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Policymaking for Medicare: Prospective Payment and the Shaping of U.S. Health Care

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BACKGROUND & SIGNIFICANCE: The biggest and most intense battle within the U.S. health care system during the past two decades has been over two inter-related questions: (1) who will control the manner in which medical care is paid for and, (2) how much will it cost? The primary argument of this paper, which is drawn from our forthcoming book (Medicare Prospective Payment and the Shaping of U.S. Health Care, Johns Hopkins University Press, late 2006) is that—contrary to conventional wisdom and whole libraries of books and articles that point to managed care as the biggest “change agent” in American medicine in the last twenty years—the private sector neither initiated this battle nor provided the critical innovation that transformed health care in the U.S. Instead, it was Medicare’s transition to a prospective payment system (PPS) that both triggered and repeatedly intensified the economic restructuring of the U.S. health care system.

DATA SOURCES: (1) More than 80 oral history interviews with senior members of Congress, the hospital industry, the Health Care Financing Administration (HCFA), the Center for Medicare & Medicaid Services (CMS), ProPAC, MedPAC, and administration officials dating back to the Nixon administration; (2) extensive secondary sources, and (3) data from provider organizations and annual government-commission hearings and reports, including: Medicare’s Prospective Payment Assessment Commision (ProPAC), Medicare’s Physician Payment Review Commission (PPRC), and Medicare’s Payment Advisory Commission (MedPAC), 1985-present.

FINDINGS & DISCUSSION: Medicare payment reforms have empowered the federal government in ways similar to health care systems in other Western countries. They have (1) given the U.S. government control over the price of most medical care, and (2) ended the era—dating back to the 1920’s—in which doctors and hospitals’ authority over medical prices and decision-making went virtually unquestioned. Roughly akin to Wal-Mart, in terms of purchasing power, the key to Medicare’s role as the leading catalyst for change in the U.S. health care system is the program’s immense size and influence. As the single largest individual buyer of health care and the “first mover” in the annual payment game between those who provide medical care and those who pay for it, Medicare invariably drives the behavior of both medical providers and private payers.

Most Common Document Word Stems:

medicar (255), payment (198), care (192), health (165), provid (138), hospit (116), servic (104), cost (94), physician (90), prospect (78), privat (72), system (71), patient (68), medic (68), increas (64), program (56), polici (55), may (53), spend (50), insur (49), polit (47),

Author's Keywords:

Medicare, payment policy, prospective payment, PPS, hospitals, physicians, managed care, DRGs, RBRVS, budget policy
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MLA Citation:

Mayes, Rick. "Policymaking for Medicare: Prospective Payment and the Shaping of U.S. Health Care" Paper presented at the annual meeting of the American Political Science Association, Marriott, Loews Philadelphia, and the Pennsylvania Convention Center, Philadelphia, PA, Aug 31, 2006 <Not Available>. 2009-05-24 <http://www.allacademic.com/meta/p151911_index.html>

APA Citation:

Mayes, R. , 2006-08-31 "Policymaking for Medicare: Prospective Payment and the Shaping of U.S. Health Care" Paper presented at the annual meeting of the American Political Science Association, Marriott, Loews Philadelphia, and the Pennsylvania Convention Center, Philadelphia, PA Online <APPLICATION/PDF>. 2009-05-24 from http://www.allacademic.com/meta/p151911_index.html

Publication Type: Proceeding
Abstract: BACKGROUND & SIGNIFICANCE: The biggest and most intense battle within the U.S. health care system during the past two decades has been over two inter-related questions: (1) who will control the manner in which medical care is paid for and, (2) how much will it cost? The primary argument of this paper, which is drawn from our forthcoming book (Medicare Prospective Payment and the Shaping of U.S. Health Care, Johns Hopkins University Press, late 2006) is that—contrary to conventional wisdom and whole libraries of books and articles that point to managed care as the biggest “change agent” in American medicine in the last twenty years—the private sector neither initiated this battle nor provided the critical innovation that transformed health care in the U.S. Instead, it was Medicare’s transition to a prospective payment system (PPS) that both triggered and repeatedly intensified the economic restructuring of the U.S. health care system.

DATA SOURCES: (1) More than 80 oral history interviews with senior members of Congress, the hospital industry, the Health Care Financing Administration (HCFA), the Center for Medicare & Medicaid Services (CMS), ProPAC, MedPAC, and administration officials dating back to the Nixon administration; (2) extensive secondary sources, and (3) data from provider organizations and annual government-commission hearings and reports, including: Medicare’s Prospective Payment Assessment Commision (ProPAC), Medicare’s Physician Payment Review Commission (PPRC), and Medicare’s Payment Advisory Commission (MedPAC), 1985-present.

FINDINGS & DISCUSSION: Medicare payment reforms have empowered the federal government in ways similar to health care systems in other Western countries. They have (1) given the U.S. government control over the price of most medical care, and (2) ended the era—dating back to the 1920’s—in which doctors and hospitals’ authority over medical prices and decision-making went virtually unquestioned. Roughly akin to Wal-Mart, in terms of purchasing power, the key to Medicare’s role as the leading catalyst for change in the U.S. health care system is the program’s immense size and influence. As the single largest individual buyer of health care and the “first mover” in the annual payment game between those who provide medical care and those who pay for it, Medicare invariably drives the behavior of both medical providers and private payers.

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Document Type: application/pdf
Page count: 33
Word count: 19141
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Medicare Prospective Payment and the Shaping of U.S. Health Care Rick Mayes and Robert A. Berenson revised manuscript Johns Hopkins University Press forthcoming – December 2006 bmayes@richmond.edu RBerenso@ui.urban.org Rick Mayes Robert Berenson 2 Medicare Prospective Payment TABLE OF CONTENTS Chapter 1 Introduction Chapter 2 Origins & Policy Gestation Chapter 3 Development Growing Appeal and Passage of Prospective Payment Chapter 4 The Phase-In Years and Beginning of “Rough Justice” for Hospitals Chapter 5 Medicare Policy’s Subordination to Budget Policy Increased
Open University Press 2005) 11-15. 124 E. Kinney “Medicare Coverage Decision-Making and Appeal Procedures: Can Process Meet the Challenge of New Medical Technology?” Washington and Lee Law Review 60 (Fall 2003):1501-1505. 125 M. Chernew P. Jacobson T. Hofer et al. “Barriers to Constraining Health Care Cost Growth ” Health Affairs 23 (November/December 2004):122-128. 126 The World Health Report 2000 – Health Systems Improving Performance. (Geneva: The World Health Organization 2000) available at http://www.who.int/whr/2000/en/index.html (assessed October 28 2005). 127 Ibid.


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