Medicare is changing the way it pays for health care.

Photographer: Francis Dean/Corbis via Getty Images

Another Piece of Obamacare That Trump Should Keep

Peter R. Orszag is a Bloomberg View columnist. He is a vice chairman of investment banking at Lazard. He was President Barack Obama’s director of the Office of Management and Budget from 2009 to 2010 and the director of the Congressional Budget Office from 2007 to 2008.
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To get a sense of the future of American health care, amidst the post-election uncertainty, watch what happens to the Center for Medicare and Medicaid Innovation. This agency, created as part of the Affordable Care Act, has attracted substantial opposition. A recent proposal to change reimbursement to doctors for administering certain drugs, in particular, has led to calls that it be abolished. But let's hope the center survives, because it could prove crucial to any new effort to raise the value of health care in the U.S.

Republicans and Democrats agree that our health-care system needs to move away from fee-for-service payments, which give doctors an incentive to provide more care rather than better care. This payment shift can be accomplished either by encouraging private insurance companies to change how they reimburse hospitals and doctors, or by directly changing how Medicare -- the largest single purchaser of health-care services -- pays those providers. Republicans have tended to favor the former approach and Democrats the latter, but both sides recognize that a combination is needed.

Reflecting this understanding, in 2015, strong majorities of both parties passed legislation to move Medicare's doctor payments away from fee-for-service and toward value-based structures. That rare episode of bipartisanship should signal something important to the next administration: Private insurance firms alone cannot alter the incentives that hospitals and doctors face; Medicare needs to help drive the shift.

And if you want to change the way Medicare pays doctors and hospitals, the innovation center is your friend. It was created to test innovative service-delivery models and allow promising ones to be scaled up quickly, without the need for new legislation.

The center has already put into practice a wide array of demonstration projects. One good example is the new Oncology Care Model, which cancer specialists helped develop and is now being used by about a quarter of all oncologists in the country.

The innovation center is also saving money. Indeed, it is expected to reduce net federal health spending over the next decade by almost $30 billion, according to the Congressional Budget Office. And the center will need to develop new models in order to fulfill the potential of the 2015 legislation on doctor payments.  

So what’s not to like? Why is it that the center might be repealed during Congress's current lame duck session? Criticisms take three forms.

First, some lawmakers object to any diminution of congressional power, and the center is allowed to put programs in place without congressional approval, if the evidence shows they work.

Second, the center has required that Medicare use bundled payments for all the care associated with hip and knee surgery and will require them for certain types of cardiac care. Because they're mandatory, these shifts are more effective than other voluntary changes, but they're also more contentious.

The most heat, however, has arisen in response to a proposal that would shift the payments for administering drugs within Part B of Medicare. Rather than pay doctors a percentage of each drug’s cost -- encouraging them to choose more expensive drugs, regardless of their benefits -- Medicare would provide a fixed payment unconnected to the drug’s cost. I favor this change, but given how unpopular it has become, it clearly will never take effect.

With the Part B controversy thus resolved, the remaining question is whether the center itself will survive. It should. The incoming administration should protect it, to see that Medicare can still lead the health-care system away from fee-for-service payments and toward higher-value care.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Peter R. Orszag at porszag5@bloomberg.net

To contact the editor responsible for this story:
Mary Duenwald at mduenwald@bloomberg.net