The Administration of Medicare: A Neglected Issue

I. Introduction: Medicare and the Vending Machine Model of GovernmentA review of the literature concerning Medicare reveals attention to important issues like the funding of the program, proposed new areas of coverage such as prescription drugs, the impact of demographics on the program, and possible new ways to pay providers. With exceptions such as reports by the General Accounting Office (GAO) and a recent study by a panel of the National Academy of Social Insurance (NASI), analysts and scholars have not devoted the same level of attention to studying the administration of Medicare and the implications of administration for the success of the program.1It is time to focus on the administration of Medicare. This Article contends that Medicare's administration is both weak and in serious decline.2 Weak administration does not bode well for a program as large and complex as Medicare, which seeks to pay almost $250 billion annually in claims for medical services provided to about forty million beneficiaries.3 Weak administration presents even more of a problem given the substantially increased demands that the program will face as the baby boom generation retires and becomes eligible for Medicare.Many of Medicare's administrative shortcomings result from a significant disparity between its responsibilities and resources, both in personnel and dollars. At the inception of the Medicare program, providers expressed apprehension about governmental intervention into health care.4 As a result, the government created a different structure for administering Medicare than for administering Social security. The Social security Administration (SSA), with an in-house staff of 63,000,5 processes Social security payments directly to over forty-five million beneficiaries according to a schedule of benefits that is easy to administer.6 By contrast, the Centers for Medicare and Medicaid Services (CMS), formerly the Health Care Financing Administration (HCFA),7 currently has an in-house staff of fewer than 5,000. CMS, however, must administer a much more complex set of payments for Medicare services for almost as many beneficiaries through numerous third parties that together employ another 22,500 people.8The gloomy assessment of the Medicare administration that this Article presents, however, must be tempered with recognition of the positive points. CMS regularly publishes its payment regulations on time and assures that about a million providers are paid on time for the 900 million claims that they file annually.9 This prompt payment is an impressive accomplishment, especially for an agency as small as CMS. Unlike some troubled agencies, CMS continues to have an unblemished record for the integrity of its officials. This is a base on which the agency can improve the administration of Medicare. Many of the problems besetting Medicare administration reflect the impact of external forces rather than insurmountable problems within CMS.The weakness in the administration of Medicare, and general inattention to that weakness except at a fairly high level of analysis, is puzzling. The forces that have weakened Medicare administration resemble those that also have weakened other areas of government. Yet, in contrast to many other government programs, Medicare benefits from the widespread support of an influential and well-organized constituency of beneficiaries.10 Medicare would seem to be one part of government where the political process would demand and achieve effective administration.For Medicare, the need for effective administration is especially important because of the pressures caused by increasing health care costs. Congress has tightened limits on Medicare payments to the point that some providers are limiting or ending their participation in the program. As a result, the benefits of an effective payments system could be immense. Malcolm Sparrow, a Healthcare fraud expert, estimates that the Medicare program is losing fifty to seventy-five billion dollars annually to fraud. …