Much of the burden of implementing the newly passed health reform legislation will fall on the Centers for Medicare and Medicaid Services. The agency must handle this task while continuing to perform its already daunting duties involving Medicare, Medicaid, the State Children’s Health Insurance Program, and many other functions.

How well equipped is the agency to handle all of this? To discuss this and other issues, we convened a Health Affairs Blog Roundtable consisting of four people intimately familiar with CMS and the challenges it faces: Robert Berenson, senior fellow, Urban Institute, who was in charge of Medicare payment policy and managed care contracting at the Health Care Financing Administration (as CMS was previously known) from 1998 to 2000; Thomas Scully, senior counsel, Alston & Byrd, and administrator of CMS from 2001 to 2004; Bruce Vladeck, senior adviser, Nexera Inc., and HCFA administrator from 1992 to 1997; and Gail Wilensky, senior fellow, Project HOPE, and HCFA administrator from 1990 to 1992. Health Affairs Founding Editor John Iglehart and I moderated the discussion.

This post provides some of the highlights from the Roundtable. You can listen to a recording of the entire Roundtable, and a complete transcript is also available. You can also read an earlier Health Affairs Blog Roundtable about CMS involving Berenson, Vladeck, Wilensky, and Kerry Weems, who ran CMS on an acting basis for President George W. Bush.

Has the new millennium improved things for CMS? To begin the conversation, Iglehart read from an open letter by leading members of the health policy community published in 1999 by Health Affairs: “The signatories to this statement believe that many of the difficulties that threaten to cripple the Health Care Financing Administration (HCFA) stem from an unwillingness of both Congress and the Clinton administration to provide the agency the resources and administrative flexibility necessary to carry out its mammoth assignment,” the letter began. Iglehart asked whether things have gotten better since then.

The general answer was no. Given the importance that the Obama administration has attached to health care, the administration’s failure to nominate a new CMS administrator is “mind-boggling” and “almost incomprehensible,” Vladeck said. CMS spends roughly double what the Defense Department does, Scully pointed out: “Imagine if somebody went two years without a Secretary of Defense.” He lamented the speculation that the confirmation of Don Berwick, who is expected to be Obama’s nominee, will entail an extended political fight, observing that “95 percent of this job is not, in my opinion, political.” Wilensky and Vladeck noted that other important health policy posts also remain vacant, such as the general counsel at the Department of Health and Human Services and the Assistant Secretary of Defense for Health Affairs.

Wilensky noted that, over the last decade, CMS has lost a number of valuable experienced staffers, in large part because of the stress created by the mismatch between the agency’s resources and its responsibilities. She said the billion dollars that the new law gives to CMS for implementation “is better than not having money, but in no way makes up for the slights that the agency has received.”

Berenson recalled that CMS received extra money to implement the Medicare Modernization Act in 2003, “but it went away.” The money to implement health reform “is not an ongoing increase in resources, it’s to do one-time implementation, and what the agency’s being asked to do isn’t going to disappear after a couple of years,” he said. He also noted rumors that the $10 billion over ten years provided for the new Center for Medicare and Medicaid Innovation will be raided “to support vitally important functions which simply aren’t being done.” This would “shortchange what really is one of the most important parts of this legislation: figuring out new organizational models and new payment systems to move the whole health care system.”

Why is CMS chronically underfunded? One big reason, Wilensky said, is that the agency’s entitlement spending is controlled by the Senate Finance and House Ways and Means Committees, while its administrative budget is controlled by the House and Senate Appropriations Committees. Scully agreed: Finance and Ways and Means “create all the policy mandates and the new programs, but they have no control over the funding,” he observed. The appropriators, in contrast, “are somewhat disconnected from the realities of running Medicare and Medicaid, so it’s just not a priority for them”; they’re “more interested in building bridges and funding AIDS research and funding [the National Institutes of Health].”

Vladeck noted that CMS’s administrative funding suffers not just in Congress but also within the Department of Health and Human Services: “How can you compete with curing cancer, or preventing epidemics at CDC,” or catering “to a variety of constituency groups, which is most of what the rest of the department does?” Iglehart recounted an interview he did last year with Kerry Weems, in which Weems, a former budget official at HHS, said he knew HHS as well as Congress was a problem for CMS administrative funding because “I was the problem.” The only solution, Vladeck argued, “is to fund CMS administration the way you fund Social Security administration,” which is “a direct draw on the trust fund, capped and overseen by the Congress.”

There was general agreement among the Roundtable participants that the HHS bureaucracy can pose significant obstacles for the CMS administrator. Vladeck recounted irritation at being told by an HHS staffer that “my job is to protect the secretary,” as if Vladeck’s job was to harm the secretary. Scully observed: “Ninety-five percent of the [HHS] money is at CMS, so half of these people in these other jobs … their view and their job and their mission is to second-guess every thing CMS does.” HHS Secretary Tommy Thompson cleared away the bureaucratic obstacles when he ran CMS, Scully added, but those obstacles reappeared in the six months between his departure and Mark McClellan’s arrival at the agency.

Who were the big winners and losers in health reform? “The taxpayers had a rough year,” said Scully. “High-income taxpayers,” added Wilensky.

“It’s hard to make the case that any component of the provider community got very seriously hurt,” said Vladeck. “If you use as the baseline for analysis … what likely would have happened in the absence of health reform, then I think large parts of the health care community got away easy.” But he warned that “we are going to see … if we ever do get a coherent deficit reduction plan” that “this process isn’t over in terms of reducing the amount of money going into certain segments of the industry or increasing the amount that is taken out.”

Wilensky said winners and loser would become clearer when “we see a lot more specifics. … It really depends on what happens with Medicaid rates—that’s half the increase of the insured—and how the negotiated plans and the exchanges are structured, and at what rates. It could be that the provider community in general receives substantial benefits because of the increased number of insured people; it could be that it is much more limited.”

“The bottom line is that … it was really not a restructuring or reform bill; it’s a universal coverage bill, which I happen to think morally may be the right thing to do,” Scully opined. Health reform legislation added a trillion dollars of spending over the next decade, of which $600 billion comes from outside the health care system, he pointed out.  “It’s hard to find losers when you [inject] a bunch of money from the rest of the economy into health care, and even the health care cuts are cuts in things like Medicare Advantage, which are arguably overpaid, and the cuts aren’t unreasonable, and the other provider cuts are by historical measures pretty minimal.”

The biggest winners in health reform are probably hospitals, with the possible exception of inner-city hospitals, Scully said. Hospitals currently get $45 billion a year in subsidies to pay for the care of indigent patients. Under health reform, over the next ten years, about 70–80 percent of these patients will obtain health insurance, but only about 15 percent of the existing subsidies will go away, he explained.

Reforming the delivery system. Berenson agreed with Scully that hospitals came out winners: “Hospitals were inside the tent very early on, negotiated a decrease in their Medicare updates that they figured out was acceptable, and now are off limits until 2020 from the new board that is supposed to hit Medicare spending targets.” In the long run, he added, if we are really serious about reforming the delivery system, hospitals “have to somehow go from being major profit centers to major cost centers, yet it looks like with this legislation they are protected at least for the next decade in their basic business model, which may not be one that we can afford.”

Wilensky said she was concerned about “so many of the models appearing to give hospitals the money in the bundling arrangements described for the pilots. It certainly is worthwhile to see what happens in those kinds of pilots, but to the extent that many of the delivery system changes are likely to result in less use of hospitals … it’s not clear to me that primarily or only focusing on the hospital as a recipient of the payment is going to give us much insight into future delivery models. I am hopeful that we will see more innovation in the pilots than is at least suggested at first glance.”

Vladeck expressed understanding of Wilensky’s concern, but he added: “Every time I get depressed over the logic of some of the mandatory initiatives in so-called payment reform legislation, I remember that for the first time really since the early 1980s, CMS is going to have the resources to essentially do non-congressionally mandated experimentation and program development. Historically, that’s where important changes in the Medicare program and arguably in large parts of the health care system have come from. DRGs [diagnostic-related groups] were not a congressional mandate; the hospice benefit was not a congressional mandate; PACE [Program of All-Inclusive Care for the Elderly] was not a congressional mandate—a lot of the quality stuff was not a congressional mandate.”     

What would Don Berwick bring to CMS? Don’s “particular expertise … would be thinking about how to have new forms of organization and delivery,” Berenson said. “That’s another reason, if he is going to be the nominee, to get him in there right away, because one of the first and most important activities that CMS has to attend to is the Center for Medicare and Medicaid innovation.” Berwick should be at CMS to determine who should head this center and to develop its strategic plan, Berenson argued: “If he’s coming, he should arrive.”

Vladeck cautioned that “anyone who has the illusion that the administrator of CMS is going to reshape the health care system is in the wrong line of work. You can push it a little around the edges, you can establish some priorities, but even health care reform … is not going reshape anything this large and this complex and this decentralized.” Scully said that the CMS administrator should view his entire budget—not just the $10 billion over ten years earmarked for the Innovation Center—as a chance to reform the health care system: “If you’re the CMS administrator, you’ve got $400 billion dollars to drive behavior, and you have to think of it that way.” As an example, he cited legislation during his tenure that reduced payments to hospitals that did not provide quality data. “That’s a whole lot more than $10 billion, and it makes hospitals jump a lot faster,” he said.