The Dilemma of Medicare Coverage of "Reasonable and Necessary" Care and Why It's Important

If you get sick, health insurance should cover all the “stuff” necessary to make you better, right?

While that sounds good in principle, Uncle Sam has made it a lot more complicated than that.  As we continue to struggle with health reform, this New England Journal article on “Medicare’s Enduring Struggle to Define Reasonable and Necessary Care” is very timely.

According to Drs. Neumann and Chambers, Medicare has always covered medical services that are “reasonable and necessary.” As new approaches, drugs and medical technologies have been released, you’d think coverage would be based on an objective analysis of outcomes and cost effectiveness.

You’d be wrong.

Years of differing interpretations, patient advocacy, Congressional meddling, regulatory carve-outs and case law have generated a miasma of bureaucratic complexity that will guarantee the incomes of thousands of lawyers for years to come.

Not that CMS hasn’t tried to be reasonable about “reasonable and necessary.” According to the article, in 1989 CMS specifically proposed that the words “cost effective” could be used to assess new technology. That proved too controversial. It later tried “least costly alternative language” for coverage of durable medical equipment and Part B medications.  This too was dismantled by the courts when plaintiffs argued that the term “reasonable and necessary” could only be applied to medical services, not to the costs of those services.

How ironic. Even though CMS is making “value-based purchasing” judgements for hospital payments and costs can be factored in the coverage of preventive services, that still doesn’t apply to new technologies and drugs.

The latest dysfunction is CMS’ pretzel logic of “coverage with evidence  development” approach to medical devices, essentially agreeing to coverage that is conditional on CMS’ evaluation of additional outcomes data.  Unfortunately, CMS’ ability to collect and interpret these kinds of data in the current political environment remains an open question.

Outside of Medicare’s cost travails, why is all of this important?

1) Medicare’s price tag was $509 billion in 2010, taking 12% of the federal budget. While there are other drivers of cost, such as aging, coverage arrangements, income, pricing, administrative costs and defensive medicine, technology could account from 38% to more than 65% of the current growth (inflation) in spending.  Medicare’s historic inability to control this does not bode well for future cost projections.

2) This is not a partisan issue and there are no partisan solutions.

3) Commercial insurers generally use Medicare’s coverage criteria to define their own benefit structure.  Medicare’s problems are everyone else’s.

4) This is another reason why Medicare is banking on ACOs.  By delegating management and the associated risk of all these thorny coverage issues, they’re hoping ACOs can do within three years what CMS couldn’t do in three decades. We’ll see.