Must-Read on Health Care and the Budget

Jonathan Cohn's article in the American Prospect is the best reporting on health care costs and the federal budget I think I've seen. This is probably the most important part, but the whole thing is worth a thorough read.

Historically, Medicare, like private insurers, has rewarded doctors and hospitals for performing more procedures. (While the payment reforms of the 1980s, so called "diagnosis related groups," helped mitigate that problem, they didn't eliminate it.) But patients don't actually seem to be better off for the extra attention. The proof of this lies in the now-famous work of John Wenn-berg and his colleagues at Dartmouth Medical School. As they and their disciples have repeatedly demonstrated, Medicare currently underwrites vastly different levels of care in different parts of the country. Seniors in South Florida, for example, get a lot more medical care than seniors in Minneapolis -- apparently because South Florida has a great many more doctors (who often overtreat their patients). But statistically, South Florida seniors don't seem better off for the extra care. That means Medicare must be paying for a lot of unnecessary or counterproductive treatments.

That's why reducing unnecessary care (as opposed to simply reducing care, which is what crude increases in cost-sharing would do) is the first key to Medicare's financial survival -- and the efficiency of the health system generally. Medicare could, for example, offer financial incentives to providers that follow established best practices. Medicare could also reward those that make information about its practices and outcomes publicly available. The incentives to do this can be positive, in the form of bonuses, or negative, in the form of penalties. Medicare might also encourage seniors to enroll in integrated practice settings, like the highly regarded Group Health of Puget Sound, which have been shown time and again to offer some of the most cost-effective -- and, by most measures, the best -- medical care available. This is not the same as simply herding seniors into loosely organized managed care systems, only some of which actually integrate care and emphasize prevention the way places like Group Health do.