Last Word

May 20, 2005

How I'd fix Medicare

Medicare is clearly broken. The rising costs of technology and the increasing number of beneficiaries are placing financial strains on the system that can only be eased by decreasing benefits, increasing premiums, or cutting payments to clinicians.

Decreasing benefits is a pipe dream, and Congress is loath to alienate voters-especially older voters-by increasing premiums sufficiently. That leaves us poor clinicians to face steady decreases in reimbursements as our costs surge.

Here's what should be done: First, end limits on what physicians can charge Medicare. That is, we'd be allowed to charge up to the so-called "usual, customary, and reasonable" amount-but no more than our highest commercial rate. Before AARP starts screaming, I'd stipulate that the Medicare program should retain fee ceilings for seniors with incomes at or below twice the poverty level. I'd also include a hefty carrot for doctors to keep their fees down: Patients taken on an assigned fee basis would give up their right to sue for malpractice. Instead, they'd agree to participate in a no-fault system, in which an expert panel would determine compensation for patients who have suffered preventable medical injuries.

Third: Some studies have indicated a close relationship between volume and quality. To lower Medicare costs while improving patient outcomes, let facilities and their physicians bid on common, nonemergency procedures: total hips and knees, cataracts, coronary bypass, gallbladders, hernias, etc. Only hospitals with good outcomes need apply. When Fred and his doctor feel it's time for a total knee, he phones Medicare and learns that the hospital across town will give him a package price of, say, $20,000. And Medicare will cover all but his deductible-like a diagnosis-related group, but this DRG would be negotiable on an annual basis. If Fred wants the hotshot surgeon who fixed his brother-in-law at the hospital down the street to do the job, he'll have to pony up the difference.

Physicians willing to accept Medicare rates-and arbitration-would probably see a reduction in malpractice premiums. Patients would benefit as real competition between hospitals drives costs down. Doctors would find themselves doing more surgery in a week than they do in a month now-albeit at a lower rate. Outcomes would improve. Doctors who don't want to play the game can opt out and charge whatever they want.

Lastly, I'd broaden Medicare's base by letting early retirees buy into the program. Actually, it might make sense to offer Medicare to all the uninsured. Give them a chance to sign up, but with the caveat that-unlike seniors-they pay their share of the costs. And let physicians bill their customary fees, with Medicare covering only the fee schedule amount. Broaden the base with these patients who will cost the system less but pay more, and you'll shore things up for years to come.

These changes would be voluntary. Doctors, hospitals, and patients all get to make informed choices, and only the marginal providers who can't compete would suffer. Let's give the market a chance to work. We'll all be better off.