Defining a New Healthcare Conversation: Q&A With Former CMS Administrator Dr. Bruce Vladeck

When President Barack Obama implemented a massive overhaul of U.S. healthcare in 2010 through the Patient Protection and Affordable Care Act, it was a moment of change that had not been seen for almost two decades.

The last time the United States attempted to make wholesale changes to the healthcare system was during former President Bill Clinton's first term in the early 1990s.

Bruce Vladeck, PhD, was the administrator of HCFA (now called CMS) from 1993 through 1997, a period that included both a failed attempt at universal healthcare and the Balanced Budget Act. As the head of Medicare and Medicaid, Dr. Vladeck oversaw many new initiatives — Medicaid demonstration waivers, Medicare prospective payments for hospital outpatient services and post-acute care and quality measures for managed care plans. His time was ultimately recognized with a National Public Service Award in 1995, and he remains engrossed in the healthcare environment today as a senior advisor with Nexera, a consulting group that is part of the Greater New York Hospital Association.

Here, Dr. Vladeck talks about his time as CMS administrator, why he thinks fee-for-service is not as problematic as some make it out to be and what he would do if he were a hospital executive today.

Question: I think a good place to start is your time as the administrator of the Healthcare Financing Administration, now known as CMS. You served from 1993 to 1997 under former President Bill Clinton, a period of time that similarly was undergoing massive changes to healthcare. Can you talk about some of your policies, things you were proud to have accomplished, things you regret?

Bruce Vladeck, PhD, was the former administrator of CMS.Dr. Bruce Vladeck: I remember being interviewed by Bob Pear of the New York Times in the summer of 1996 before the end of [President Clinton's] first term. He asked what my biggest accomplishment was. Without hesitation, I said, "We still have a Medicaid program." He said what do you mean? The so-called "Contract with America" Congress in 1995 voted to turn Medicaid into a block grant program and to essentially privatize Medicare. President Clinton vetoed the legislation, which led to two government shutdowns. The basic structural integrity of both programs was protected, but a large part of our energies in 1995 and 1996 were devoted to playing defense.

Nonetheless, we were able to accomplish a number of important things. We approved a number of major statewide Medicaid 1115 demonstrations that made a significant difference in expanding insurance coverage. In the case of Massachusetts and to some extent Los Angeles County, those waivers became the backbone of health reform. "Romneycare" was basically an extension of a Medicaid 1115 waiver. So that was pretty important.

Another thing that is more subtle, but of which I am very proud, was that we were able to refocus the agency around beneficiaries, a perspective that had sort of gotten lost over the years. I insisted that we infuse the beneficiary perspective into everything we did.

Q: You have also had a big role with hospitals during your professional career. You served as a professor of health policy and geriatrics and senior vice president for policy at Mount Sinai Medical Center in New York City. Can you talk about your time there?

When I left the government, Mount Sinai Medical Center recruited me. I wanted to go back to New York. My family was all packed and ready to go back to New York. Mount Sinai primarily wanted to build a research/policy center around Medicare, but I didn't want to be a full-time academic. I wanted some role in running the delivery system as well. So [Mount Sinai] created this position, and I ended up doing a lot of different things during the time I was there.

One of more interesting and rewarding activities was working on the medical school's affiliation with the New York City Health and Hospitals Corporation. Mount Sinai provides medical staff at Elmhurst Hospital Center and Queens Hospital Center, and I was given a supervisory role in management of the affiliations. That was an excellent experience, and I tell people Elmhurst may be the best public hospital in the United States. That was a lot of fun.

Q: Last May, you and three other former CMS administrators — Gail Wilensky, PhD (served as CMS administrator from 1990-92), Thomas Scully (2001-03) and Mark McClellan, MD, PhD (2004-06) — appeared before the Senate Finance Committee. You all had an in-depth discussion on how to try and fix the sustainable growth rate, which is the formula used to determine Medicare payments to physicians. How did the meeting go? And what are your thoughts on the topic?

I think we found that although we actually disagree on a lot of stuff, on some things, we had more agreement than we expected. After the hearing, Sen. Baucus (D-Mont.) came up to us and asked if each of us would write him a letter on what the committee ought to do about the SGR. We all said yes, of course. As the deadline neared, Mark McClellan emailed the rest of us and said there may be more consensus around this stuff than we would've thought. Let's do a joint letter. So we did both a joint letter and each added our own views.

The basic tenets of the joint letter were that we had to get rid of the SGR: We had to experiment with moving away from — and this is a place we differed — classic fee-for-service to different kinds of models. Mark, to some extent, was more enthusiastic about bundled payment models. I think Gail and Tom really thought everything was a transition to capitation. We all agreed there are ways CMS can more effectively tap into various kinds of bundles that emerge from the physician community.

On the budgetary side, I was more radical than my colleagues. As far as I'm concerned, the issue of "paying for" fixing the SGR makes sense only in the alternate reality, Never Never Land of the federal budget process. The rational thing to do would be to say, "Oops, we made a mistake. The SGR doesn't work, so let's abolish it." Doing so would have no practical impact whatsoever on the economy or the overall government, but it's been prevented by ridiculous budgetary conventions.

I also disagree with my fellow former administrators on fee-for-service. I think it's going to be around for a long time. Even capitated health plans use FFS as a basis for paying their physicians. RVUs are the only measure we have of physician productivity. Even if you did away with FFS, you need the whole infrastructure to run another mechanism. If you look at some of the richer countries in Western Europe, they cover everyone and provide pretty high-quality care. A lot of them still pay physicians with FFS — and it seems to be fine. I don't think [FFS] is the big evil people make it out to be. On the other hand, I think there are a number of serious, unresolved problems with capitation.

The third point I made was we ought to just acknowledge that the Medicare fee schedule can never adequately address the problem of supporting physicians in rural communities. Even if you abolish the SGR and redress some of the imbalance between primary care and specialty physician payments, there's still almost no way a physician practicing in a rural community can make a living on Medicare payments. You don't have enough people in rural communities to have more than one to two clinicians in a practice. There's no way within the confines of a rational, normal physician payment system in which you can generate enough income as a solo or two-person practice in one of those communities to support a decent medical practice. So Medicare for practical purposes has to pay a different amount, defined by size of community.

Arithmetically, you can figure out pretty well what kind of gross total revenues you need in this day and age to support a practice after you pay for IT and care coordination, not to mention basic office staff. We have data on that. You can do the math and say communities below size X or Y, Medicare will make up the difference.  

The point is, we're never going to sort out problems by fiddling around edges of the fee schedule. How do we keep physicians in communities where a lot of Medicare beneficiaries live? The rural population, on average, is older than urban or suburban populations. We have to find a way to subsidize that.

Q: That leads to some of the bigger questions. How would you fix Medicare and Medicaid right now, and what are some of the biggest issues? What are the challenges?

The real question is what needs to be fixed. People who fundamentally hate the programs have defined the notion of a "Medicare crisis," but I'm not sure what the crisis is. We have 80 million Americans, give or take, at or below 133 percent of the federal poverty level. We have 50 million Americans who overlap with that group who are 65 or older or are permanently disabled. We have two health insurance programs that serve those folks which, on a per-beneficiary basis, given the health status of those people, are actually inexpensive. In the case of Medicare, we also already require very substantial out-of-pocket payments from beneficiaries. All of those things are true.

It's also true to say that an overwhelming majority of Medicare and Medicaid beneficiaries have no other way of getting healthcare except through those programs. So unless you're going to adopt the position that we should just let those "takers" go without medical care, you have to put more money into these programs.

I can identify maybe 140 particular things in Medicare and 35 things in Medicaid I'd like to fix, starting with the SGR. We could go all afternoon, but that's the conversation we really need to have. But the Washington conversation is: "We can't afford these programs." I say, as opposed to what? What's the alternative?

Q: If you were a hospital CEO right now, what would be the primary objectives on your agenda this year?

I would have two, which are not mutually exclusive. First is cutting costs. All the best hospital and health system managers I know have recognized that they can no longer generate enough revenue from commercial payors to subsidize losses on Medicare, and so they've set budget targets of breaking even on Medicare. That's often 7 or 8 percent below where they are now, and they know they won't be able to get there right away. But they also know that it's the right target, and it's attainable. They think they've been busy cutting costs for years, but they know we've only begun to scratch the surface and that if you look at industries that have really been under pressure, like automobiles, a lot more can be accomplished.

Second, I would continue to work to figure out the relationships and mechanisms through which management and the medical staff can really jointly provide clinical services, first inside the hospitals — get that right first — then in preadmissions, 30-day post-admission. Once we figured out how to do that better, then I would talk about all the healthcare needs of a defined population. Start close to home, then build out.

The most positive evolution in healthcare in my lifetime is the breakdown of the wall between what hospitals do and physicians do — but we have a long way to go, and most people are working on it.

More Articles on Healthcare Leadership:

Former HHS Secretary Dr. Donna Shalala: From Academia to the Healthcare Battleground
Values Drive Everything: Q&A With Bridgeport Hospital CEO William Jennings
Where Medicare Stands: A Discussion With Dr. Oliver Fein of Weill Cornell Medical College

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