July 9, 2009 / 8:14 PM / 9 years ago

Big changes in Medicare pay key to health reforms

WASHINGTON (Reuters) - Recent industry deals to accept lower costs for the Medicare health program are a first step in healthcare reform but more substantial payment changes will be needed to shore up the ailing system in the long term and improve patient care.

Senator Roland Burris on Capitol Hill, January 27, 2009. REUTERS/Larry Downing

The Pharmaceutical Research and Manufacturers of America, which represents big drugmakers such as Pfizer Inc and GlaxoSmithKline Plc, last month agreed to $80 billion in drug savings over 10 years, including some for Medicare patients.

Hospitals followed suit this week, accepting $155 billion in Medicare cuts over a decade, while curbs for insurers who run certain private Medicare plans such as UnitedHealth Group Inc and Humana Inc are also expected.

But some experts worry that much of the healthcare reform debate so far has focused on short-term cost cuts. Yet to be tackled is how to restructure incentives and payments to drive doctors, hospitals and others away from frequent, expensive treatments to more efficient, higher-quality care.

“The agreements announced so far seem to put most of the weight on squeezing down prices further rather than supporting reforms of how healthcare is delivered,” said Mark McClellan, director of the Brookings Institution’s Engelberg Center for Health Care Reform and a former Medicare administrator.

One fundamental reform seen as badly needed is to link doctors’ pay to improving their patients’ health, rather than for each office visit, procedure or hospital admission. That approach would give providers one so-called “bundled” payment to cover a greater portion of a patient’s care.

The U.S. healthcare overhaul should also boost payments for primary care — such as regular check-ups with a family doctor who can spot potential health problems early, experts agree. In the current system, specialists tend to take home the biggest payments.

Such efforts could ultimately save the system money over time, according to McClellan and others.


If those changes were made by the government-run Medicare program, it would go a long way toward reforming the entire U.S. healthcare system. Medicare, the biggest health care payer, covers more than 44 million elderly and disabled Americans and already faces possible bankruptcy in 2017.

“Right now, the bad component of Medicare and a lot of private plans is that we pay every time you come in,” said Medicare Rights Center President Joe Baker, whose group represents Medicare beneficiaries.

That gives providers financial incentives to provide more care, “churning lots of patients through the health care system,” said Baker. “To the extent that we can prevent that, we cannot only save the system but also make life easier for patients.”

That means not paying for unnecessary tests or for mistakes that force patients to return to a hospital, he said.

Medicare has already taken steps this year to reduce its annual payment rates for skilled nursing facilities and certain hospitals. Those proposed cuts could save hundreds of millions of dollars, according to the Centers for Medicare and Medicaid Services, the agency that oversees the program.

But U.S. lawmakers are hammering out several bills that need to find even more savings to pay for the estimated $1 trillion expansion of care that aims to cover many of the 46 million Americans without health insurance.

While a variety of options and taxes are being considered to pay for the overhaul, Congress must include concrete actions that change how providers are paid, said Paul Ginsburg, president of the Center for Studying Health System Change.

“As far as practical things that have the potential to slow the growth of costs, payment reform is at the top of the list,” said Ginsburg, whose nonpartisan group focuses on financing.


It is not yet clear what specific Medicare changes Congress will include in legislation. The House of Representatives is expected to release its official version of a health reform plan as early as Friday, while the Senate Finance Committee could have a bill to debate as early as next week.

President Barack Obama, whose administration negotiated the pharmaceutical and hospital deals with lawmakers, has said he wants final legislation to sign by October.

Reduced payment and other price squeezes are likely to be part of the package and do offer short-term savings, said Judy Feder, a senior fellow at the Democratic-leaning think tank Center for American Progress.

But they must be combined with more attractive payments for doctors and others to help their patients stay healthier or by streamlining treatment, she said.

“We need to accompany the traditional savings with new rewards,” Feder said.

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