Mark McClellan

From 1998 to 1999, McClellan served as deputy assistant secretary of the Treasury for Economic Policy, where he supervised economic analysis and policy development on a wide range of domestic policy issues.

During 2001 and 2002, McClellan served in the White House. He was a member of the president's Council of Economic Advisers, where he advised on domestic economic issues. He also served during this time as a senior policy director for health care and related economic issues for the White House.

McClellan served as commissioner for the Food and Drug Administration (FDA) beginning November 14, 2002, becoming the first economist to hold that position.[8] Originally from Austin, Texas, he is the brother of former White House Press Secretary Scott McClellan and the son of Texas comptroller Carole Keeton Strayhorn and attorney Barr McClellan.

He was administrator for the Centers for Medicare and Medicaid Services in the United States Department of Health and Human Services from 2004 to 2006. In this position, he was responsible for administering the Medicare and Medicaid programs, including Medicare Part D, the prescription drug benefit program engendered by the Medicare Prescription Drug, Improvement, and Modernization Act.

Following the resignation of Health & Human Services Secretary Tommy Thompson in 2004, McClellan was mentioned as a possible replacement, but President Bush ultimately nominated former Utah governor Mike Leavitt. On September 5, 2006, McClellan announced his resignation from his post in the department. He told The Associated Press he would be leaving the agency in about five weeks and would probably work for a think tank where he could write about improving health care in the United States.

In 2007, he was appointed as the chair of the Reagan-Udall Foundation, a public-private partnership between the U.S. Food and Drug Administration and industry.

Previously, McClellan was associate professor of economics at Stanford University, associate professor of medicine at the Stanford University School of Medicine, a practicing internist, and director of the Program on Health Outcomes Research at Stanford University. He was also a research associate of the National Bureau of Economic Research and a visiting scholar at the American Enterprise Institute. Additionally, he was a member of the National Cancer Policy Board of the National Academy of Sciences, associate editor of the Journal of Health Economics, and co-principal investigator of the Health and Retirement Study (HRS), a longitudinal study of the health and economic well-being of older Americans.

Published in 1997 in the Journal of Economics and Management Strategy, McClellan's paper serves as a review and analysis of provider payment incentives resulting from the Medicare prospective payment system (PPS).[9] Implemented in the 1980s, PPS was intended to incentivize hospitals to drive down costs by limiting the use of costly technologies that added little benefit. The hallmark of the program is the use of fixed payments via diagnosis-related groups (DRGs) in a prospective manner based on diagnosis at the time of admission.[10] McClellan suggests that PPS may not optimally incentivize cost sharing among insurers and health providers due to the income effect by which hospitals may seek out particular diagnoses with higher reimbursement rates, akin to skimming in the insurance arena.[9][11] Conversely, retrospective cost sharing allows for possible supply induced demand, minimizing the hospital's incentive to decrease resource utilization and costs in more complicated cases.[9] [12]

This paper presents an econometric model to summarize these reimbursement incentives, present information on cost sharing and generosity in the PPS model, and discuss the implications of these findings. McClellan points out repeatedly that the PPS has increasingly permitted more retrospective adjustments to the payments. This has been primarily driven through outliers and treatment-driven DRG's developed during the admission, rather than diagnosis-driven DRG's identified at the time of admission. Outlier payments allow for supplemental payments for unusually lengthy or expensive admissions and make up no more than 5% of all hospital admissions.[13] The author considers the increase in case mix index, a measure of the intensity of care delivered, to have the most important influence on overall PPS payments. He adds that these retrospective adjustments may be hampering the program's effectiveness in implementing cost sharing. McClellan's model allows individual aspects of PPS to be evaluated for their contribution to cost sharing rates and reimbursement variance. He used linear regression to approximate how the cost sharing reimbursement is derived, using fixed and variable components. Lower costs equaled lower reimbursement; however, higher costs led to higher reimbursements only if the costs were driven by a procedure. This was most true for men aged 65 to 69 with surgery requiring ICU care and an increased length of stay. Generosity estimates indicate that virtually all hospitals do some cost sharing.[14] Higher generosity is usually associated with greater retrospective limits on cost sharing. In the 1990s, high-tech hospitals saw more generous reimbursements and were more likely to survive, whereas for-profit hospitals were more likely to exit the market.[15]

In summary, the Medicare "Prospective" Payment System has multiple retrospective factors that limited cost sharing in 1990. McClellan's review serves as a harbinger of current attempts to model a health care reimbursement program focused on pay for performance criteria such as penalties for readmissions and incentives for value-based purchasing. The Patient Protection and Affordable Care Act continues to drive home the message of cost sharing by reducing reimbursements in the Inpatient Prospective Payment System.[16]