A crime story from Medicare Part B.

Abstract

Prologue: Medicare's Part B program has become the latest lightning rod for health policymakers who are concerned over the rising cost of medical care. In fiscal year 1987, Medicare Part B, the bulk of which is physicians' services, cost $30.8 billion, an increase of 17.5 percent over the previous year, making it one of the fastestgrowing federal social programs. About 75 percent of Part B expenditures derive from general revenues; as a consequence, their rapid rise has attracted far closer congressional scrutiny than several years ago. The remainder of the program is financed through the monthly premiums paid by Medicare's thirty-two million beneficiaries. To partially cover the program's rapidly rising cost, the Health Care Financing Administration (HCFA) increased the 1989 monthly premium 12.5 percent from the previous year to $27.90. Beginning in 1989, Medicare's beneficiaries also will pay an additional $4 to cover the costs of the program's new catastrophic benefit, for a combined monthly total of $31.90. Medicare's Part B premium has increased at an erratic rate over the years. When HCFA announced a 38 percent increase in the monthly premium in September 1987, the congressional reaction was immediate and sharp. In this essay, Peter McMenamin, an independent economic consultant and a recognized specialist in physician reimbursement research, investigates the mysterious course of Medicare's Part B premium. McMenamin, who holds a doctorate in economics from the University of California, Berkeley, directed HCFA's physician reimbursement research branch from 1979 to 1983. He was a senior research economist in 1983-1984 for Mathematica Policy Research, where he participated in the development of the initial plans to evaluate Medicare's competition demonstrations. Employing his computer and his hunches, McMenamin develops many leads to uncovering the Part B premium mystery, but he fingers no one suspect. Along the way, he sheds light on the complications of Part B and suggests that the high cost of care and its increasing volume will continue into the indefinite future.