Medicare Advantage Cuts Wrong Prescription for Improving Healthcare Efficiency

Robert Margolis, MD, and Craig Frances, MD, for HealthLeaders Media, July 17, 2009

No physician would develop a treatment plan for a patient without first spending time to accurately diagnose the patient's condition. Misdiagnosis can result in debilitating outcomes for patients, while wasting valuable time and money. In its diagnosis of what ails the U.S. healthcare system, the Obama administration is at great risk of making a costly mistake by proposing cuts in a program that successfully addresses a core problem—the lack of coordinated care.

No one can dispute the facts about our failing healthcare system. We rank behind 27 other countries with respect to life expectancy. We have higher rates of infant mortality, age-adjusted mortality from cancer and cardiovascular disease, and deaths from controllable causes. We are 20th among 21 comparable countries in child well-being, and are last in healthcare system performance measures of access, safety, efficiency, and equity when compared with our global counterparts, including Australia, Canada, Germany, New Zealand, and the United Kingdom.

Despite these facts, our healthcare system costs $2.2 trillion per year—$650 billion more than it should cost based on our GDP and the close correlation between a country's GDP and its healthcare spending. Most of this overage occurs in settings where we more commonly have inappropriate provider incentives.

The physicians in our country are the engines of our healthcare system, but currently we are failing to create the right incentives for them to provide high-quality, cost-effective care. For inpatient care, most hospital providers are paid by episodes of care or diagnosis-related groups. By receiving a set fee for caring for a specific type of patient, hospitals and some affiliated providers bear some risk and are therefore encouraged to provide care cost-effectively.

As may be expected from these appropriately aligned incentives with providers, the U.S. does not overspend for inpatient care versus comparable countries. In contrast, outpatient care in the U.S. is predominantly a fee-for-service model, a system that rewards inefficiency with more pay for a higher number of visits, tests, prescriptions, and hospital admissions and even for complications, regardless of improvement in patient outcomes.

Given the wealth of incentives for providers to do more and the lack of incentives to create efficient systems of care, it is not surprising that we spend more than $400 billion for outpatient services—too much of it without demonstrable benefits.

An alternative to this inefficiency exists inside our own Medicare system. Of our 45 million Medicare beneficiaries, 10 million have enrolled in and are cared for as part of the Medicare Advantage program. Unlike the fee-for-service system that cares for the remaining 35 million beneficiaries, the MA program pays a set fee for the care of each beneficiary, caps what the government pays, and thus rewards efficiency.

Most importantly, the MA program has helped to provide an impetus for the formation of integrated healthcare delivery systems in many areas of our country. Because providers bear some risk related to poor patient outcomes, these integrated systems often invest in technology, measure and report quality, foster collaboration between medical specialties, and focus on prevention and disease management in order to limit costly outcomes, such as unnecessary patient hospitalizations.

Cost savings are not the only advantages of integrated care. Integrated systems permit physicians to compare themselves to other practitioners on managing patients with chronic conditions, such as diabetes or on the appropriate administration of screening tests. Physicians tend to be both data-driven and competitive, and these systems can produce quality improvements almost effortlessly.

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