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Consensus Gone Wrong

December 7, 2011 |
Why have both parties declared war on Medicare?
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Official Washington is now in the grip of an unprecedented bipartisan consensus. For all their other differences, leaders of both parties agree that Medicare, the nation’s primary means of providing health insurance for the elderly, is unsustainable and must be cut.

“With an aging population and rising healthcare costs, we are spending too fast to sustain the program,” the President told a joint session of Congress in September. He already has set in motion or proposed cuts to reimbursement rates for doctors and hospitals that are so steep that future seniors will be lucky to find providers who still take Medicare patients.

Meanwhile, all but six Republicans in the House of Representatives have voted to turn Medicare into a voucher program—a vision endorsed by all but one of the GOP’s presidential candidates as well. This proposal would, according to the Congressional Budget Office, leave the next generation of seniors paying nearly 70 percent of their healthcare expenses out of their own pockets while having to wait until age 67 to receive any federal benefit from Medicare at all.

Why have both parties declared war on Medicare? While all politicians fear the wrath of the AARP and the growing number of hard-pressed seniors, Medicare’s relentless squeeze on the budget seems to give party leaders no choice but to attack the program’s spending regardless of the political cost. Medicare’s ever-expanding claims on the Treasury threaten to crowd out Democratic priorities (bullet trains and decent public schools) and Republican ones (avoiding future tax increases and fighting draconian cuts to the military).

Yet both parties are ignoring a relatively painless and proven fix that offers the upside of vastly improving the quality of U.S. healthcare. If every Medicare provider were required to follow best practices in healthcare, Medicare costs would be easily manageable, most of the federal government’s long-term deficit would melt away, and patients would receive better care.

For evidence of this claim, consider Intermountain Healthcare, a healthcare system in Utah that requires the use of best practices. Dartmouth researchers John Wennberg and Elliot Fischer have estimated that, if all providers could achieve the same level of efficiency for inpatient care as Intermountain, Medicare hospital spending would fall by 43 percent—mostly by eliminating unnecessary surgery, redundant testing, and other forms of wasteful and often harmful treatment. Other examples of healthcare delivery systems combining high quality and cost effectiveness include the Mayo Clinic and the government’s own veterans healthcare system (VA), which, after a remarkable turnaround, is vastly outperforming most for-profit healthcare systems.

What these examples have in common is organization. Their doctors are all on salary, which means they have no incentive to engage in overtreatment. This is no small matter, since it is now widely accepted that about a third of all healthcare spending in the U.S. goes for treatments that benefit no one except the doctors and specialists billing for unnecessary services.

These are also large, integrated systems in which various specialists work together with primary care doctors as a team using electronic medical records, so patients don’t wind up being prescribed harmful combinations of drugs. This is also no small matter, since medical errors in U.S. hospitals kill upwards of 100,000 Americans a year.

Finally, these systems operate under fixed budgets. They don’t get paid for performing services without regard to outcome. Instead, they are paid a fixed amount per patient and make ends meet by keeping their patients well, thereby giving them a business case for investing in prevention, primary care, and effective management of chronic conditions such as diabetes and heart disease.

What are healthcare providers who combine these features called? Well, don’t scream, but technically they are Health Maintenance Organizations. But not just any HMOs. They are all non-profit institutions. And as such, they are not under pressure from Wall Street to produce short-term profits, and don’t face the perverse incentives that led many profit-driven HMOs in the past to deny beneficial treatment to patients.

They are also large institutions that hold onto a significant portion of their customers year after year. The money they spend up front to help patients quit smoking, lose weight, or manage their diabetes comes back to these institutions in the form of lower healthcare costs for these same patients down the line.

These examples pose a choice: either we “save” Medicare by cutting back eligibility and/or compensation to doctors, as both parties propose, or we go for a true solution: get Medicare out of the business of paying for wasteful medicine and into the business of paying for best practices in medicine.

Practically, that means setting a date certain when all Medicare providers will have to be organized like Intermountain Health—as integrated, non-profit HMOs.

Will that mean less choice of doctors? Yes, it will. But except for current Medicare beneficiaries, few Americans today have unconstrained choices of doctors. And for most younger Americans, receiving Medicare in a quality HMO would be a far better outcome than any other proposal would produce.

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