As the associate director for health and personnel of the White House's Office of Management and Budget since April 1998, Daniel Mendelson is one of the Clinton administration's top health officials.
At 34, Mendelson is a rising star in healthcare. He came to the White House from the Fairfax, Va.-based Lewin Group consulting firm, where he was senior vice president.
The following interview with Mendelson was conducted by MODERN HEALTHCARE Washington bureau chief Eric Weissenstein as the Clinton administration was putting the final touches on its fiscal 2000 budget. Among the plan's health initiatives are tax credits for long-term care, allowing early retirees to buy into Medicare and reimbursement cuts for hospitals.
Q. Are you working under the assumption that there will be a budget reconciliation bill this year? (Such a measure reconciles differing spending bills. It also gives Congress a vehicle to make additional spending cuts or increases.)
A. Our budget doesn't assume a reconciliation bill. We couldn't really do that, logistically. But I anticipate there probably will be one . . . . I think it will definitely touch on Social Security and Medicare as well.
Q. What part do you see the National Bipartisan Commission on the Future of Medicare having in this year's agenda?
A. I think the planning of a potential reconciliation bill means that they (the commission) truly have a historic opportunity, and they have to choose what they're going to do with it. If they came out with bipartisan, workable recommendations, I can see it being an incredibly productive exercise because of the fact that there is likely to be some type of a movement on Social Security. And if you look back historically, when there's work on Social Security, there's work on Medicare, too.
Q. The (bipartisan commission) is considering moving the Medicare program toward a defined contribution plan, which it calls "premium support." What are your impressions of that proposal?
A. We've looked at it, but we haven't formulated a position one way or another. I think you'll see us have concerns about beneficiary protection, about the structural integrity of the program, about the longevity of the program.
Q. If Congress does reopen the 1997 Balanced Budget Act this year, how concerned are you that special interests will try to undo many of the changes?
A. We're concerned about that. The experience of the (budget act) shows that there will be a lot of concern, particularly by provider groups that have strong constituencies. But I'm pretty confident that the fundamentals of the act will survive, primarily because of the expense of reversing them. But also because the way that the market is progressing, with hospital profit margins at an all-time high, and with physician salaries at all-time highs, the market fundamentals that drove (the budget act) are only stronger now.
Q. Won't everyone be looking to the changes made last year to Medicare home health policy to justify their own changes?
A. Home health was an entirely different kind of story. They made a case that the (budget act) overreached and was fundamentally affecting the industry structure. I don't think the hospital industry could do that (make a case that the budget act overreached) right now.
Q. Hospital groups say the high Medicare inpatient margins don't really tell the whole story of hospitals' financial situation.
A. I think there is incontrovertible evidence that the Medicare margins are at 16%. We need to think seriously about our responsibility to the beneficiaries and to the longevity of the program when faced with that type of a statistic. I respect the needs of the hospitals to make their case, and I'm sure they will make it very effectively. But the American Hospital Association also acknowledged that we probably have about 30% more beds than we need in this country. Should Medicare be picking up the tab for that? It's not right.
Q. Congress seems to have a love-hate relationship right now with the Medicare+Choice program. How committed to Medicare+Choice are you?
A. We're completely committed to it. It's one of the most important aspects of the Medicare plan. We need to figure out how to get managed care into the panel of what's available to beneficiaries. It's important for choice, it's important for cost reasons, and it's certainly important ultimately for measures of clinical quality. We had some real bumps this year with plans leaving, but I consider them bumps. There will always be turnover in the market because it's changing so rapidly. Then again there will also be strategic positioning relative to the program. Providers will always try to work the program so they can improve the reimbursement situation.
Q. Do you think there is enough money in the Medicare+Choice program?
A. I really struggle with that question. The second question is, how is the money distributed? If you look at overall resourcing, it's clear that there are distortions in the payment system. In some areas they are getting a much better incentive to provide services than others. This is not a problem that we are going to actively take on right now, but we would like to work with Congress in addressing those concerns. It becomes a distributional fight but I think one that is important for the integrity of the program. As far as the overall level of resources is concerned, I think it would be difficult to make the case that we should be cutting money. But on the other hand I looked in detail at some of the areas where people were dropping out, and in some instances the reimbursement was really very fair, and I don't think that is what accounted for their behavior. It's a complicated situation.
Q. The budget law of 1997 raised the level of payments in rural areas, but that doesn't seem to have helped. Can that problem be solved by more money, or is the structure not there?
A. We're looking at that actively right now. We're very concerned about the lack of access in rural areas. A lot of it is just the fact that we can't get networks there because there just aren't enough people. We can't solve that problem. Then there are other areas, particularly semi-rural areas . . . where we think we might be able to do some kinds of interventions that would make it easier for plans to develop. If you just put more money into those areas, you're not going to get people to go to those areas. The start-up costs are just so high. We have to find a way to overcome this huge hurdle.
Q. What do you think are the biggest challenges to HMOs?
A. The biggest challenge to HMOs is to restore public confidence. If you look back historically to the HMO model and how it started, there was a real focus on providing best care and best practices, providing preventive care, providing access to physicians, providing access to pharmaceuticals. In many ways it was cast as a social reform, as opposed to a profit-making, entity.
What's happened over time is that people have come to mistrust HMOs and to really question their fundamental motives. They've really been cast as profit-seeking companies, and the HMOs have not done a lot to prevent that perception from proliferating. I think that what they need to really do is focus back on who they are and what they do.
The second thing is, there needs to be a renewed focus on clinical quality. The clinical quality argument is the most compelling reason to be in an HMO because HMOs enable the integration of services in the way fee-for-service plans could never do.
Q. And what about the challenges for hospitals?
A. For hospitals, excess capacity is the biggest challenge-also, continuing what hospitals have begun to do already, which is to refocus on outpatient services . . . . Reimbursement might be a problem for some hospitals, but I think you can't talk about reimbursement in isolation; you have to link that back to capacity.
Q. Data from the federal Medicare Payment Advisory Commission show that hospitals have done an incredible job of cutting costs. How much fat do you think there still is in the system?
A. I've been so impressed with the ability of hospitals to reconceptualize whole systems. You go into some hospitals and you just see what they are doing with staffing, beds, technical services, computerization. I don't see any reason most hospitals can't continue to achieve more efficiencies.
Q. What would you like to accomplish within the Office of Management and Budget over the next two or three years?
A. Some of my major objectives are more organizational in nature. I would like to see the emergence of a center for health information technology within HHS. Right now health information technology is diffused within a lot of different parts of HHS, some in HCFA, some in (the Agency for Health Care Policy and Research), some in (the office of the assistant secretary for planning and evaluation) and in (the National Institutes of Health). I'd also like to help bring clinical quality to the (federal health) programs. There are a variety of initiatives in the private sector, ranging from asthma disease management to technology assessment, that are just critical for the operation of insurance programs, and we aren't fully exploiting them in the public sector. There are also a variety of programs critical to the health and well-being of hospitals and HMOs in the public health sector, like community health centers and preventive care.
Q. So you will continue to move in an incremental way rather than through broad reform?
A. This administration proposed reshaping the health system in a comprehensive way. And most people in the administration still believe addressing (the uninsured problem) can only happen in the context of broad reform. But we're not going to go there.