Curbing Medicare Costs Without Vouchers

About 10 years ago, a new radiation treatment for prostate cancer came on line. A single course of “intensity-modulated radiation therapy” cost Medicare about $42,000. The older radiation therapy cost $10,000. Hospitals bought the new machines and stopped using the traditional method. This tacked another $1.5 billion per year to Medicare spending on prostate cancer alone.

Did the fancy new machines do a better job than the old ones? Medicare did not inquire. It just paid. Amazing.

A new McClatchy/Marist poll has 80 percent of Americans opposing cuts in Medicare and Medicaid spending to reduce deficits. Well, 80 percent of Americans don't quite understand Medicare's reimbursement system and how crazy it is.

Forget the Republican plan to squeeze Medicare spending by moving to a voucher system. First, look at the existing setup. For most any treatment deemed “reasonable and necessary,” Medicare pays the cost plus some profit. This has turned the program into a brainless check-writing machine for the medical-industrial complex.

Not long ago, an article in Health Affairs used the above prostate cancer example to show the ludicrous way Medicare pays for things. “Coverage is determined without any requirement for evidence demonstrating that the service in question is equally or more effective than other available options,” write Steven Pearson, president of the Institute for Technology Assessment in Boston, and Peter Bach, a critical-care physician at Memorial Sloan-Kettering Cancer Center in New York.

Enter “comparative effectiveness research” — perhaps the most boring term in public policy today, but essential to containing the explosively rising costs of Medicare, Medicaid and private health coverage. (I suggest “best for less” as a catchier name.)

Comparative effectiveness research studies different treatments for the same condition and identifies those that do the job with the fewest side effects. Medical economists generally agree that our system groans with pricy treatments that provide outcomes no better — and sometimes worse — than less-expensive alternatives.

The 2009 stimulus bill and the health-reform legislation contained spending for this research, which Republicans and some Democrats fought tooth and nail. They expressed concern that it would discourage medical innovation. Their unstated worry was that taxpayers would become resistant to sending big checks to equipment makers and other medical providers for bells, whistles and exotic names that add nothing to the quality of care. Much of political Washington has a vested interest in the vested interests.

Pearson and Bach have come up with an intriguing way to use comparative effectiveness research without stifling the development of improved technology. They would use this research to have Medicare pay the same thing for services that provide equivalent results. But it would reimburse new technologies at the higher rates for, say, three years. If they prove to be superior, then Medicare continues to pay more for them.

What the 80 percent of Americans who oppose spending cuts on the government health plans really want is the assurance that they can get state-of-the-art medical care when they need it. Responsible leaders must impress upon them that enormous savings can be found in Medicare without reducing quality one iota. Furthermore, the perverse incentives in our reimbursement system encourage too much care, which itself can hurt patients.

There's no need for a radical voucher plan that saves money by sending the elderly to private insurers, then curbing payments to the insurers. The government can continue picking up the bills if Medicare starts considering value received for the checks it writes.

Patients would be happy. Taxpayers would be happy. Some vested interests would not be happy, and they have lots to spend on scaring the public. The question at the end of the day is: Who matters more to our politicians?