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Notwithstanding what Congress wrote in , the Medicare and Medicaid Programs have enormous influence over the practice of medicine. The evolution of medical care, its financing, and the expectations of the American population for high-quality care and rational use of public funds have linked, irreversibly, CMS to clinical medicine.

As with other payers, CMS must answer to both the beneficiaries it serves and the investors taxpayers ; in addition, CMS must address the concerns of an array of political constituents, including Congress, presidential administrations, and groups representing the health care industry. To balance these competing interests and pursue evolving policy goals, CMS has had no choice but to become engaged in the practice of medicine and the delivery of health care services.

Now, 40 years into the life of Medicare and Medicaid, we reflect on how clinical medicine has become intertwined with CMS by highlighting four key policy areas that illustrate this changing relationship: 1 the end-stage renal disease ESRD program, 2 the quality improvement organizations and the effectiveness initiative, 3 financing of graduate medical education, and 4 State Medicaid activities.

We discuss these policy initiatives, not as an exhaustive listing, but to demonstrate both the broad range of activities that CMS engages in and how those activities have evolved over time as CMS' influence over clinical medicine has increased. CMS' influence stems from both regulatory decisions by the policymakers in the agency and from legislative decisions made by the Congress. Both avenues of influence are important and are exemplified in this article. The article concludes with thoughts about the future of CMS' relationship with medical practice.

Organized medicine staunchly opposed the passage of Medicare, in part to keep government out of clinical medicine. The American Medical Association AMA , reversing its initial supportive stance, declared its opposition to compulsory health insurance in and in subsequent decades became a powerful lobby against enactment of universal health insurance and its political legacy, Medicare Oberlander, Precisely because of the opposition to national health insurance, political realities forced policymakers to focus on insuring the elderly and minimizing the regulatory role of Medicare in medical practice.

Without conceding to the AMA and limiting the program's regulatory authority, Federal policymakers would have found it much more difficult to gain the medical profession's cooperation in implementing Medicare. Yet this limitation on regulation became untenable within just 5 years of Medicare's introduction; since that time, Federal policymakers have become increasingly involved and influential in clinical medicine.

Because of the weakness of regulatory oversight and the use of unfettered fee-for-service payment in the program's early years, Medicare quickly proved to be a blank check for the health care industry. This payment structure was not unique to the Federal programs since private health insurance plans generally used similarly inflationary arrangements. Medicare's aim was to finance access for the elderly to mainstream medicine and, in , the mainstream of American medicine showed little concern for cost control or quality oversight.

Indeed, before the s, U. Physicians enjoyed virtually unchallenged clinical autonomy. The number of visits or lengths of hospital stays were generally not influenced by the payer; rather, they were determined at the discretion of physicians. This financing policy did not hold physicians or hospitals accountable for decisions made in patient care and no clear standard for over- or underutilization of health services existed.

Not surprisingly, then, the use of health services and expenditures skyrocketed in Medicare's and Medicaid's early years. As a result, policymakers' attention quickly turned to reforms that would reign in government spending on health care though decisive action was slower to take hold. Evidence suggests that Medicare and Medicaid successfully enhanced access to medical care for low-income and elderly Americans Davis and Schoen, But it is unclear whether the expansion of health care utilization in the first few years of Medicare and Medicaid could be attributed mostly to increasing access to and utilization of needed services or to unregulated overuse of health care.

Likewise, it is unclear whether Medicare and Medicaid predominantly increased use of inappropriate health care services or, instead, increased, in substantial amounts, both appropriate and inappropriate use. If the latter, one could not argue that Medicare and Medicaid actually changed the practice of clinical medicine, but rather that the programs simply expanded its availability. Regardless, subsequent policy decisions changed the course of Medicare and Medicaid and undoubtedly influenced medical practice.

We turn now to four policy areas that exemplify CMS' evolving relationship with clinical medicine. The medical procedure enabling chronic hemodialysis was invented in and pressure soon grew for Federal funding to insure access to the life-saving treatment; the National Kidney Foundation and a small group of physician kidney specialists spearheaded the lobbying campaign.

Long advocated catastrophic health insurance as an alternative to comprehensive national health insurance, and saw ESRD as a demonstration of and prelude to a universal coverage system based on catastrophic insurance Nissenson and Rettig, ; Schreiner, ; and Oberlander, When national health insurance, through catastrophic coverage or any other model, failed to materialize, ESRD remained in Medicare as the Federal Government's only universal, disease-specific coverage program.

ESRD's contribution to health care is obvious: the program has clearly saved hundreds of thousands of lives. With the rapid increase in the prevalence of type II diabetes and the aging of the population, the annual number of new patients entering the ESRD program is expected to increase from , in to , in Collins et al.

Beyond the effect of initiating coverage for ESRD, program developments reveal the close relationship between Medicare and what actually happens in the clinical care of patients on dialysis. Early in the experience of the ESRD program, administrators realized the potential high costs of the program and began to design strategies to contain those costs. For example, outpatient dialysis has been capitated since , and CMS has included more and more services within the capitated payment Nissenson and Rettig, As such, dialysis centers have had to become more efficient over time and have used such cost-saving techniques as reusing dialysis filters and using less well trained technicians to administer dialysis National Kidney Foundation, Although these steps have been frequently debated, dialysis filter reuse does not appear to increase the risk of adverse outcomes Port et al.

As payment to dialysis centers over time has stayed level or decreased, the importance of ongoing quality monitoring of dialysis care has increased Institute of Medicine Committee for the Study of the Medicare End-Stage Renal Disease Program, Another example of CMS' effect on clinical medicine was the decision to deny payment for erythropoietin EPO if a patient's hematocrit was greater than EPO is a naturally occurring protein produced by the kidneys that triggers the production of red blood cells; it improves survival and quality of life among dialysis patients Eschbach, Target hematocrit for patients on dialysis is 33 to 36, so it was thought reasonable to stop administration of EPO when the hematocrit was above this range.

However, the policy actually led to more frequent episodes of a hematocrit below 33 as physicians were concerned about reimbursement denial and more likely to withhold EPO therapy for patients in the higher range Berns et al. As such, many ESRD patients were not receiving optimal care for their disease. CMS subsequently changed the policy to a cut-point of Through these policies, CMS inserted itself into the patient-specific clinical decisions of physicians. This also illustrates how data and analysis can help to inform policy as CMS was able to increase the cut-point based on effectiveness studies Berns et al.

At the same time as they adjusted the payment rules for dialysis providers, CMS strengthened its oversight and management of dialysis providers and began to pay closer attention to the quality of care provided for ESRD patients.

In , Congress approved the creation of ESRD networks that served to collect data related to the care provided within the network and to initiate quality improvement Social Security Amendments of Public Law The networks meet at a national forum each year to share data and ideas for improving quality of care nationally. Additionally, the improvements made through the ESRD networks have reduced racial disparities in adequacy of hemodialysis Sehgal, By recognizing the relationship between financing and quality of care and then creating a framework for improvement, CMS has participated in improving the clinical care of hundreds of thousands of ESRD patients.

In light of skyrocketing costs in Medicare and Medicaid, as well as concerns over fraud and abuse, Congress decided by the early s that closer oversight of the medical care system was necessary. The concern was that excess budgetary costs were related to overuse of medical services, driven by uncontrolled financial incentive systems built into the original legislation.

These organizations reviewed health service use in an effort to improve the quality of care. Interestingly, the AMA involved itself in the development of the PSROs because they recognized the potential threat of such organizations to physicians' clinical autonomy Oberlander, In the end, Congress agreed with the AMA that physicians should perform the reviews, as they were uniquely suited for the role, but decided that State medical societies would not retain the right to provide this service Oberlander, In fact, PSROs were held accountable by Congress and their contracts could be terminated if they were not fulfilling their role adequately.

By the early s, continued frustration with rising program costs led to the development of new payment and monitoring systems that expanded CMS' regulatory authority and influence.

A key response to escalating costs was to change regulatory tools, both in terms of payment and clinical oversight. This change was spurred by congressional action in slowing Medicare spending in the context of rising budget deficits. The prospective payment system PPS , enacted by Congress in , sought to control hospitalization costs by paying hospitals a fixed rate based on the patient's diagnosis during admission payment was based on diagnosis-related groups Social Security Amendments of Public Law Prior to prospective payment, hospitals and physicians did not have strong financial incentives to provide efficient care.

By implementing this strategy, CMS attempted to relate clinical compensation to the resources needed for patient care. The PPS provided a strong incentive for hospitals to provide fewer services during an admission and shorten the length of stay. The role of CMS as regulatory agency became even more important: it had to monitor for both overuse and underuse of appropriate medical care.

Structurally, the PROs differed in that they were consolidated into State level regions. Functionally, they still relied on retrospective review of cases and, consequently, delayed education or correction of outlying providers.

Physicians often maintained an adversarial relationship with the PROs. Nor did the PROs offer much in the way of tangible results: they did not achieve substantial cost savings or quality improvements Oberlander, The most important paradigm shift in Federal policy regarding quality of care began in the contract period starting in Taking advantage of quality improvement knowledge from other industries, CMS charged the PROs to develop prospective quality improvement initiatives.

This model required a change in the relationship between PROs and the physicians and hospitals they served. The PROs had to develop a cooperative relationship and move away from an adversarial culture Bradley et al. The idea was to focus on process improvement and systems based thinking rather than isolating unusual errors Jencks and Wilensky, In , better reflecting the evolution of their mission, the PROs were renamed as quality improvement organizations QIOs.

Recent studies have come to differing conclusions regarding the effectiveness of QIOs at improving care Jencks, Huff, and Cuerdon, ; Snyder and Anderson, ; Gaul, ; Bradley et al. The question of QIO effectiveness has remained elusive because of the difficulty of conducting rigorous studies that demonstrate cause and effect Jencks, Huff, and Cuerdon, ; Snyder and Anderson, QIOs clearly give CMS an important tool to influence quality outcomes, and ongoing evaluation of their effectiveness and improvement of that effectiveness is warranted.

In , CMS launched the effectiveness initiative to evaluate and improve the practice of medicine Roper et al. Because of the enormous potential for the use of data from large populations to study medical effectiveness, CMS committed itself to refining its data system and to linking with clinical researchers to better understand and analyze the data. As a result, CMS could offer clearer information on the health outcomes achieved from health services in regular practice.

CMS has also used the effectiveness initiative to improve the work of the QIOs by helping to inform quality improvement through analysis and interpretation of outcomes data. Through understanding the effects of care and its variation, CMS was in a much better position to educate care providers on quality than it had been previously. Through activities like the effectiveness initiative and advances in data management, CMS can begin to address the enormous variation in care according to geography Wennberg, Fisher, and Skinner, Such variation, which is not associated with differences in outcomes, represents a tremendous opportunity for CMS to control costs.

By understanding the patterns of care that yield the best outcomes at the least cost, CMS can begin to use its influence to get physicians to adopt the most efficient models.

Although the process began as a regulatory model, it has evolved into a quality improvement function with the goal of changing how medicine is practiced. This reflects the evolution of Medicare administration from an initial charge of financing care to its current mission that incorporates concerns of improving the quality of care delivered to program beneficiaries as well as cost control.

As such, CMS helps to shape the quality and size of the workforce of future physicians. Additionally, CMS policy changes have substantial effects on the financial health of America's teaching hospitals. Before the s, Medicare allowed teaching hospitals to be reimbursed for their reasonable costs, including the cost of GME. In the early s, along with the PPS, Medicare began making direct and indirect medical education payments to teaching hospitals.

Direct medical education DME payments are intended to offset the actual cost of employing a resident. The indirect medical education IME payments offset the higher cost of care at teaching hospitals because of the higher technology, increased testing, and increased severity of illness. Contemporaneous with these payments, residency programs grew. The policy rationale for the indirect payments has been hotly debated, and many believe it should include compensation to hospitals for the greater severity of unmeasured case-mix associated with hospitals with teaching programs.

The number of residents nationally totaled 61, in and 98, in At the same time, Congress began to reign in the IME budget by substantially reducing the additional payment to teaching hospitals.

Congress has modified the formulas determining the levels of DME and IME support several times over the past decade, attempting to reduce any fiscal incentives to increase the number of training slots.

Additional reduction in slots reimbursed and further cuts in IME levels have been considered; such possibilities raise great concern for the fiscal health of academic medical centers at a time when the U. The multiple incentives to use residents to provide clinical services include their low cost, high motivation, and skill levels; their work capacity, despite recently being reduced to 80 hours per week, is still far greater than that likely to be realized from any replacement physician or mid-level provider.

The pressures that reductions in GME subsidies generate may influence the quality of education of future physicians. In this case, physicians argue that Congress, through CMS policy, substantially influences the direction of our workforce and the financial health of the institutions that drive innovation in medical care.

Immediately after the legislative changes, several prominent teaching institutions had substantial financial losses Coughlan et al. Since then, teaching hospitals have had increasing difficulty maintaining positive operating margins, which can be partially attributed to the reduction in IME payments Phillips et al.

Because of the reduced funding of residency positions, as well as the diminished attractiveness of primary care specialties, some programs have closed, Phillips et al. Teaching faculty are often encouraged to participate in activities that are revenue generating rather than focusing on their role as educators for tomorrow's physicians.

The Medicare Payment Advisory Commission has issued recommendations to consider GME funding from a purely economic argument to allow more market-driven changes in GME Newhouse and Wilensky, , but the proposed market-driven approach may undermine the professional ethos of medicine Gbadebo and Reinhardt, GME financing has substantial influence on the nature of future medical care.

By altering GME payment structures or physician fee rates, CMS can dramatically change the medical education of future physicians. The immediate effects relate to actual patient care practices in teaching hospitals by altering the balance of teaching and medical care by the faculty.

Long-term effects on the size of the workforce and specialty choice are both inevitable and difficult to predict given past problems in projecting workforce needs, as well as the multiple financial and clinical influences changing the staffing and clinical activities of the nation's academic medical centers.

On the Federal level, Medicare has received much more attention than Medicaid over the past 40 years, a consequence of Medicaid's decentralized administrative structure that gives States primary responsibility for its operations.

However, within individual States, Medicaid initiatives have had specific influence on the practice of medicine. We focus here on North Carolina to illustrate how initiatives aimed at improving quality in Medicaid are pursued at the State level.

In North Carolina, the Medicaid Program has been active in promoting quality improvement and efficiency. The State's Department of Health and Human Services has fostered the development of Community Care of North Carolina which convenes networks of primary care providers to coordinate the care of populations of patients Ricketts et al.

These networks support local disease management and case coordination for Medicaid enrollees, and member physicians agree to participate in network activities and to follow network guidelines for the care of specific chronic illnesses. An evaluation of this program revealed that, compared with the standard Medicaid Program within the State, the Community Care of North Carolina program saved money for the State and improved some outcomes for patients Ricketts et al.

Other States have implemented different models of disease management with varying levels of success, and all with the intent of improving health outcomes while controlling costs Wheatley, Much of the work has focused on care for children, and working with practices on quality improvement, the CCHI and Medicaid have documented improvements in preventive services Margolis et al.

By supporting the infrastructure for such collaborative efforts, the State has enabled practices to improve the timeliness of care and also to reduce the rate of no-shows to clinic appointments. Despite the successes seen in North Carolina and some other States, Medicaid Programs face constraints in pursuing quality initiatives.

Because of State budget problems, policymakers frequently do not have the resources needed to administer adequately such programs, much less lead quality improvement efforts. Psychiatrists are disproportionately represented among the 1. Figure 3: Among all physicians opting-out of Medicare in , psychiatrists account for the largest share of opt-out providers.

In addition to physicians, another 4, select clinical professionals with doctorate degrees i. In 47 states, less than 2 percent of active non-pediatric physicians in each state have opted out of Medicare. As of September , Alaska 3.

Our analysis shows that relatively few physicians are opting-out of Medicare, similar to prior analyses. Notably, we find that psychiatrists have the highest opt-out rates and are disproportionately represented among physicians who have opted out of Medicare in This is consistent with previous analyses that found that psychiatrists are less likely than other physician specialties to accept new patients with Medicare or private insurance, suggesting that psychiatrists may prefer to be paid directly from patients rather than insurers, to avoid the administrative burden and have the flexibility to charge higher fees.

The relatively high rates of psychiatrists opting of Medicare is a particularly salient concern for older adults during the COVID pandemic and resulting economic recession, with one in four older adults reporting symptoms of anxiety or depressive disorder. Our analysis also finds little state-level variation in the percent of physicians opting-out, with only 3 states Alaska, Colorado, Wyoming having opt-out rates at or above 2.

Further research is needed to examine the extent to which opt out rates may be higher or lower in certain geographic areas, and whether there is an association between opt-out rates and physician and practice-level characteristics, and community characteristics.

With health care reform potentially on the agenda if Biden wins the presidential election, including proposals that would adopt elements of Medicare in a public option or lower the age of Medicare eligibility, some critics have argued that these proposals would lead to more physicians opting out of Medicare, creating barriers to care for people with Medicare. Our analysis finds that despite changes in law that have made it easier for physicians and practitioners to opt-out of the Medicare program, few physicians are doing so.

If a public option moves forward, and if current opt-out rules apply to both Medicare and the public option, physicians may be even less likely to opt out to retain their patients and revenue. At the same time, if the public option adopts rates linked to Medicare, there is some risk that the number of physicians opting out would increase, although they would have fewer patients available to charge higher prices.

The details of a public option — including provider payment rates and how closely tied provider participation is to Medicare — could have big implications for how many physicians participate as well as the potential savings.

This work was supported in part by Arnold Ventures. We value our funders. KFF maintains full editorial control over all of its policy analysis, polling, and journalism activities. We obtained data on the number of active allopathic and osteopathic physicians by specialty and state from Redi-data, Inc, which utilizes data from the American Medical Association AMA Physician Masterfile. One limitation of this analysis is that due to data source limitations, we were unable to exclude active physicians in professional activity other than patient care, such as research and administration.

The specific physician specialty groups identified in this analysis were selected if they were included in the list of opt-out providers provided by CMS. In order to gain a more complete picture of the distribution of opt-out providers in each specialty category, we grouped some subspecialties under a broader specialty category, consistent with the specialty cross-walk provided by Redi-Data, Inc.

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