Medicare: Time for a New Preamble

Forty years ago this month, President Lyndon B. Johnson signed the law establishing Medicare. Today this program provides health insurance to 42 million elderly and disabled adults—ensuring access to health care and protecting beneficiaries from devastatingly high medical bills. Organized medicine opposed the enactment of Medicare, so backers made some significant concessions to see it become a reality. One is reflected in the first section of the Medicare law, which states: "Nothing in this title shall be construed...to exercise any supervision or control over the practice of medicine or the manner in which medical services are provided...."

So Medicare, which was focused on providing access to health care to the elderly, accepted the health care system as it was and made no explicit attempt to encourage improvements in quality of care or the way in which health care was organized and delivered. Medicare has largely remained this way for most of the program's first 40 years. But it has become apparent that this laissez-faire approach needs to be rethought. Many in the health policy and clinical communities are thinking a lot about Medicare these days. Indeed, the program, its successes, shortcomings and future challenges, is the subject of our latest Commonwealth Fund Health Care Opinion Leaders survey.

Tapping Medicare's Potential
Over the last four decades, the biggest criticism leveled at Medicare has been that its costs rise more rapidly than anticipated. Medicare outlays have, in fact, grown as overall health care costs have grown. We also know that there are wide variations in the quality and efficiency of the treatment that Medicare beneficiaries receive. But such variations mirror similar variations in quality and efficiency of care elsewhere in the health system.

What has become increasingly clear is that, as the largest single payer of health care services in the United States, Medicare has untapped potential to promote greater quality and efficiency in the health care services it delivers. In so doing, the program likely can serve as a model for private insurers as well.

Medicare already has shown leadership in this area. In 1983, it introduced the prospective hospital payment system, which provided hospitals with an incentive to shorten hospital lengths of stay and reduce the cost of each case. This was followed in 1992 with the resource-based relative value schedule for Medicare physician payment—an innovation widely adopted by private insurers that has allowed private plans to negotiate rates with hundreds of thousands of physicians for thousands of different services.

Supply Side Efficiency
But Medicare could do far more to promote "supply side efficiency." Medicare payment could be restructured to provide "bonuses" to hospitals, physicians, and other providers who achieve high levels of quality and efficiency or improve performance in those aspects of care. Another strategy would be for Medicare to create a virtual "value network" of high-performing providers. Such a network would include hospitals, specialists, and primary care physicians who rank high on quality and low on total cost of care. Incentives, such as the waiver of Medicare's cost-sharing requirements, could reward beneficiaries who agree to use services provided by "value providers."

Here too, Medicare has made strides over the years. In 1982, the program encouraged integrated health care delivery systems to participate in Medicare by establishing a new category of provider: health maintenance organizations (HMOs), which were paid a fixed capitated rate. Many of the initially participating HMOs were tightly organized group practices with mechanisms for ensuring quality and avoiding unnecessary or inappropriate care. Physicians were typically salaried or under contract to practice exclusively within the system.

In the 1990s, the number of private HMOs participating in Medicare grew rapidly. But these HMOs succeeded largely by attracting a relatively healthier group of beneficiaries. Enrollees in these plans generally received additional benefits not covered by the Medicare fee-for-service program, but these additional benefits were underwritten by a growing discrepancy between plan payments and the health care costs enrollees incurred. When that discrepancy was eliminated in the late 1990s, the additional benefits—and many of the private plans—were no longer available to Medicare beneficiaries.

Medicare could return to its original intention of encouraging systems that deliver better care at lower cost by more explicitly encouraging the increased efficiency and effectiveness that organized group practices can offer. This could involve designating a new provider category of group practices. One promising strategy is the ongoing Medicare Physician Group Practice demonstration, in which nine participating groups receive efficiency bonuses if they reduce the growth in health care outlays relative to the cost of care of similar beneficiaries in the same geographical area. A portion of bonuses is contingent on reaching quality targets for proper management of chronic conditions.

Care Coordination and High-Cost Care Management
There's still more that Medicare could do. Most beneficiaries, for example, have one or more chronic conditions. Proper care of those conditions can prevent hospitalization and rehospitalization. To help patients learn self-care, Medicare could assign advanced practice nurses to high-risk patients hospitalized with congestive heart failure to provide follow-up care at home. Such an effort would require restructuring Medicare benefits to target services to those most likely to benefit and paying for transitional care services. The Commonwealth Fund is supporting an evaluation of this concept in a private insurer plan in the mid-Atlantic region, and the Centers for Medicare and Medicaid Services has included it as one of 10 Chronic Care Improvement pilot projects.

In addition, Medicare could be more proactive in engaging beneficiaries as active partners in their care. For example, the program could create "personal health records" for each beneficiary from administrative files, with a history of his or her health care utilization over time. If these records included lab test results and prescriptions filled, they could provide a helpful summary of the beneficiary's medical problems, diagnostic procedures, and treatment. Beneficiaries could share this information with multiple providers, helping to coordinate care and eliminating the need for repetition of tests and patient information. If coupled with decision support for beneficiaries and providers, the records could also remind beneficiaries of the need for preventive or follow-up care, and raise concerns about contraindicated medication use, which beneficiaries could discuss with providers.

A "New Preamble" for Medicare
Medicare has served beneficiaries well for 40 years. However, it will come under increasing strain as baby boomers reach retirement and as advances in modern medicine continue to extend life expectancy and improve quality of life for our nation's oldest citizens. Now is an opportune time to revisit some of the assumptions on which Medicare was predicated. In effect, it is time for a new Medicare "preamble," one that charges Medicare with using its purchasing power to promote high-quality, high-efficiency care for its beneficiaries and, in so doing, to lead the way in promoting similar improvements for all patients. Such an approach will help to ensure that Medicare is up to the challenges of the 21st century and continues to achieve a high level of public support and acclaim from its beneficiaries, as well as all those who care about, and for, them.

In addition to seeing what our Opinion Leaders survey found on some of these issues, you can read detailed commentaries on Medicare and its future by two top authorities—Joseph R. Antos of the American Enterprise Institute, and Bruce Vladeck, former head of the Health Care Financing Administration, now with Ernst & Young LLP. And as always, I want to know what you think. Send your comments to me at kd@cmwf.org.

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July 2005

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Publication Details

Publication Date:
July 26, 2005
Authors:
Karen Davis