Taming Runaway Medicare Costs
The cornerstone of any viable health-care proposal has to be putting the brakes on the escalating cost of care. Those who advocate expanding the federal government's role by insuring Americans under 65 should first answer this question: If Medicare can't control costs, how could another government insurance program succeed?
The biggest obstacle to reining in Medicare costs has long been that Congress ultimately decides which services are reimbursed and for how much. In this role, lawmakers are targeted by lobbyists for doctors, hospitals, makers of pharmaceutical and medical devices, and patient advocacy organizations. Each group pushes for more care or fatter reimbursements with little or no regard for the overall costs that result. This has left us with a system in which many doctors no longer accept patients on Medicare to avoid issues and costs tied to low reimbursement, as other health costs have spiraled ever upward.
It doesn't have to be this way. Consider: In 2005, the New England Journal of Medicine published a large study funded by the National Institutes of Health and a consortium of pharmaceutical companies, conducted at 74 sites in the United States, comparing the cost-effectiveness of drugs used to treat schizophrenia. It found that, on average, a low-cost generic drug was as effective, if not superior, to most of the more expensive proprietary drugs. The authors estimated that restricting the use of proprietary drugs in favor of a more cost-effective generic drug for the first line of therapy might have saved Medicare $5 billion to $10 billion a year. But interest groups' lobbying persuaded lawmakers to block Medicare from restricting reimbursement to a level closer to the price of the generic drug. Another NIH-sponsored study looked at patients with high blood pressure at risk for heart attacks and strokes and found that a simple, low-cost diuretic medicine was at least as effective as newer medicines. Experts, not politicians, should be making these decisions.
Meanwhile, though beneficiaries are mostly pleased with Medicare, most hospitals and doctors are not. And little wonder that some providers are refusing to treat Medicare patients: The program's regulations run thousands of pages, making it incredibly difficult to understand why certain tests or treatments are reimbursed as they are. The Medicare fee schedule for doctors alone has more than 10,000 rates of coverage.
In years past, simply focusing on cutting costs has not worked. Trying to move more patients into Medicare HMOs does not appear to be working. Proposals to transfer Medicare oversight to the states simply shifts responsibility without addressing the real problem; it fails to eliminate the political influence on decision making about how Medicare dollars are allocated.
So why not let Congress continue to decide how much, in total, it is willing to obligate to Medicare spending each year? Then create an autonomous agency, like the Federal Reserve, to oversee and determine how Medicare dollars should be spent.
Members of this Federal Medicare Reserve would consist of a Board of Governors and a chairman, nominated by the president and confirmed by Congress, who would be charged with defining how the system should operate and how dollars should be allocated. There could also be a series of regional Medicare Reserve Boards that would provide more local oversight over Medicare payments.
There is a precedent of sorts for such an agency. Before the Federal Reserve System was created, our nation experienced numerous financial panics. The Fed has not eliminated all problems, of course, but certainly in the past year we have seen its ability to mitigate them. Its quick, expert work last year allowed our citizens and other countries to maintain confidence in the U.S. banking system.
In much the same way, a Federal Medicare Reserve would be responsible for keeping the Medicare system financially solvent while providing effective health care. Its creation recognizes that -- like our monetary system -- Medicare policy requires a steady hand, an informed understanding of the system, freedom from undue political pressure and a long-term view. Health-care policy is not amenable to management by a group that regularly raises campaign contributions from special-interest factions.
As our nation considers health-care reform, we must provide ways to effectively manage the costs of care. Given the right tools and proper incentives, Medicare costs can be slowed to a rate more consistent with inflation. Let's start by putting the responsibility for Medicare payments in capable hands.
The writer, a physician, is president of the Salk Institute for Biological Studies. He was president of the Johns Hopkins University from 1996 to this year.