Controlling Healthcare Spending, Without Killing People or the Program

Suggestions to the new congressional debt committee from the Incidental Economist:

1. Competitive bidding, also known as competitive pricing. This idea really puts the market to work to buy Medicare benefits for the lowest possible price on a market-by-market basis. Participants can be public and private entities. It piggybacks on the exiting, hybrid structure of Medicare (FFS Medicare + Medicare Advantage) and makes all participating plans compete directly in a way they never have. Scholars have estimated the savings to be 8% of Medicare spending. I’ve written a lot about this elsewhere. Perhaps this post is the best place to start.
2. Competitive bidding can be put to work for durable medical equipment too. See the work of Peter Crampton.
3. Part D formulary design and drug pricing. Did you know the VA buys drugs for 40% less than Medicare? True! That alone suggests Medicare could spend a lot less on drugs. There are many possible Part D reforms that would lower program spending. Kevin Outterson wrote about some. For more about what it would take and mean to make Medicare’s drug benefit more like the VA’s see my post, which links to my paper with Steve Pizer and Roger Feldman.
4. Reference pricing. This idea came to me via David Leonhardt and Peter Orszag (smart guys, by the way; you should talk to them). The basic idea is that Medicare should only spend an amount on therapy for a condition equal to the lowest cost, effective one (that’s the “reference price”). If individuals want more costly therapies that are no more effective, they should pay the difference out of pocket. There’s more to this. See this prior post and related links therein.
5. There are lots of things Medicare shouldn’t even be paying for at all because they don’t work. See Rita Redberg’s NY Times op-edon this.
6. Support comparative effectiveness research so we can learn more about which therapies are most effective. There is too much we don’t know and it is costing us. Let ACOs be tested. We don’t know if they’ll work, but they’re worth a try.
7. Support the IPAB. Isn’t it obvious by now that Congress itself can’t control Medicare costs? 7. 8. Consider all-payer rate setting. More on that here. Perhaps this post is a good starting point

Medicynical Note: These are excellent suggestions, many of which approach the issue of value and efficiency.. The new super congress however, is unlikely to look deeply into programs and solutions but rather will opt for across the board type fixes. On one hand republicans would view such fixes as an opportunity to hamstring Medicare which their conservative base views as evil. On the other hand, the democrats have shown little insight or particular interest in constructive alteration of Medicare.

Underlying both parties is the desire to hang the responsiblity for Medicare cuts on the other. Not a particularly constructive atmosphere for controlling costs and maintaining quality.


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