs, disease prevention; and value-based payment. As part of this

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transformed system, CMS will stay committed to protecting the security and privacy

of our beneficiaries’ health care data.

 To achieve this transformation, we will expand quality and cost measurement in

Medicare fee-for-service systems; emphasize prevention and better support for

quality care; implement pay-for-performance to promote better quality and more

efficient care; enhance long-term solvency; encourage Medicaid reform; help

redesign the New Orleans Health System; establish an integrated data repository; and

modernize IT capabilities.

4. Confident, Informed Consumers

 To create a successful personalized health care system, we will make sure that

everyone with Medicare makes the most of their Medicare benefits.

 We will use our personalized tools and our well-developed grassroots network of

partners to develop direct relationships with beneficiaries.

 Consumers will participate in SMART health care and have immediate access to

affordable Medicare prescription drugs, transparency based on comparative quality

and cost information, flexible Medicaid benefits and incentives, and access to care in

homes and communities for the disabled population.

 CMS will get beneficiaries the best quality care for the best price by developing ways

to let them know their medical options before they need treatment, the quality and

expertise of doctors and hospitals in their area, and how much their medical care will

cost them.

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5. Collaborative Partnerships

 Personalized, modern health care is a complex network of various providers

surrounding the person who needs care. To make this work, we need collaborative

partnerships that all work toward getting the beneficiary quality care information.

 The success of CMS depends on collaborative relationships with a variety of

organizations, individuals and institutions.

 CMS will restructure and expand its external affairs and communications activities to

allow us to have well-established interactions with outside groups.

 CMS Regional Offices will continue as primary resources in planning and

implementing agency outreach initiatives, and in conducting environmental scanning

to identify impacts on our customers.

 We will also continue to develop health and grassroots networks for Medicare and

Medicaid, and establish ties with quality alliances and local communities to support

getting better health care. In addition, we will seek ways to work with other large

health insurers in the U.S. system, both government and private-sector, to share ideas

to improve the quality and delivery of health care and health care information.

 With effective collaboration, CMS will create and sustain a better environment for

high-quality, personalized care for every person, every time.

 CMS will continue to pursue relationships with provider groups at the national and

local level and use these relationships to reach the individual provider with important

program and initiative information.

However, with the current Healthcare Reform Plan looming there needs to be a further emphasis

on structural flexibility to expanding capabilities to accommodate legislations. Other objective

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that will involve additional data warehousing for a national electronic health records repository,

modernizing information technology to effectively encompass an increase in beneficiaries due to

a Public Health Insurance Option and/or government subsidized insurance for lower income

individuals.

V. Competitive Advantage:
Since CMS is a government agency and not activity competing for business with other firms they

do not have competitive advantages per se, but they do have a number of valuable resources that

for profit companies would use as a competitive advantage:

 Governmental Power
 Healthcare Expertise
 Extensive Healthcare Databases
 Scale of Economies
 Relationships with Healthcare Providers
 Customer Relationships
 Positional Advantages

VI. Logic:
As a government agency CMS does not compete in the marketplace. CMS’s motivations are

different from private firms. They are not concerned with making a profit; they are funded by

tax dollars. They are concerned solely with the welfare of the citizens of the United States. It is

because CMS has altruistic motives and that they are empowered by the federal government that

CMS is able to utilize their valuable resources to change the healthcare industry for the benefit of

the country by helping to provide improved health care quality and lower cost for beneficiaries

while still sustaining long term solvency of their programs.

CMS’s greatest asset is the healthcare expertise of their employees and their extensive healthcare

databases. CMS currently has a large pool of skilled human resources that are experts in the

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healthcare industry and healthcare policy and many database prescription drug information,

provider information, industry information and so forth. These informational resources can be

leveraged with the correct organizational design to accomplish the CMS long terms goals.

Leveraging the organizations resources to align with an organization strategy or goals is not

easily done. Coordination and incentive problems are visible in every organization not to

exclude CMS.

The activity of Coordination is the acquisition and allocation of the organizations assets (pg. 73).

The more complex the organizational design the more problems management may find in

coordinating these assets to have an efficient business process. The CMS hierarchy would be

considered very tall, which means it has many layers of management (pg. 79), this causes a

coordination issue in the pushing vital information/subject matter expertise down to the lower

levels, which is key to CMS’s success. To combat these issues CMS has leveraged information

technology to make information more readily available internally to all levels of their

organization as well as to track projects on an enterprise wide scale in order to make measure the

progress toward organizational goals.

This availability of information will allow CMS employees to be more efficient at their jobs as

well as allow for flexible as well through cross training of employees to make resources

reallocation easier or training staff for new process management that have come from legislative

change. This flexibility is important to CMSs future success. Healthcare Reform may bring

about many drastic changes in the way CMS will do business, these changes will have to be

made quickly and completely or the organization will be in violation of the law and subject o

prosecution.

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The incentive problem in an organization occurs when the individual employees or groups have

differing objectives than the organizational goals (pg. 73). CMS is combating this problem by

the use of their Human Capital Management plan in which there is a policy in place to reward

CMS employees by linking performance awards to specific program performance goals.

CMS could conduct quarterly ARC Analysis’s to combat further coordination and incentive

problem and keep the organization strategically align with their goals. By using this framework

to focus on Architecture, which are the formal and informal relationships between internal

subunits, Routines, which are formal and informal process the firm develops, and Culture, which

refers to the commonly held values and beliefs of individuals within an organization,

management has a repeatable process for reviewing the performance of their organization for all

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the organizations valued resources.

Strategy
Competitive
Advantage

Coordination
Incentive Issues
Issues

Culture Routines

ARC

Architecture

The ARC Framework will allow CMS Management to keep a skilled, committed, and highly-

motivated workforce aligned with their strategies which will allow CMS to utilize their expertise

and information to effectuate accurate and predictable payments, high value healthcare,

confident and informed customers, and collaborative partnership. All of which will lead to

improved health care quality, lower cost for beneficiaries while still sustaining long term

solvency of their programs which is their long term goal.

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CMS currently has a large influence over the healthcare industry. They have relationships, in

some fashion, with all healthcare providers in the United States for which they have been setting

up collaborative partnership to in order to make create a more efficient supply chain. CMS has

continues to work towards collaboration through information technology to process payments

with these provider accurately and timely and allowed access to beneficiary information to the

providers to process claims smoothly. This cooperation has allowed CMS and healthcare

provider to minimize administrative cost for each transaction. This saving can be passed up the

value chain to the consumer.

CMS will be modernizing their information systems internally and externally to effectuate even

more cooperation with healthcare providers. Thus making it easier and more cost effective for

providers to do business with CMS, lowering the cost of healthcare as well requiring less staff

from the provider and CMS to serve the beneficiaries, which will increase exponentially once

the baby boomer become Medicare Eligible and legislation for low cost subsidies for health

insurance and/or a public option .

This relationship will take another step with the Electronic Health Records (EHR) initiative. The

goal is that CMS will become the repository for the all the health records of all the citizens of the

United States. Providers could then access their patient’s records through CMS database and

update the records after each visit they have with a patient. The EHR initiative will improve the

healthcare of all patients, whether they are CMS beneficiaries or not, but allowing providers

access to a full medical history of each patient, which will lead to better treatment and an overall

healthier country.

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Though the initiative will be costly and cumbersome for CMS, EHR will also increase the

reliance of providers on CMS thus allowing CMS more negotiating power to demand better

quality healthcare and lower pricing for their beneficiaries.

Similarly, CMS is planning to use its databases and information technology to allow further

access to healthcare information for its beneficiaries. With the population becoming more and

more internet savvy, beneficiaries will have the ability to obtain information about claims and

medical records in an automated fashion that would have previously had to have been filled by

an employee. This initiative will better the relationship between CMS and its customers as well

as help CMS mitigate more administrative overhead and lead to sustainability of its programs.

CMS as the sole repository for industry related information is not exclusive to the proposed

EHR. CMS has is the source of much of the important industry information. Having such

information has tremendous economies of scale, once captured; CMS can use the information

across the entire organization. Information collected by one program can be managed to spillover

across departments, to legislator and to the industry, so that other can benefit from the first

departments work (355).

This aforementioned industry information, as well as CMS’s expertise in insurance regulation all

being within the same organization allow them an economies scale over for the health insurance

industry. CMS has the ability to leverage this information to influence and shape the health

industry by acting as a knowledge resource for all stakeholders.

Public Healthcare Option Discussion

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If legislation is passed so that CMS is to offer a Public Health insurance option CMS could

utilize their positional advantages as well as their governmental support to change the healthcare

industry to offer improved healthcare at a lower cost without being deterred by entrance barriers

that a public firm may experience.

The positional advantage comes from an attractive industry structured. (pg. 44)The health

insurance industry is an oligopoly, meaning the industry contains a few large firms and the

behavior of these firms determines how profitable the incumbent firms will be. Each health

insurance firms has a large market share therefore their action will have a big affect on the

industry as a whole. (pg. 186). this position is extremely sustainable because of the difficulty of

entry into the healthcare market.

If CMS were to enter the health care market by offering a public option health insurance, once

they captured significant market share, their actions could quickly influence the industry,

allowing them to drive down the cost of healthcare while providing better healthcare service.

Another positional advantage comes from heterogeneity within the industry (pg. 44). CMS

would be the only public option for health insurance which means they are not-for-profit. By

being not for profit their main focus would be on creating a better healthcare system then on

profitability of the organization. This would allow them to become a low price leader and have

excellent customer relations. This position is extremely sustainable because CMS will continue

to offer the only public option.

CMS would also enjoy a positional advantage from a network relationship with their customers

and healthcare providers. CMS currently has relationships with 90 million beneficiaries and

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their healthcare providers thus allowing ease in setting up business to be mutually beneficial for

all stakeholders.

Because of these positional advantages and extensive government funding of the program, entry

barriers into the health insurance market be completely mitigated. Incumbent firms will not have

a scale and cumulative investment advantage, because CMS already has a large workforce,

healthcare network and a large investment in their organization (pg. 217-222). CMS as stated

above already has customer loyalty from their prior serves and from the shear fact that they are

the US government.

Once CMS has entered they will be able to use their position to drive down cost of health care by

forgoing the profits received in their place in the value chain as the fiscal intermediary and

negotiating lower pricing with provider. Since CMS will be a major player in an oligopoly rest

of the Fiscal Intermediaries will be forced to lower their prices and negotiate better deal with

providers in order to stay competitive. This will have an effect on the downstream purchasers

and produces in that they will be forced to lower prices in order to continue to be in demand by

the provider who are attaining less value in the chain. (pg. 129-139).

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Wharton School Study of The Healthcare Value Chain

(http://media.wiley.com/product_data/excerpt/17/07879602/0787960217.pdf)

After the lower prices have been determined by the market conditions, CMS would have the

more power in demanding better quality of service from the providers to the benefit of not only

their beneficiaries but for the industry as a whole.

VII. Conclusion
By using their governmental power , healthcare expertise, extensive healthcare databases, scale

of economies, relationships with healthcare providers, customer relations and positional

advantages, CMS can achieve their goals of improved health care quality, lower cost for

beneficiaries and further healthcare reforms while still sustaining long term solvency of their

programs. CMS is in an incredibly powerful position create a healthcare system in this country

by restructure the value chain to put the patients needs first.

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