Features

November/ December 2011 The Cure

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.

By Phillip Longman


Photo: Cosmo Condina, istockphoto.com

While the partisan gap in Washington is wider than it’s been at any time in living memory, the two parties do have one remarkable agenda in common. Both have proposed cuts in Medicare so drastic that they would have been politically suicidal a decade ago and may still be. Yet neither party is backing off.

All but six Republicans in the House of Representatives have voted to turn Medicare into a voucher program—a vision endorsed by all the GOP’s major presidential candidates as well. Under the proposal, famously crafted by Representative Paul Ryan, each senior citizen would receive only a fixed amount of money (about $8,000 on average in 2022) to spend on private health care insurance each year, regardless of what his or her health care needs and costs might actually be. The Congressional Budget Office (CBO) estimates that under the plan, seniors would pay about 68 percent of their health care costs out of their own pockets in 2030, as compared to 25 percent to 30 percent under traditional Medicare.

Democrats rightly characterize this plan as “ending Medicare as we know it,” but both President Obama and party leaders agree that deep cuts in Medicare spending must happen soon. “With an aging population and rising health care costs, we are spending too fast to sustain the program,” the president told a joint session of Congress on September 8. As part of his most recent deficit reduction plan, he has proposed $248 billion in Medicare savings over the next ten years. This includes higher copays for many beneficiaries and steep cuts in payments to providers. If you think Obama and the Democrats are bluffing, consider that the health care law they passed last year came with hundreds of millions in Medicare cuts and includes a mechanism that could cut vastly more. And though the president in September came out against Republican plans to raise the Medicare retirement age to sixty-seven, in the debt limit negotiations earlier this year he signaled his willingness to go along with it.

Then there’s the new Joint Select Committee on Deficit Reduction—aka the “super committee”—on which the president has also put his signature. By the end of the year, Congress must take an up-or-down vote on the recommendations of a majority of the committee, which are likely to include steep cuts to Medicare and, possibly, increases in the retirement age and other restrictions on eligibility. In the event the committee deadlocks, across-the-board spending cuts, including some to Medicare, go into effect.

Why are both parties declaring war on Medicare when both know that it could lead to their own political annihilation? The reason is simple. While both Democrats and Republicans fear the wrath of the AARP and the exploding ranks of hard-pressed seniors—to say nothing of lobbies like the American Hospital Association—Medicare’s relentless squeeze on the budget seems to party leaders to give them 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 nearly every other priority on either party’s agenda, from bullet trains and decent public schools to, yes, avoiding future tax increases and draconian cuts in the military.

The U.S. wouldn’t even face a structural deficit, much less have to endure the downgrading of its credit rating, were it not for the cost of Medicare (and, to a lesser extent, Medicaid). Just the projected increase in the cost of these two programs over the next twenty years is equivalent to doubling the Pentagon’s current budget, and there is no end in sight after that. By contrast, Social Security will rise only gradually, from 4.8 percent of GDP to 6.1 percent in 2035, and then taper off as the large Baby Boom generation passes. Meanwhile, according to the same CBO projection, all other government programs—the military, the courts, farm subsidies, Amtrak, infrastructure spending, education, and so on—are on course to shrink dramatically as a share of the economy, from 12.3 percent of GDP in 2011 to 8.5 percent in 2035. As others have observed, the federal government is not so gradually being transformed into a giant, and insolvent, health insurance company.

We can at least be thankful that both parties are sane enough to recognize the problem and brave enough to offer politically courageous proposals to solve it. But here’s the bad news: neither side’s solution is likely to work. The GOP’s privatization plan won’t actually cut health care costs, but merely shifts them to individuals. Meanwhile, the Democrats’ ideas, though offering more in the way of actual reform, are unlikely to bend the cost curve anywhere near far enough. Moreover, by focusing so much on cutting reimbursement rates to doctors without directly attacking the colossal inefficiency of the U.S. health care system, the Democrats’ approach runs the very real risk that it will lead to a severe shortage of doctors willing to treat Medicare patients.

Here’s a better idea—one that offers a relatively painless and proven fix that will also vastly improve the quality of U.S. health care. Approximately a third of all Medicare spending goes for unnecessary surgeries, redundant testing, and other forms of overtreatment, according to well-accepted estimates. The largest single reason for this extraordinary volume of wasteful and often dangerous overtreatment is Medicare’s use of the “fee-for-service” method of compensating health care providers that dominates U.S. medicine, under which doctors and hospitals are rewarded according to how many procedures and tests they perform. To fix this, the federal government should do the following: announce a day certain and near when Medicare will be out of the business of subsidizing profitdriven, fee-for-service medicine.

Going forward, Medicare should instead contract exclusively with health care providers like the Mayo Clinic, Kaiser Permanente, the Cleveland Clinic, Intermountain Health Care, the Geisinger Health System, or even the Veterans Health Administration. All these are nonprofit, mission-driven, managed care organizations widely heralded by health care experts for their combination of cost-effectiveness and high quality, including cutting-edge use of electronic medical records, adherence to protocols of care based on science, and avoidance of medical errors. Because doctors working at these institutions are not compensated on a fee-for-service basis, they are neither rewarded for performing unnecessary tests and surgeries nor penalized financially for keeping their patients well. And unlike for-profit HMOs, these institutions are not pressured by shareholders to maximize earnings through withholding appropriate care.

By the late 1990s, the spread of health maintenance organizations and other forms of managed care virtually eliminated health care inflation in the United States, providing a brief moment—not seen since—when the cost of health care did not outpace average wage increases. That triumph in cost containment had its downsides, to be sure, namely the corrupting entry of profit-driven institutions that undermined medical professionalism and often led to denial of needed care. But with the benefit of hindsight, we can avoid repeating those mistakes and reinvigorate the once idealistic and highly effective managed care movement by insisting that Medicare providers also be nonprofit institutions. If we have to control the cost of Medicare, why not do it this way?

The immediate answer might seem to be, “Because seniors would never stand for it!” But let’s examine that assumption, first by looking at the radical and far more painful alternatives that official Washington is now considering.

We’ve already seen how the Republican plan to “voucherize” Medicare would lead to seniors paying for nearly 70 percent of the cost of their health care, which is hardly insurance at all. This surely would save the federal government money, but it would bilk the American people. Nor would the plan do anything to improve the appallingly poor quality of health care received by Medicare beneficiaries. According to a study conducted by Medicare’s inspector general, every month 15,000 Medicare beneficiaries are victims of medical errors that contribute to their death. Another 8,000 a year do not survive hospital-acquired bloodstream infections, which the VA and other well-managed health care systems have shown are largely preventable. It’s hard to see how forcing Medicare patients to have more “skin in the game” will save them from being victimized by sloppy, dangerous, money-driven medicine—except, perhaps, by pricing more seniors out of access to infectious hospitals and the often fatal reach of money-chasing doctors.

Raising the Medicare retirement age to sixty-seven, a move favored by deficit hawks in both parties, might at first seem to be a reasonable adjustment. Since we are all living much longer, the idea goes, we can afford to wait longer to become entitled to Medicare. But the premise is false. For fully half of the U.S. population (specifically the poor and working-class Americans with earnings at or below the median), life expectancy at sixtyfive is virtually unchanged since the 1970s. In many parts of the country, including much the South, life expectancy at birth for black males is not yet even sixty-five, and in some places it is as low as fifty-nine.

As with plans to voucherize Medicare, the primary effect of increasing the age of Medicare eligibility would be to shift costs onto needy individuals, while also leading to worse health outcomes. Nor, in the grander scheme of things, would the proposal save the government much money, since most Medicare spending is concentrated on people well over the age of sixty-seven, and many of the people who would be cut from the Medicare rolls would wind up on Medicaid or qualifying for other means-tested government subsidies. The Kaiser Family Foundation estimates that if the proposal were fully in effect in 2014 it would generate only about $5.7 billion in net federal savings but would impose twice as much cost ($11.4 billion) on individuals, employers, and states.

Then we have the proposal generally favored by mainstream Democrats: cutting back on reimbursement rates for Medicare providers. To be sure, reimbursement rates need to be adjusted; Medicare pays far too much for many procedures of dubious value. By overpaying cardiologists relative to other providers, for example, the system encourages too many medical school students to go into cardiology rather than family practice. And in the process it also generates egregious rates of unnecessary and often harmful heart operations: as has been scientifically established for years, a million stents annually are placed in patients whose heart conditions would be better treated with drugs. By overpaying radiologists, Medicare fuels the unconscionable overuse of redundant scans that have little or no medical value and expose individuals to dangerous levels of radiation. But experience has shown that cutting back reimbursement rates doesn’t necessarily save money, let alone improve quality, so long as profit-maximizing providers remain free to game the system.

For example, after Medicare began restricting the amount it would pay for specific procedures in the mid-1980s, many providers responded by simply making it up on volume—by increasing the number of unnecessary tests and surgeries they performed. Often this takes the form of “up-coding,” the now widespread phenomenon whereby doctors diagnose patients as being sicker than they actually are so as to make more money on treating each one. Simply cutting prices in regions where Medicare spending is high due to overtreatment “will only cause providers in those regions to deliver more services,” notes Dr. Elliott S. Fisher, director of the Center for Health Policy Research at Dartmouth Medical School. Worse, cutting reimbursement rates, particularly if done crudely across the board, will create shortages of doctors who are willing to accept Medicare patients—especially vitally needed primary care doctors, who are already poorly compensated and in short supply.

At this point, defenders of the Affordable Care Act will be quick to assert that they have engineered solutions to these problems. First, they will point out that the act calls for the creation of the Independent Payment Advisory Board (IPAB), a new entity that will be charged with keeping the per capita growth in Medicare spending far below its historical average. IPAB will have extraordinary powers to fast-track cuts in reimbursement rates. Just as importantly, it will be able to use Medicare’s purchasing power to reform the way hospitals and health care networks do business—for instance, by the “bundling” of services into a single payment to encourage doctors to forego unnecessary tests.

While IPAB is arguably the most potent weapon the government has ever conceived to control Medicare spending and possibly improve its quality, there are strong reasons not to bet the farm on it. For one thing, Republicans are gunning to kill the proposed board with the usual talk of “death panels,” and more than a few Democrats are also conspiring to snuff it out. (See Sebastian Jones, “Friends Like These,” Washington Monthly, July/August 2011.) For another, the cost cutting will come slowly: IPAB can make no recommendations that affect reimbursement rates for hospitals until 2020, even though hospitals are the largest single category of Medicare spending. There’s also the ever-present danger that the board will eventually be captured, as many government oversight boards are, by the industries it’s meant to police. But even if IPAB survives politically and remains fiercely independent, it will be able to effect change only through the clumsy and imprecise leverage of Medicare reimbursement rules. Its new regulations might inspire the health care industry to reform itself, but, just as likely, providers will respond with new tactics to outfox the regulators, as they have in the past through schemes like making it up on volume. And given the magnitude of the cuts that would be required in the absence of vast improvements in the overall efficiency of the entire system, there is a serious possibility of creating severe shortages of physicians who will want to take Medicare patients.

But not to worry, say defenders of “Obamacare”; we’ve got a plan to speed up those reforms. The ACA contains billions of dollars to incentivize the creation of “accountable care organizations.” Just what are they? It’s hard to say, since the language of the bill on this subject is so vague. An essential feature, though, is that an ACO is an institution that contracts with Medicare to serve a specific population and promises to deliver specific quality metrics, such as keeping infection rates down or offering primary care services to patients. In return, it receives the right to retain a large share of any resulting savings.

So far, ACO pilot programs have proved disappointing, producing little if any savings. And there are good reasons to believe that most ACOs will never deliver the quality and cost-effectiveness of truly integrated nonprofit health care systems like the Mayo Clinic or the VA. Under newly minted regulations, there is nothing to prevent ACOs from being just loose networks of colluding, profit-driven, fee-for-service providers who go through the motions of pursuing quality. Even stalwart defenders of ACOs now acknowledge their large potential for abuse. As Donald Berwick, administrator for the Centers of Medicare and Medicaid Services, recently told a forum at the Brookings Institution, “There will be parties out there who want to repackage what they do and call it an ACO.”

Berwick went on to warn, as have many others, that many ACOs are likely to be effective monopolies in their local markets, given the massive consolidation already going on in the health care industry. This means they will be tempted to abuse their market power by, for example, raising their rates for non-Medicare patients. This “would ultimately undermine any short-term savings achieved by Medicare,” notes Merrill Goozner of the Fiscal Times, “since increases in a region’s top line health care tab would eventually force Medicare to raise its own rates.”

Even if all these and other pitfalls of ACOs are avoided, there still remains an objection that no one can rebut: any benefit ACOs might bring will at best be only gradual. Unless a more immediate and certain reform is applied, most of the Medicare population will continued to be treated—for years if not decades to come—by the status quo of a pattern of deeply fragmented, wasteful, and dangerous fee-for-service care, the cost of which everyone now agrees is unsustainable. If we’re going to avoid financial Armageddon, we have to do better than that.

As it happens, ACOs are not the first to attempt to provide higher-quality outcomes while lowering the cost of treatment. For ten years during the 1980s and ’90s, Americans embraced and then rejected HMOs and managed care. While the experiment in widespread managed care ultimately failed to reshape American health care, much can be learned by examining what worked and what didn’t.

Today, many Americans view HMOs simply as organizations designed to make money by denying them care. And it’s a sad fact that many HMOs have wound up doing just that, or else using clever marketing techniques to make sure they cherry-pick only young and healthy customers who are unlikely to get sick. But it is important to remember that HMOs and other forms of managed care came into existence in large measure because of a big problem that is still with us and getting worse—namely, vast amounts of poorly coordinated, excessive, and dangerous treatment.

The original vision of those who championed HMOs was that this new model of care would vastly improve the quality of American medicine and only incidentally lower its cost. Paul Ellwood, a pediatrician who more than any other single advocate built the case for HMOs starting in the late 1960s, put it this way: “My own most compelling interest as a physician was in the integration of health care, quality accountability, and consumer choices based on quality first and, secondarily, price.”

What Ellwood and other reformers wanted more specifically was an “integrated delivery system” in which primary care physicians would coordinate care in large, multispecialty medical group practices that would in turn be part of a coordinated system of hospitals, labs, and pharmacies. Moreover, to address the problems of overtreatment and lack of prevention, care providers would be prepaid a set amount per patient. As Alain Enthoven, another champion of managed care, once wrote, this would give “doctors an incentive to keep people healthy.”

Such were the highly idealistic and data-driven concerns and issues behind the emergence of HMOs. What went wrong? Eventually, HMOs morphed into many different forms and hybrids. Some were nonprofits, others were publicly traded companies answerable to Wall Street. Some were “staff models” that put physicians on salary and effectively eliminated the problem of intentional overtreatment; others became little more than loose networks of doctors on contract. Some were run by idealists, others by shysters, crooks, and knaves who convinced themselves that the road to riches could be found by low-balling on prepaid contracts and then denying their patients necessary care.

Even the many HMOs that tried to do the right thing often ran into a fundamental flaw in their business model. Most remained small enough that the majority of their customers changed plans every few years, either because they moved to a different market or because their employers switched to a cheaper plan. For all but the largest HMOs, this circumstance demolished the business case for prevention and effective management of long-term conditions like diabetes. Before any returns from investing in a patient’s long-term health could be realized, the patient was likely to be enrolled in some other plan. According to Lawrence P. Casalino, a professor of public health at Weill Cornell Medical College who has extensively interviewed HMO executives, the common view in the industry is “Why should I spend our money to save money for our competitors?”

By the 1990s, most people who were enrolled in any particular HMO had little or no choice in the matter; they were there because their employers were trying to save money. It didn’t help that many fee-for-service doctors felt threatened by the growing dominance of HMOs and other managed care providers and complained to their patients about it. Neither was the industry’s image helped by the negative press and lawsuits that some HMOs attracted.

The result was a public backlash. But with the benefit of hindsight, we can see that it didn’t have to turn out this way. We only have to look at the big exceptions to the often poor performance of managed care organizations over the last several decades. These are institutions with high levels of patient satisfaction that are also lauded by health care quality researchers for their patient safety, adherence to evidence-based protocols of care, and general cost-effectiveness. They include integrated providers like Intermountain Health Care, the Cleveland Clinic, the Mayo Clinic, Geisinger Health System, Kaiser Permanente, and the VA, the last of which ranks highest of all on most cost and quality metrics and is in effect the largest, and purest, nonprofit, staff-model HMO in the land (though, of course, government run and open only to veterans). The VA’s cost per patient is about 21 percent below what it would cost under Medicare to serve the same population with the same level of benefits. Until the wars in Iraq and Afghanistan heated up, the VA was also holding increases in its cost per patient down to just 1.7 percent a year, compared to annual increases of nearly 30 percent for Medicare.

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.

Most of us who are now approaching retirement age or are younger have spent our entire lives living with, and largely accepting, some constraints on our choice of doctor, if only through the limits imposed by preferred provider networks. Personally, not once since I was still young in the early 1980s have I been part of a health insurance plan that allowed me to choose any doctor I wanted without paying a financial penalty, and I’ve had what by the standards of the times has been “gold-plated” coverage. Almost the only people left in America who don’t face such restraints are current beneficiaries of feefor- service Medicare.

That said, a plan like this could still provide future Medicare beneficiaries with plenty of options. In addition to being able to choose among competing Medicare-eligible HMOs, seniors should also be free to use their own money to pay to see any doctor they want or to access experimental drugs or unproven treatments that the HMOs (wisely) won’t cover. If the “price” of preserving Medicare is that some of us will be sometimes forced to go “out of network” and pay more of our own money to receive some kinds of care, then I think younger Americans already inured to the practice will almost certainly be willing to pay it.

To those who disagree, we could offer an additional choice: If you wait until you are, say, age seventy to apply for Medicare, then the system will cover you for the same wasteful fee-forservice medicine your parents currently get. But if you want to be covered at age sixty-five, you’ll have to agree to receive your care from a Medicare-certified nonprofit HMO.

These are tough choices, no doubt. But ask yourself: Do they sound all that onerous when compared to the competing policy proposals already on the table, such as turning Medicare into a voucher program that leaves all of us responsible in old age for paying 70 percent of our own health care costs, or seeing Medicare reimbursement rates reduced to the point that we can’t find a doctor who will treat us, or having to wait until age sixty-seven before being eligible for Medicare at all?

We can certainly expect lots of opposition from wellheeled practitioners of for-profit medicine—all those cardiologists making a killing doing unnecessary stent operations, for example. And we’ll hear from many prestigious academic medical centers, an unfortunate number of which engage in massive amounts of overtreatment because they are dominated by specialists who look down their nose at doctors engaged in “mere” primary care.

Yet as difficult as these challenges will be, reformers are now armed with abundant, peer-reviewed proof of just how dangerous and wasteful fee-for-service medicine has become, and the public has begun to catch on as well. Ten years ago, for example, researchers were just beginning to document how the death toll of medical errors, hospital infections, and inappropriate treatment had conspired to make contact with the health care system the third leading cause of death in the United States. Today, these facts are widely accepted by heath care experts and generally understood by policy makers at the highest levels of government. Educated Americans have read about them in the newspapers, and most citizens who have spent any time in a typical hospital trying to make sure a loved one gets her proper medicine on time have experienced firsthand the extent of routine system breakdown.

Some conservatives, no doubt, will instinctively align themselves with the forces of for-profit, fee-for-service medicine, or be lured into doing so by heaps of campaign contributions. Many Democrats as well can be counted on to carry water for prestigious but deeply wasteful and dangerous academic medical centers, which tend to be concentrated in Deep Blue zones like New York, Boston, and Los Angeles. So yes, enacting this proposal will not be easy.

But then, ask yourself again, compared to what? Both parties have already signed on to changes to Medicare that are hardly less radical, will be resisted by powerful interest groups, and risk the wrath of voters. Moreover, these proposals are not really solutions, because they either shift the inflating cost of health care onto individual Americans or cut reimbursement rates to a point where Medicare is “saved” on paper but in the real world has little value to elders who can’t find a doctor. By contrast, this approach directly attacks the root problem, which is the waste and inefficiency caused by fee-for-service medicine.

And as politically difficult as the road to this solution may be, it does give each side things it wants. It allows Democrats to say that they will not cut benefits to Medicare recipients. And Democrats should also like that these nongovernmental organizations serving the Medicare population will have the freedom to do things liberals have long wanted Medicare itself to do, like bargain with drug companies for lower prices. Meanwhile, Republicans who support this proposal will be able to boast that it takes vast decision- making power out of the hands of “unelected bureaucrats in the federal government” and puts that power in the hands of private organizations that compete with each other for customers. Under this approach, Medicare officials won’t have to figure out how to write regulations on what specific drugs and procedures are not appropriate medicine; they’ll be contracting out those details to private-sector organizations and simply holding them accountable for results, such as keeping a high percentage of their patients healthy and managing their conditions effectively.

Let’s close by stressing the positive. America is still a rich and productive country. Compared to Europe or Japan, it has a youthful population and no real long-term debt crisis except that caused by huge volumes of wasteful and dangerous fee-for-service medicine. So once again in our long history, Americans can have their cake and eat it too. We can improve our health care while lowering its cost, and in the process eliminate our long-term deficits and resume building for future.

So why don’t we feel more optimistic? Because there is this feeling of despair, especially among policy makers and the chattering classes, that we don’t know how, politically, to bring health care costs in line. We know that all other developed countries get better health care for less money, and that it is no real mystery how they do it. But all their approaches seem—or can be spun as— socialistic, paternalistic, and fundamentally un-American, and therefore impossible to consider.

Yet we have within our reach a solution that is not imported from abroad, and that has been proved on our own shores by all-American institutions, from our best nonprofit HMOs to the VA health system. We may not currently have the political will to use these institutions as the model and means to fix the health care crisis, and hence eliminate our long-term fiscal problems. But we shouldn’t fool ourselves into thinking it can’t be done.

Phillip Longman is a senior editor at the Washington Monthly and a lecturer at Johns Hopkins University, where he teaches health care policy. He is also a senior fellow at the New America Foundation, where Atul Gawande is a board member.

Comments

  • Jack Lohman on October 25, 2011 9:32 AM:

    Can we fix Medicare? Yes, but first we must stop politicians from taking campaign bribes from the insurance industry. See http://moneyedpoliticians.net/2011/10/17/can-we-fix-medicare/

  • Dave Roberts on October 25, 2011 12:46 PM:

    Another extraordinary diagnosis and prescription by Phillip Longman. Kudos to the Washington Monthly for continuing to provide insight without dogma.

  • kindness on October 25, 2011 1:08 PM:

    I have Kaiser. I like them a lot.

    Can someone come in and do cleanup on the spam that is the first post please?

  • Melissa on October 26, 2011 6:21 PM:

    "Going forward, Medicare should instead contract exclusively with health care providers like the Mayo Clinic, Kaiser Permanente, the Cleveland Clinic, Intermountain Health Care, the Geisinger Health System, or even the Veterans Health Administration."

    I LOVE this idea. My parents have been part of Kaiser since before I left home, about 22 years ago. Since then, their coverage, under the same plan, has expanded dramatically. Kaiser didn't used to cover glasses, hearing aids, or fertility treatments, to name a few. They do now. Unlike the plans I've been on (I would choose Kaiser in a heartbeat but there isn't one where I live)

    As for quality of care, my parents have been extremely fortunate. My dad has lived through an surgery for an aneurism, two kinds of cancer, and many other problems. They referred him out to a specialist when they needed to, and gave him excellent care otherwise. Last year, they paid for him to be in the nicest rehab place (not drugs, physical rehab) I have ever seen.

    My mother has also had good treatment for her problems, most recently breast cancer - the support group has been wonderful for her. (Her prognosis is excellent.) The only thing they haven't covered for her is a high-end osteoporosis treatment - I can't think of the name of the drug, but you have to inject it daily - and she is paying out of pocket, $10,000 for one year, and she's lucky she can stretch to afford it. But after all they've covered that doesn't seem unreasonable.

    My parents considered moving to be close to my husband and me but they didn't because it would mean they would have to leave Kaiser.

  • Rachel Karash on October 29, 2011 1:58 PM:

    Medicare doesn't have to stop reimbursing for-profit hospitals in order to stop reimbursing them on a fee-for-service basis, as it has reimbursed for-profit inpatient hospital health care providers according to the Inpatient Prospective Payment System since 1983 and has reimbursed for-profit outpatient hospital-based health care providers according to the Outpatient Prospective Payment System since 1997. The latter was part of the Balanced Budget Act, which also established PPSs for skilled nursing facilities, home health care, inpatient rehabilitation services, and outpatient rehabilitation services. As for Part B services, Medicare hasn't reimbursed those based on the charge since the passage of OBRA 1989, which established the Resource-Based Relative Value Scale (RBRVS). The Balanced Budget Refinement Act of 1999 established a PPS for long-term care hospitals.

    Inpatient psychiatric facilities are reimbursed based on the IPF PPS.

  • Myncpand on January 24, 2012 6:12 PM:

    cheap buydesignerpurses-0121 to take huge discount buydesignerpurses-0121 to take huge discount

  • Maggie Mahar on February 24, 2012 7:37 PM:

    Great piece.

    The idea of setting a target date when Medicare drops fee-for service payment is excellent.

    And I would love to see Medicare patients treated by larger, more efficient, collaborate non-profits that enjoy economies of scale as well as the market clout that comes with size.

    But in rural areas and sparsely populated states, Medicare patients will have to be cared for by smaller groups. These groups might become "virtual networks" and enjoy some economies of scale, particularly with regard to IT,
    but we can't expect that seniors in Oklahoma will be able to travel to a Kaiser, an Intermountain or a Mayo Clinic. Inevitably, in Oklahoma an institution that models itself on these institutions will be much smaller, and as a result may require more funding from Medicare.

    I would add that I don't think we should write off accountable care organizations. Some of them will work, and work well. But I would like to see them operate as non-profits. This shouldn't be that hard. Today, the vast majority of hospitals are non-profits (though admittedly, some of these non-profits seem to put profits first. Medicare will have to insist that they re-think their priorities.

    Also, since half of all seniors are living on total income of less than roughly $20,000, we really cannot expect them to pay out of pocket to go out of network. Already, the $35 co-pays that Medicare charges for specialist care is more than many can afford.

    Unless we want to set up two sharply different tiers of care--one for people who can afford to go out of network, another for people who can't--we should make sure that "in network" care is good enough to be the norm (and the gold standard) 98% of the time, except in those cicumstances where it is clear that the patient cannot get the care he needs in network. Then Medicare should cover "out of network.

    Of course, if a wealthy person wants to pay for something out of pocket that isn't covered by
    Medicare, he should be able to do that. But the vast marjority of practioners and all hospitals that want to be reimbursed by Medicare should have to meet the standards of a network (practicing evidence-based medicine,etc. and accepting the payments that Medicare offers to these network . ) Over time, as you point out, Medicare patients, like the rest, of us, will adjust to the idea that being able to choose your network is fine. You really don't need to choose an individual doctor. The days of having one doctor "my doctor" are past. In the future patients will be treated by teams of doctors and nurses who, by working together, will be able to provide better care.

    But these are quibbles. You've outlined a generous vision of where we should be heading. I hope many people read this.