Don't Give Up on Medicare Payment Reform

Pricey drugs make us feel blue.

Photographer: Joe Raedle/Getty Images

The quest to create a more rational health-care system took a dispiriting turn this month, when the federal government abandoned an effort to motivate doctors to use the best available drugs, rather than the costliest ones. What’s worrisome is that this could be the start of a more general retreat from payment reform in health care as the White House changes hands.

The effort in question was to change the fee that Medicare now pays doctors for administering drugs in their offices, a fee that amounts to 6 percent of the drug’s cost. Under this system, the pricier the medicine, the greater a doctor’s financial incentive to use it.

Given that drug spending by Medicare has been rising by 10 percent annually, and now tops $100 billion a year, this reimbursement policy is indefensible. Indeed, it illustrates why the U.S. spends 18 percent of its economic output on health care -- more than any other country.

Yet in March, when the Centers for Medicare and Medicaid Services (CMS) proposed shrinking the fee, doctors and pharmaceutical companies pushed back. Last week CMS capitulated.

The broader cause of payment reform is in jeopardy, too, partly because the present administration has moved slowly on it. When Barack Obama exits the White House, dozens of pilot projects for new payment systems will be left unfinished, and only a handful of those reforms have become mandatory. A bigger concern: Congressman Tom Price, Donald Trump’s pick to be health secretary, has already demanded that CMS scale back the initiatives.

The reforms CMS has pursued include such promising strategies as paying hospitals a single fee for a hip replacement and other procedures, paying doctors a fixed fee per patient, along with a bonus for improving care, and asking doctors and hospitals to coordinate the care they give in order to avoid providing unnecessary services. If Medicare could save money through such reforms, private insurers could follow suit.

Republicans, meanwhile, want to replace Medicare altogether with a voucher system that would help older people buy insurance on the individual market. Presumably, competing insurers could then figure out for themselves how to cut costs. But the companies could save money as easily by simply covering fewer services and shunning sicker patients as by giving doctors incentives to work more efficiently. 

The Obama administration’s unfinished payment-reform efforts are a far better way to lower costs -- for Medicare and for health care generally. They’re yet another important aspect of Obamacare that President-elect Trump should preserve.   

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.