The politics of debt have gotten so insane that both parties are on the verge of gutting Medicare. The moment might be right to actually fix it.
What do these exceptions to the rule have in common? First, they are all large enough to achieve significant economies of scale. The VA’s scale, for example, has also been an important precondition for the deployment of its highly effective system of electronic medical records, the cost of which it has been able to spread across a large base of hospitals and clinics. So too with Kaiser Permanente and the other examples of “best-practice” health care delivery systems mentioned above. The size of these institutions also means that the data generated by their digitalized information technology about what works and what doesn’t has far greater scientific value because the records are drawn from a very broad population. And their scale allows them to integrate and coordinate care among a broad range of specialists who all work for the same institution and use the same patient records so that the care patients receive is far less fragmented (and dangerous) than found generally in fee-for-service medicine.
Furthermore, large size gives these institutions substantial market power to negotiate favorable deals with drug companies and other medical suppliers. The VA enjoys a 48 percent discount in the price it pays for frequently prescribed drugs compared to those obtained by even the next-biggest health care plans. The size of the VA also allows it to push past the cartels, known as group purchasing organizations, that control the prices paid by smaller health care providers for hospital supplies, from hypodermics to bed linens. (See Mariah Blake, “Dirty Medicine ” Washington Monthly, July/August 2010.)
Finally, and just as importantly, the size of these institutions allows them to hold on to a significant portion of their customers year after year. This, along with their nonprofit status, preserves a business case for prevention and investment in long-term health. Unlike for-profit HMOs, they are not under pressure to maximize short-term profits by withholding appropriate care; instead, all their incentives are aligned toward providing enough care, and no more than is necessary, to keep their patients healthy over the long term.
We should set a date when the Medicare system will stop covering fee-for-service medicine. Medicare beneficiaries would instead have the choice of deciding among competing managed care organizations that meet specific quality requirements. These organizations wouldn’t be standard for-profit HMOs. And they would not receive the inflated, no-questions-asked reimbursement rates that have prevailed under the Medicare Advantage program. Nor would they be anything as amorphous and underdefined as an accountable care organization.
Instead, providers qualified for reimbursement under Medicare would have to be nonprofit organizations to start with. They’d also have to use salaried doctors, deploy integrated health information like the VA and other best-in-class health care providers do, adhere to evidence-based protocols of care, and operate under a fixed budget. Specifically, for every Medicare patient who decided to join their plan, the government would pay a specific annual reimbursement based on that patient’s age. These Medicare-certified providers would not be allowed to turn away patients on Medicare or kick such patients out of their plans. In order to stay in the program, they would have to meet strict safety and quality requirements on such measures as hospital-acquired infection rates. And they would have to be at least of a certain size to participate.
The latter requirement would allow them to achieve the economies and other benefits of scale described above. With enough large institutions participating, the government could assure that no single one monopolized a local market and that seniors always had a choice of plans.
The best of our integrated health care providers would instantly qualify. With that advantage, top-flight regional providers like Mayo, Intermountain, and the Cleveland Clinic would have an incentive to expand geographically. The VA, which is already national in scope, could be allowed to expand by serving the many older veterans who are currently excluded from the system because they lack service-related disabilities or are not poor enough to meet the VA’s means test. By allowing these older vets to use their Medicare entitlement for VA care, and perhaps their elderly spouses as well, everyone would win.
Meanwhile, many existing health care providers that didn’t qualify would face a choice: they could merge with institutions that already deliver the highquality health care necessary to become a Medicare-certified provider and adapt to their cultures and protocols care, or they could reform themselves. Under the threat of losing their ability to collect from Medicare, they would find it much easier to stare down greedy, profit-driven specialists and others resistant to change and gain the power they needed as an institution to do the right thing.
Raising any capital needed to reform an existing institution, or to create a new one eligible to treat Medicare patients, should not be a serious obstacle. Banks and investment firms would gladly extend credit and capital to any institution that could show a reasonable plan for meeting the requirements, because such institutions would have a predictable future revenue stream that could be used as collateral. Our financial system routinely does this for other nonprofit entities that have predictable revenue streams, from cities and counties to universities, as well as certain hospitals with assured earnings.
Indeed, institutions that became certified to serve the Medicare population under this proposal could reasonably hope to attract many younger Americans, especially those who will become mandated by the ACA to purchase health coverage starting in 2014. Benefiting from an inherently efficient model of care, these institutions will be the thrifty option for fulfilling the individual mandate, while also happening to be the smart option as well. They may also be attractive to middle-age Americans contemplating retirement, who may want to transition early into the system that will wind up treating them into old age. Indeed, the government may even want to encourage this kind of behavior, given that the longer an HMO is on the hook for a patient’s care, the more financial incentive it has to keep the patient healthy. These and other effects could ripple through the system, hinting at a bigger truth: if you reform the delivery of Medicare, you just might reform the entire health care system.
Would there be resistance to such a proposal? Of course. But compared to what?
Let’s start from the point of view of individual citizens. Yes, many current Medicare beneficiaries would be upset by any change to the status quo. But these folks could and probably should be allowed to stay in traditional Medicare; the changes outlined here will take some years to put in place in any event. The people who will be affected first are those eligible for Medicare in, say, ten years.
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