SOLUTIONS/NICHOLS: Using Medicare to lower health care costs

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By Len M. Nichols

Our nation must re-establish fiscal balance as soon as macroeconomically permissible. At this moment, there is no question that we must take substantive steps to stimulate our economy and address the crises in our housing and financial markets.

In fact, I have never seen such consensus in a profession as argumentative as economics. But America's economic and social futures are also threatened by several long-term challenges. First among these is the ever-rising cost of health care.

Health care costs are the largest threat to our nation's fiscal future because Medicare, which accounts for 20 percent of government spending, buys health care from the same inefficient health care system as the rest of us. With Medicare and systemwide health care costs rising faster than economywide productivity year after year, the lines between fiscal reform and health reform are increasingly blurred.

Therefore, we should start thinking of health, Medicare and fiscal reforms as inexorably linked. The only way we are going to improve our nation's long-term economic outlook is to fix our health care system.

One way to move toward a more sustainable health system is by using Medicare — the nation's largest purchaser of health care — as a catalyst for improving quality, value and efficiency throughout the health care marketplace. Today's Medicare payment structure rewards providers for delivering volume, not value, and for doing more care, not better care. These incentives are perverse. In short, Medicare must buy smarter.

What does buying smarter really mean? Respected analysts estimate that more than 30 percent of what we spend on health care does not make patients healthier. We must reduce this misdirected spending. Medicare could achieve savings and improve patient care by basing its purchasing decisions on value, clinical evidence and observed outcomes.

In the Medicare program, this could mean a payment structure that rewards team-based care and or new and innovative treatment processes for individuals with chronic diseases. This also means giving doctors and patients more information about what treatments work best and bringing 21st-century technology to health care through electronic medical records and decision-support tools.

Whatever the specific reforms, Medicare and its beneficiaries must get more clinical value for the money they spend on health care. This will improve care for Medicare patients, while lessening the financial burden for taxpayers in the long run.

Yet, Medicare's governance structure hinders its ability to become a value-based purchaser and in doing so perpetuates the health care cost growth problems that threaten our nation's fiscal future. This a result of too much micromanaging by congressional committees and not enough decision-making in the field, as some members of Congress will admit.

Therefore, we must change the way Medicare is governed to achieve our goals.

This is why I believe (along with several lawmakers and stakeholder organizations) that we should create a new entity to insulate Congress and the White House from lobbying about technical, scientific issues related to the Medicare program. Congress should delegate a set of Medicare decisions to this politically shielded authority, which will then be free to structure value-based payment incentives and make more decisions based on evidence and fewer choices because of politics.

Yet, tackling Medicare reform alone will not solve our problems. We must also improve the efficiency of the entire health care system from which Medicare buys. By revamping Medicare's pricing structure, however, we can create incentives for providers to adopt high-value care processes.

In turn, this should make the delivery of care to the under-65 population more efficient (as did the move to diagnosis-related group payments to hospitals in the 1980s) and inspire private insurers to adopt similar, if not identical, incentive-based contracts. Therefore, we must reform our Medicare program to both improve the budgetary outlook for our nation and incent the delivery system to produce higher-value care at lower costs than it does today.

Medicare reform and broader health system reform are inextricably linked to each other and to our nation's fiscal future. We cannot change our Medicare cost trajectories without reforming the broader health system. We cannot create a credible road map to a higher-quality, lower-cost heath system without using Medicare as a catalyst for widespread private sector reforms.

We cannot get our fiscal house back in order without slowing the rate of Medicare and health care system cost growth. The goals of comprehensive health reform, Medicare reform and fiscal responsibility should not be viewed separately, but rather jointly.

Our current economic crisis has highlighted the need to finally address our nation's long-term challenges. Meaningful reforms to our Medicare program and our health system are the keys to a more fiscally sustainable economic future.

• Len M. Nichols directs the Health Policy Program at the New America Foundation, a nonprofit, nonpartisan policy research institute with offices in the District and Sacramento, Calif.