Medicare needs to take the lead for health care cost control

One of the big complaints about the recently enacted health care reform law is that it does little to control costs. There is some truth to that because the major focus is on increasing access to insurance. And yet there is reason for optimism on a couple of fronts:

  • First, with many of the access issues settled, stakeholders can focus directly on cost matters rather than cost-shifting and finger pointing
  • Second, health reform actually does provide Medicare with opportunities to make significant payment reforms

The first issue is playing out in Massachusetts today. As the Wall Street Journal reports, the three candidates for Governor are talking seriously about how to control health care costs. And these issues are being addressed with substantive arguments – not the scare tactics and divisive arguments we’ve seen on the national stage:

There is fairly broad agreement on how to fix the system. A state commission —including representatives of government, insurers, doctors and hospitals—recommended in July that Massachusetts adopt a “global payment” system. Health professionals would be paid for caring for patients over a certain period of time, rather than compensated for each test or treatment. Implementing the fixes, though, will take years.

Within that broad agreement are some serious differences among the candidates:

  • Governor Deval Patrick has focused on capping rate increases by insurance companies. On its face, this is not a very smart move because it will cause major losses among health insurers and lead to their insolvency. However, these entities want to survive, so if the caps are real it will force insurers to deal differently with providers and members than they have in the past, when they’ve happily passed rate increases along to purchasers, who are not in a position to do much about it
  • Republican candidate Charlie Baker, former head of insurer Harvard Pilgrim, wants transparency on costs and outcomes. This would show community hospitals are as good and cheaper than the academic medical centers for most conditions. Baker has been advocating this line of reasoning for many years, but perhaps now people are ready to listen
  • Independent candidate Tim Cahill has focused more on rolling back health reform, with the idea that we can’t afford it. This, too, is a reasonable voice to have in the debate. He’s right we can’t afford it – unless we address costs. But many people would rather find a way to control costs and preserve universal access

The federal plan is essentially a scale-up of the Massachusetts plan, so some similar dynamics will play out there. However, I doubt the debate will be as thoughtful or respectful.

On the other hand, the inclusion of Medicare in the federal plan is huge. State-based and privately-led cost control initiatives are held back by the lack of participation by Medicare. One reason Baker himself gave up on payment reform was that hospitals just paid attention to Medicare and ignored Harvard Pilgrim’s initiatives.

Although it’s by no means a foregone conclusion that Medicare will make rapid changes, it’s quite clear that if Medicare does make a big change in payment methodology that can control costs, private insurers will follow right along. It’s increasingly likely to happen over time as the federal government faces up to Medicare’s eventual insolvency.

David E. Williams is co-founder of MedPharma Partners and blogs at the Health Business Blog.

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  • Donald Green MD

    Hmmmm. A little political bias going on here. The governor realizes the short term nature of cost control by fiat. We will see if he can make good on his goal of making health care more affordable. His feet should definitely be held to the fire on that one. Charlie Baker had several years to control costs with Harvard Pilgrim and no success. His verbiage has a better track record than his performance in terms of saving his subscribers any money. Tim Cahill is a tea party favorite and thinks slashing taxes will bring back prosperity. The latter has never been even a short term solution. The problem is how enities to the health care debate, insurers and prividers, set pricing. It is in secret, uneven, and cost shifting to the payers of premiums. Time to pick a different road with all players charging the same for the exact same services with open negotiations with reps from all parties at the table. Let them compete on service with pricing that makes sense not the Rube Goldberg affair we have now.

  • zzz05

    “if the caps are real it will force insurers to deal differently with providers and members than they have in the past, when they’ve happily passed rate increases along to purchasers, who are not in a position to do much about it”

    ?? Say what? Every insurer I’m familiar with is sweating blood trying to squeeze their rates as low as possible, in a marketplace where penny-pinching employers are choosing coverage for their employees on the basis of the lowest price for the next year; whether that rate reduction is accomplished by better disease management, squeezing providers harder, cutting benefits, or moving business operations offshore.

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