One of the most under-reported medical success stories in recent years has been the increase in medical tourism: traveling abroad to get high-quality care at a fraction of what it would cost in the United States.
The same Lasik eye surgery that might cost $4,400 here (for both eyes) is available in India, for example, for $500, according to the Medical Tourism Association. A heart-valve replacement that might cost $170,000 in the United States could cost less than $30,000 in Israel.
While going overseas for care isn’t for most people, it certainly should make us wonder why we don’t encourage Americans, especially Medicare recipients whose bills are largely paid by taxpayers, to at least shop around in their own states or communities.
Recent growth in Medicare spending per beneficiary has been slower than the Congressional Budget Office and others expected. That’s in part because of the recession: Even Medicare beneficiaries cut their consumption of health services when times are tough. It’s also because expiring brand-name patents have been making way for generic drug replacements and because we’ve begun to see competitive bidding for certain medical supplies.
Total Medicare spending, however, is still growing as a share of the federal budget and will continue to do so as more baby boomers age into the system.
The best way to slow this growth is not by putting the squeeze on Medicare beneficiaries, as well as drug companies, hospitals and other providers — as President Obama’s $4 trillion budget plan would do — or by creating new bureaucratic barriers to care, but by providing Medicare recipients with incentives to seek the best care for the best price. And you do that by allowing them to share in the gains from reducing costs.
This reform would mark a departure from the top-down decision-making typically used to impose cost savings in this area. The classic example is how Medicare pays for supplies known as durable medical equipment (DME).
Until recently, Medicare paid for DME using the same fixed-fee schedules that it uses for doctors and hospitals today. The Medicare Modernization Act of 2003 directed the secretary of health and human services to implement competitive bidding for DME contracts, a process that has saved taxpayers hundreds of millions of dollars.
Unfortunately, it took nearly a decade for Medicare to implement the new system. Why? Because politics got in the way.
The initial round of bidding in 2008 resulted in prices falling to about half of what had prevailed for power wheelchairs, electrical hospital beds and diabetic test strips. Suppliers that had profited under the prior regime but couldn’t compete when bidding was opened up did what sore losers frequently do: They went to Washington to seek protection, leading to more years of delay.
In 2011 — eight years after being legislated — competitive bidding finally took effect. In two years alone, the new process saved taxpayers $400 million, according to the Government Accountability Office. It also cut the inappropriate use of some equipment by more than 20 percent, all without limiting patients’ access to needed medical technology.
But suppose that instead of Medicare running the competitive bidding and sending the savings to the U.S. treasury, it empowered beneficiaries to shop for DME themselves and offered to reward them by adding a portion of the savings to their monthly Social Security deposits. This would give seniors a strong incentive to use their consumer power to reduce prices.
A similar consumer-driven incentive system could help reduce costs in other areas as well, including outpatient surgery and hospitalizations.
This isn’t pie in the sky. In 2011, the California Public Employees’ Retirement System, in collaboration with WellPoint (now Anthem ), introduced “reference pricing” for knee- and hip-replacement surgeries.
Under this plan, employers pay a fixed fee — and no more — for such operations. Patients can have the surgeries performed at high-quality, low-priced facilities or choose higher-priced facilities. But if they choose the latter, they pay the difference themselves. As a result, high-priced facilities have cut their fees on average by one-third. The market works.
To succeed politically, a Medicare version of reference pricing would have to turn the incentive around: Instead of paying the low price and requiring beneficiaries to pay more if they wanted to go to a higher-priced facility, Medicare would probably have to start with a higher reference price and offer seniors a rebate, added to their Social Security income, for a portion of the savings they achieve by choosing a lower-priced facility.
Seniors would also have to bear some of the risk of choosing lower-priced facilities that might not meet the same quality standards and result in higher costs down the road — an important provision because hospital readmissions due to inadequate treatment have cost Medicare a bundle. Each year, some 2 million Medicare patients have to be readmitted within 30 days of leaving a hospital, according to the Centers for Medicaid and Medicare Services, at a cost of $26 billion. The agency estimates that $17 billion of this could have been avoided through higher-quality care.
Yes, Medicare recipients in rural areas, who have fewer facilities to choose from, would benefit less than city dwellers from this reform in the short term. However, once Medicare patients have a reason to pay attention to price, entrepreneurial low-cost providers would find it more attractive to enter rural areas, and both access to care and the quality of that care could improve.
Would Medicare beneficiaries accept the opportunity? Bad knees or not, the seniors I know would jump at it. Indeed, retirees may have the most time to invest in discovering where Medicare savings might be found. Or put another way, where they can get quality care at a reasonable price: medical tourism here at home.