Medicare’s Fatal Weakness: Expensive New Technologies are Rationed, by Edmund F. Haislmaier

Recent news stories — such as the Washington Post’s “Medicare to Cover Cardiac Device,” which appeared at the time of the second Bush/Cheney Inauguration — illustrate both the achievements of American medicine and the failure of Medicare to deliver its benefits to senior citizens.

The device in question is called an “implantable cardioverter-defibrillator,” or ICD. It is a battery-powered, credit card-sized device implanted under the skin. It functions as a sophisticated, ‘intelligent’ pacemaker. It is, literally, a lifesaver for patients at risk of arrhythmia — the sudden onset of an irregular heartbeat that quickly produces cardiac arrest and death.

The coincidental irony is that Dick Cheney was around that Inauguration Day because several years ago he had an ICD implanted.

The first, simple pacemaker was implanted in 1958. Advances in materials and information technologies enabled medical device companies to make steady improvements so that, by 1985, the FDA approved the first implantable defibrillator and by 1989 the first cardioverter-defibrillator that could deliver a multi-stage shock therapy to correct heart rhythms. Since then, device companies have continued to innovate, simultaneously making ICDs more sophisticated and less costly.

But the story involving Medicare isn’t so positive. Medicare first agreed to pay for ICDs for a limited number of patients in 1986. But it was not until 1991, and then again in 1999, that Medicare further expanded its definition of ‘medical necessity’ to cover ICDs for more Medicare beneficiaries.

In the spring of 2002, armed with new clinical trial data from the New England Journal of Medicine, ICD makers asked Medicare to further expand coverage. A year later, Medicare’s Coverage Advisory Committee unanimously endorsed the expansion. By that time, private insurers were already paying for ICDs for patients with the same characteristics and the American Heart Association and the American College of Cardiology had already revised their treatment guidelines.

But not until June of 2003 did Medicare agree to a further coverage expansion, and then only to one-third of the recommended patient population. Only now is Medicare finally agreeing to the full ICD coverage criteria the private sector adopted two and a half years ago.

In announcing plans to expand coverage for IDCs, Medicare touted that it expects 25,000 more patients will receive IDCs in 2005, “potentially saving up to 2,500 lives.” Thus, we may infer that Medicare’s foot-dragging, bureaucratic coverage process probably resulted in the avoidable deaths of between 5,000 and 10,000 Medicare patients over the past two and a half years.

A big reason for Medicare’s foot-dragging on IDCs is cost. At about $30,000 for the device and the surgery, the expense of expanding coverage will quickly reach billions. Yet, while Medicare dawdled, the private sector continued to innovate. In May of 2003, the FDA approved yet another new ICD costing about $10,000, or half as much as earlier models.

The hard truth is that, like national health systems abroad, Medicare saves money by limiting the availability of life-saving care. This deadly delay is the program’s default response to advances in medical technology. (It is also a disturbing omen of the potential for drug rationing once Medicare begins paying for prescriptions next year.)

The inevitable political calculus of any government health program, even one for the elderly, is that at a relatively modest cost per person it can provide “free” care to the vast majority of its beneficiaries. The savings come from spending less on the few who need substantial or expensive treatment — and dead patients are a two-fer. Not treating them means the program not only saves money today, but also doesn’t spend money on them in the future.

Instead of expanding Medicare to cover all Americans, as Senator Ted Kennedy (D-MA) called for on January 12, Congress should accelerate and expand the small, patient-centered Medicare reforms it enacted in 2003. Under those reforms, Medicare would subsidize, but not directly provide, health insurance. Beneficiaries would pick, from an approved list, the private plan they prefer and use their Medicare subsidy to pay for it.

Unlike Medicare, those private plans would lose market share if they didn’t quickly cover new, proven treatments.

The model is the Federal Employer Health Benefits Program, which has operated this way longer than Medicare’s existence, and provides better coverage at lower cost than Medicare for 9 million federal workers, retirees and their dependents. Among those it covers: a 74 year-old Massachusetts Senator, a 65-year-old Vice President with an ICD and my 79-year-old mother.

Oh, and Mom is one of 300,000 retirees who, under the old Civil Service System, are covered only by FEHBP and not by Medicare. You couldn’t pay her to switch to Medicare. Says something, doesn’t it?

Edmund F. Haislmaier is a member of the board of directors of The National Center for Public Policy Research.

The National Center for Public Policy Research is a communications and research foundation supportive of a strong national defense and dedicated to providing free market solutions to today’s public policy problems. We believe that the principles of a free market, individual liberty and personal responsibility provide the greatest hope for meeting the challenges facing America in the 21st century.