Many
Members of Congress want the current Medicare bureaucracy to manage
a new Medicare prescription drug benefit. However, a major
government-wide survey of federal managers conducted by the U.S.
General Accounting Office (GAO) found that the Centers for Medicare
and Medicaid Services (CMS)-the federal agency that runs the
Medicare program-is one of the most poorly performing agencies of
the federal government. Millions of senior citizens who would be
dependent on the CMS for their future drug coverage should be aware
that, based on the government's own survey data, the Medicare
bureaucracy is not characterized by a managerial culture that
places a high priority on customer service, the achievement of
results, or performance-based management.
Like
other federal agencies, the Centers for Medicare and Medicaid
Services, formerly known as the Health Care Financing
Administration (HCFA), is subject to the Government Performance and
Results Act of 1993. Nearly a decade ago, Democratic majorities in
Congress enacted this legislation to improve the management and
efficiency of the federal government. The 1993 law was intended
both to improve the overall performance of federal agencies and to
hold federal managers accountable to taxpayers and to the citizens
they serve for their performance. The CMS is not merely struggling
to carry out its existing responsibilities on the level designated
by this legislation: It is in a serious management crisis.
In
2001, the GAO, the fiscal watchdog agency of Congress, conducted a
major survey of managers in 28 federal agencies to determine the
degree to which they were meeting their management objectives under
the Government Performance and Results Act. The GAO report,
Managing for Results: Federal Managers' Views on Key Management
Issues Vary Widely Across Agencies, not only compares the results
for the 28 agencies against one another, but also compares the
results to counterparts in a similar GAO study conducted in
1997.
In
general, the GAO found that many federal agencies face "significant
challenges" in inculcating management practices that would
contribute to "a performance-based culture." Yet the CMS stands out among
troubled agencies. With regard to performance management, the CMS
ranked ahead of only one agency-the Federal Aviation Administration
(FAA)-and far below such other agencies as the Internal Revenue
Service (IRS) and the General Services Administration.
A Track Record of Poor Performance
House and Senate liberals have objected to
the proposal that any future prescription benefit be placed under
private-sector management, and they have strived to label
private-sector health plans or entities risky or unreliable. This
congressional hostility to private health plans emerged as a key
feature of the recent congressional debate regarding Medicare. But
Members of Congress should keep in mind (and seniors should be
aware) that the current Medicare program faces mounting managerial
problems. For example:
- The Medicare
bureaucracy ranks at or near the bottom with regard to key measures
of managerial performance.
Among many federal agencies that are often considered
sluggish by private-sector standards, the GAO found that the CMS
ranked dead last in terms of the percentage of managers who
reported having key performance measures for their work.
- The Medicare
bureaucracy ranks near the bottom in measures of customer
service.
The GAO ranked the CMS next to last in having a measure for
customer service as part of its managerial culture. Just 16 percent
of CMS managers reported having customer service measures to a
"great extent" or "a very great extent." Only the Nuclear Regulatory
Commission (with 14 percent of managers reporting the presence of
such measures) scored lower. Clearly, customer service is not a key
feature of the managerial culture at the CMS. No private firm that
provides vital services to the public and depends on consumer
choice and satisfaction for continued operation could survive with
such a management culture.
- The Medicare
bureaucracy ranks near the bottom in measures of accountability for
results.
The GAO found that the CMS ranked next to last among
federal agencies in having a management team that was held
accountable to performance measures. In contrast, major private
firms rely on measures of performance in staffing and allocating
resources.
The Need for a Better Program
For
years, the Medicare trustees and responsible officials at the GAO
and the Congressional Budget Office (CBO) have warned Congress that
it would be a profound mistake simply to add a prescription drug
benefit to the current Medicare program in the absence of serious
structural reform. Not only would such an additional responsibility
aggravate the growing financial pressures on the program, but it
would also complicate what has already become a serious, and
largely neglected, managerial problem.
Among a dozen recommendations offered to
improve the governance of the Medicare program, a philosophically
diverse panel of the National Academy of Social Insurance (NASI)
has stated:
In the absence of a decision by Congress
to fundamentally reform Medicare or provide substantial new
investment of resources, both financial and human, the study panel
urges Congress not to enact major changes in the program in the
near term because CMS does not currently have either the resources
or the capacity to implement such changes in a timely fashion while
managing the existing program and the changes enacted in the last
few years.
The Best Option
The
best solution would be to change the fundamental Medicare structure
and transform the program into one that more closely resembles the
popular and successful Federal Employees Health Benefits Program
(FEHBP), which covers members of Congress, federal workers, and
retirees. Those enrolled in this program have access to reliable
prescription drug coverage in a modern health care program and are
able to choose an alternative health plan that better meets their
needs if they wish to do so.
Seniors should be aware that the GAO
ranked the Office of Personnel Management (OPM)-the agency that
administers the FEHBP-highest among federal agencies in terms of
the percentage of federal managers who reported that they had the
authority to get results. The OPM also ranked first among agencies
with regard to the use of performance information in managing
program responsibilities.
Intermediate
Steps to Reform.
If Congress is reluctant to re-create the Medicare program
according to the FEHBP model in a single major legislative act, it
could take intermediate steps toward the transformation to a new
and better system. It could do so by allowing new retirees to keep
their private health plan and drug coverage as their primary
coverage if they wish to do so, with the government contributing
premium support to offset its costs.
Congress could thus phase in Medicare
reform gradually, enabling the first wave of retirees in the huge
77-million-strong baby boom generation to take advantage of a
flexible new program that provides a spectrum of plans with varied
benefits. Over time, Congress would have the opportunity to make
any necessary adjustments in the program to expand such coverage to
more retirees.
In
addition, Congress should scale back the responsibilities given to
the Medicare bureaucracy regarding Medicare Part C-the
Medicare+Choice program of private health plans that serve senior
citizens. Congress could create a separate agency to negotiate
rates and benefits with these health plans, just as the OPM
currently does with health plans in the FEHBP. Congress could, thereby,
help the CMS function more effectively, allowing its staff to
concentrate its time, energy, and resources on efforts to improve
the efficiency of the traditional Medicare fee-for-service
program.
Medicare's Ailing Managerial
Culture
If
Congress establishes a new prescription drug benefit within the
Medicare program, it would entrust the drug benefits of seniors to
the CMS's managerial culture, which received the lowest rankings of
federal agencies on key measures of performance-based on reports by
its own managers. This is especially troubling with regard to such
key items as setting goals, executing tasks, and establishing
standards of customer satisfaction and quality control.
On
the issue of management, the GAO findings with regard to the CMS
were particularly pointed. For example:
- The Medicare
bureaucracy ranks next to the bottom in managerial
performance.
According to the GAO report:
Overall, the Health Care Financing
Administration (now called the Centers for Medicare and Medicaid
Services or CMS) was below the rest of the government in aspects of
agency climate, the use of performance information, and especially
performance measurement. The agency ranked statistically
significantly lower than the rest of the government for survey
items concerning the percentages of managers who reported that
managers were held accountable for results; reported having five
different types of performance measures; and indicated that they
used performance information for four management tasks. In all
other areas, HCFA was not significantly different from the rest of
the government. Of the 28 agencies surveyed, HCFA rated
significantly lower than the rest of the government on more of the
survey items...than any other agency except for the Federal
Aviation Administration.
- For years, the
Medicare bureaucracy has failed to improve its managerial
performance in any significant way.
Since 1997, there have been numerous congressional
inquiries and investigations into the managerial and governance
problems of the Medicare bureaucracy. These oversight efforts
apparently have made little difference in the managerial culture of
the agency. According to the GAO report, the CMS, despite being one
of the poorest performers among the 28 federal agencies studied,
had made little or no managerial improvement since 1997 (the last
year that the GAO conducted a similar review of the performance of
federal agencies).
- The Medicare bureaucracy scored
low among federal managers in having measures for
efficiency. The GAO report surveyed federal managers to
determine whether they had included "efficiency" measures within
their management evaluation system. Only 9 percent of CMS managers
reported that they had specific types of performance measures for
efficiency to a "great extent" or a "very great extent."
- The Medicare
bureaucracy ranks at the bottom in key management performance
measures.
The CMS recorded the lowest percentage among managers in the 28
agencies in reporting key performance measures. For example, when
asked whether they had specific performance measures to "a great
extent or a very great extent," only 17 percent of CMS managers
said that they had "outcome measures" that would "demonstrate to
someone outside of the agency whether or not the intended results
were being achieved"; only 19 percent of CMS
managers responded that they had "output measures that tell how
many things were produced or services provided"; and only 14 percent of CMS
managers reported that they had "quality measures that tell about
the quality of the products or services provided."
- The Medicare
bureaucracy scores next to last in measuring accountability for the
results of their work.
When asked whether or not they were held accountable for
results to "a great extent" or a "very great extent," 63 percent of
surveyed federal managers said that they were held accountable. Of
all the federal managers, CMS ranks next to the bottom in terms of
accountability for results. Only 42 percent of CMS managers
reported positively on that measure. (The lowest percentage-40
percent-was reported by the federal managers in the Forest
Service.
Managers at the IRS, the Veterans Administration, and the
Department of Housing and Urban Development all reported higher
positive percentage responses.)
- The Medicare
bureaucracy ranks low in the use of performance information.
In managing programs, federal managers typically use
"performance information" to set priorities, allocate resources, or
adopt new programs. As the GAO investigators reported, "The
fundamental reason for collecting information on a program's
performance is to take action in managing the program on the basis
of that information." CMS management ranks very
low in the use of such information. Just 27 percent of CMS managers
reported that they used "performance information" to "a great
extent" or to a "very great extent" in setting program priorities.
Only the National Science Foundation, with a 26 percent response
rate, ranked lower. Similarly, only 29 percent
of CMS managers reported that they used "performance information"
to a great extent or a very great extent in allocating the agency's
resources. Once again, only the National Science Foundation, with a
24 percent response rate, ranked lower.
MicroManaged and Overwhelmed
The
less than impressive CMS showing in meeting the performance
objectives of the Government Performance and Results Act of 1993 is
evidence of systemic structural weaknesses. It is also another
indication that the Medicare bureaucracy today is simply
overwhelmed by congressionally imposed responsibilities. This
latter view is also broadly shared by prominent health policy
analysts-regardless of their views on Medicare reform or their
political or philosophical differences.
In
recent years, the CMS's regulatory responsibilities have
multiplied. According to a recent report of the National Academy of
Social Insurance, the Balanced Budget Act of 1997 alone included
359 actions that required CMS implementation; the Balanced Budget
Refinement Act of 1999 included an additional 126 provisions that
required CMS implementation; and the Medicare, Medicaid, and SCHIP
Benefits Improvement Act of 2000 included another 152 provisions
that required CMS implementation. As the authors of the NASI
report also note, in recent years, congressional statutory
construction has become increasingly specific, narrowing the
agency's options and undercutting its ability to react and respond
to the rapidly changing environment in which it must operate.
While no academic or public policy
institution has yet released an analysis of the projected CMS
managerial requirements under the various House and Senate Medicare
prescription drug proposals debated in 2002, seniors can be certain
that they would be formidable.
Steps Congress Can Take to Ensure Superior
Medicare Drug Management
Medicare's serious managerial problems have crucial
implications for the prospects of a Medicare prescription drug
policy. Rather than massively increasing the regulatory obligations
of CMS in the administration of a complex prescription drug benefit
under a new Part D Medicare program, Members of Congress should
look for a less expensive, quicker, more reliable, and more
efficient way to deliver prescription drugs to senior citizens,
independent of an agency that is struggling with its existing
responsibilities.
STEP #1. Target
dollars to poor seniors who do not have access to drug
coverage.
The best short-term option is to create a federally
subsidized system of prescription drug accounts for low- and
moderate-income seniors that can be accessed through a Medicare
prescription drug debit card. The card could be used to purchase
prescription drugs directly at a pharmacy or through a health plan
of choice. This system has the advantage of maximizing flexibility
and innovation in the delivery of prescription drugs while
targeting taxpayers' dollars to seniors who need the most help. In
comparison to most other Medicare drug proposals, it is
administratively simple. Moreover, it would not displace existing
drug coverage for seniors and would allow for adjustments to the
program over time. Health policy analysts at the American
Enterprise Institute and the Galen Institute have developed plans
for such a program at a cost, estimated by
Price/Waterhouse/Coopers, of $302 billion over a ten-year period.
STEP #2. Scale
back CMS management responsibilities and allow the agency to focus
on traditional Medicare.
The CMS has a responsibility to comply with the Government
Performance and Results Act of 1993, as other federal agencies do.
When overwhelmed with a variety of disparate responsibilities, it
is hard for the CMS managers and staff to make headway in
transforming their organizational culture, as the GAO urges, "to
improve decision-making, maximize performance, and assure
accountability.
The CMS is supposed to accomplish this
transformation while administering or overseeing a variety of
disparate health care programs: Medicaid, the huge federal-state
health care program for the poor and the indigent; the State
Children's Health Insurance Program (SCHIP); the enforcement of
certain provisions of the Health Insurance Portability and
Accountability Act of 1996 ( HIPAA); and the administration of
Medicare Part C, the Medicare+Choice program, a heavily regulated
system of private health plans for seniors.
Congress should at least scale back CMS
management responsibilities such as those under Part C, the
beleaguered Medicare+Choice Program. The best way to do this would
be to create a separate agency that would negotiate rates and
benefits with competing plans in the Medicare+Choice program, just
as the high-performing U.S. Office of Personnel Management
currently does with private health plans in the FEHBP. This would
allow the CMS to concentrate on administering the huge and
complicated Part A and Part B components of the traditional
fee-for-service program more effectively.
It is worth noting that the House of
Representatives has already taken a major step in this direction
with the recent passage of the Medicare Modernization and
Prescription Drug Act of 2002 (H.R. 4954). The House bill would
create a Medicare Benefits Administration that would both oversee
the implementation of a prescription drug benefit through
private-sector entities and plans and improve the administration of
the troubled Medicare+Choice program. Under the House bill, there
is also a limited demonstration program for an FEHBP-type payment
formula for competing health plans in several areas of the
country.
STEP # 3. Start
the process of Medicare reform by allowing new retirees to bring
their private coverage into retirement with them and receive
support to offset the cost of premiums.
Medicare patients would be far better served by a
managerial system and climate that rewards performance, innovation,
and customer service. That kind of system can best be achieved
through the discipline of market competition, where patients can
pick and choose their health plans so that health plans could
maintain their market share only by providing quality, service, and
customer satisfaction.
Paradoxically, in the area of health
insurance today, this sort of direct accountability to customers
prevails not in conventional private-sector health insurance
managed by employers, but in the unique public-sector Federal
Employees Health Benefits Program. By allowing newly retired
Americans to keep their private health care coverage-including drug
coverage-and bring it into retirement as their primary coverage,
Congress could start the process of transforming Medicare into a
program that resembles the FEHBP.
For the next generation of seniors, in
particular, there is much to be gained from such a transformation.
For one thing, the management and administration of the program
could be conducted by a high-performing agency such as the Office
of Personnel Management, the agency that administers the FEHBP. The
OPM does not pump out tens of thousands of pages of rules and
regulations, bury doctors in paperwork, or micromanage every facet
of the financing and delivery of health care for FEHBP enrollees as
the CMS does today with regard to those enrolled in the Medicare
program. The OPM, in effect, shares the administration of the FEHBP
with private plans that have powerful economic incentives to
perform in a highly competitive environment. Performance measures
are often a key to success for private firms, for whom failure to
get results means lost revenues.
In an open, pluralistic, and competitive
system, Medicare patients would have the right to choose the health
plan that best meets their needs. If patients were dissatisfied
with a health plan's quality, service, or benefit package
(including its drug coverage), they could secure a better one. In
this scenario, health plans would have a powerful incentive to
respond to patients' wishes. In a competitive environment, poor
performance or unresponsiveness to customers is quickly punished by
a loss of market share.
Conclusion
Seniors rarely, if ever, come face to face
with an employee of the CMS, the powerful regulatory agency that
runs the Medicare program upon which they depend. In this sense,
the Medicare bureaucracy is largely insulated from its "customers."
For the most part, the agency's interaction with senior citizens is
indirect-its interaction is with Medicare contractors and the
doctors, hospital officials, and other health care professionals
who deliver medical services to senior citizens.
But
seniors' insulation from the Medicare bureaucracy is superficial.
Seniors today are, in fact, profoundly affected by what officials
of the CMS do or do not do and how well they do it. Seniors cannot
escape the managerial culture that pervades the powerful regulatory
apparatus governing the Medicare program. The impact of the CMS on
their personal lives will be even greater if the agency is
entrusted with the management of financing and delivering their
prescriptions, if it is given broad authority to regulate the drugs
to which they will have access, and if it is allowed to determine
what kinds of formularies will be used in controlling the costs of
drugs or how drugs will be priced.
Medicare's financial and managerial
problems are broadly acknowledged among health policy analysts,
regardless of their political opinions or philosophical leanings.
In addition, there is strong evidence that an unhealthy managerial
culture and climate also lies beneath Medicare's programmatic
difficulties. The management of the Medicare bureaucracy is far
below that of other federal agencies. It is the weakest in terms of
having standards for efficiency, and it ranks well below the rest
of federal agencies in having measurable standards for
performance-particularly, in terms of achieving results, in
measures of quality, and in customer satisfaction.
However, in spite of Medicare's work
overload and management problems, many Members of Congress still
hold fast to the unfounded belief that the CMS would somehow
outperform private organizations in managing a drug benefit within
the current structure of the Medicare program. Too many view the
Medicare management problem as primarily a problem of resources.
However, Capitol Hill partisans of the Medicare bureaucracy are
profoundly mistaken if they believe that the answer to Medicare's
serious management problems is simply an increase in CMS funding
and staff.
If
Congress wants to ensure reliable prescription drug coverage for
the nation's senior citizens and guarantee that this coverage will
be managed efficiently with a clear focus on patient satisfaction,
it should design a new system that incorporates personal choice and
market competition, as the FEHBP does. Medicare patients should
have the right to choose a better health plan. They should have the
means to choose one that best meets their needs and secure the drug
coverage that their doctors think is best for them. These crucial
decisions should not be entrusted to a Medicare bureaucracy that,
even now, is overwhelmed and facing a managerial crisis.
Robert
E. Moffit, Ph.D., is Director of Domestic Policy
Studies at The Heritage Foundation.