Symposium | What's Next? The New Progressive Agenda

Reinvent Medicare

By David Kendall

Tagged Health CareMedicare

Runaway health care costs are breaking the back of workers, hurting U.S. companies’ global competitiveness, and squeezing out government spending for other public needs. As the nation’s largest health care program, Medicare both reflects and contributes to the problem of rising health care costs. In the face of a fiscal tsunami from the retirement of Baby Boomers, Medicare can no longer afford to sit passively on the sidelines, paying medical bills without question. It needs to lead the charge in the battle to improve the productivity and value of health care delivered in each community across the country. It needs to be reinvented so that instead of just paying medical bills, Medicare is directly accountable for improving the value of the health care delivered in each community.

To do this, we need to change the incentives of the entire system and decentralize Medicare into regions. Instead of micromanaging provider payments, members of Congress should set broad policy goals and guidelines, and let newly empowered regional medical managers do the hard work of demanding more for our health care dollars.

It is ironic that, because so much of Medicare is managed from Washington, the result is a fragmented health care delivery system. Researchers at Dartmouth Medical School, led by Jack Wennberg, have discovered enormous waste and geographic variation in Medicare spending. In many places, doctors receive a fee for every procedure or test they do, and no single doctor takes responsibility for all the services patients need to stay healthy. Patients with chronic or complex health problems shuttle among different doctors, none of whom have a complete medical record or receive a payment to coordinate care. This drives up costs, but also drives down quality: Patients receive the recommended care only 55 percent of the time, according to a groundbreaking 2003 study by RAND.

But Wennberg’s team also found evidence pointing to a solution. While some areas of the country are fraught with high costs and low quality of care, others have low costs and high quality of care. For example, they posited that if all Medicare patients could receive their care in Rochester, Minnesota, home of the Mayo Clinic, then Medicare spending would drop by 15 percent, and the quality of care would rise. Doctors and hospitals in other areas of the country like Salt Lake City and Portland, Oregon, deliver Medicare benefits for nearly one-third less than the national average.

What makes these places work? In each, local medical leaders have made all the difference. Empowered to exert control over much of the care provision in their region, they have struggled to improve care for patients, which invariably leads to lower health care costs because people need less of it. And by creating a regional structure, they have overcome a tradition of independent medical practices that drive up costs elsewhere through duplication and a lack of coordination. For example, the Mayo Clinic, which acts as a de facto regional coordinator for health care in the Rochester, Minnesota region, pays its doctors a salary, and they work together as a team. They take the time to get the diagnosis correct first so they don’t waste time and money treating the wrong disease. They coordinate their care so they don’t duplicate tests, or even worse, hurt patients with overtreatment. They use electronic health records to assess quality and check for needed care that patients or their doctors may have missed.

To replicate the success of low-cost, high-quality delivery systems throughout the country, Medicare should be broken into regions and overseen by regional medical directors. These directors would then join with local coalitions of consumers and employers to experiment with new ways of paying for care and assessing the quality. Following the lead of Mayo and other regional coordinators, they would develop new payment models that require doctors and hospitals to be accountable for the cost and quality of care.

There is a federal precedent for the regionalization of federal health care programs: From 1994 to 1998, the Veterans Administration (VA) cut hospitalization rates in half and improved care for all veterans, thanks to a Clinton Administration initiative that brought VA hospitals and clinics under regional management. According to research published in the New England Journal of Medicine, this sweeping change involved beefed-up access to primary care for veterans with chronic illnesses in order to avoid hospital care. The results showed that veterans were no worse off, and in several areas such as heart disease, they were actually better off. Now, it’s time to do the same for Medicare.

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David Kendall is senior fellow for health and fiscal policy at Third Way.

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