Friday, April 22, 2011

No Mr. Ryan, We Do Not Need to Destroy Medicare to Save It

We Know How to Fix the Health Care System . . .

Costs can only be reduced by changing health care delivery in the U. S.  One must first start by recognizing that costs are one side of an equation, the other side being income to health care institutions and health care providers.  An increase in costs to a health care patient (consumer) is an increase in income to the health care system.  Obviously under a “Pay for Procedure” system the incentives for the health care system is to increase costs (income) and given that patients pay primarily on a fixed costs basis, there is no corresponding incentive to decrease costs.  Third party insurers (private health care plans, Medicare, etc) are caught in the middle of an unsustainable system.

The only solution is to restructure the system so that health care providers and health care institutions receive fix payments for providing health care.  Since increased income to providers and institutions could only come from reducing costs, under this system incentives would shift 180 degrees, from trying to increase costs to trying to decrease costs.  Here’s an example, which government could implement immediately for its Medicare and Medicaid clients.

Medicare and Medicaid recipients would have the choice each year to enroll with one of many health care alliances that would be formed to provide care for Medicare and Medicaid  recipients.  The alliance might be a large physician group allied with a hospital, a hospital allied with several physician groups, a hospital with employee/physicians, an insurance company that formed an alliance and so forth.  For each Medicare recipient who selected a specific alliance, that alliance would get $X per year (say $15,000) to provide all the health care needs for the recipient.  This payment would be the same for all patients, regardless of their health or age and an alliance could not discriminate.   A small deductible and co-pays would be necessary to prevent abuse by patients, the same as we have now. 

Once the alliance had this payment its incentive would be to reduce costs to increase profits and keep as much of the $15,000 per enrollee as possible.  Even more important, it would have a wellness incentive, an incentive to keep its enrollees in good health.  The government would get out of the business of deciding on treatments or setting reimbursement rates.  The alliance would be a driving force for efficiency and productivity and innovation in health care.  Once established, alliances would seek to enroll private employer groups, thus gaining even more economies of scale.

In order to prevent patient abuse and lack of care, enrollees would have the choice each year of switching to a different alliance, thus requiring alliances to compete on service for enrollees.  Additional safeguards such as an appeals group could be set up to decide a care dispute between an enrollee and an alliance if an enrollee felt he or she was being denied adequate treatment.

This requires physicians in particular to stop becoming entrepreneurs and become employee/doctors, which is what they should be.  They could still make huge amounts of money, it’s just that they would be doing so by keeping cost increases low and keeping patients well.  If they wanted to be entrepreneurs, there is nothing to stop them from organizing an alliance.

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