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Conrad 'Really Encouraged' About Options for Reining in Medicare Spending

By Emily Ethridge, CQ Staff

February 29, 2012 -- The Senate Budget chairman entered last week's hearing about curbing Medicare spending as a skeptic, but he left optimistic that viable options exist.

"This is the most encouraging hearing on health care I've been part of in probably five years," said Kent Conrad, D-N.D. "I really think we're on the brink of finding a way forward, and I'm really encouraged by it."

Medicare's current fee-for-service system has long been blamed for the program's rapidly increasing growth rate in spending. The three expert witnesses at last week's hearing called for a structural overhaul of the payment system, saying that it encourages patients and providers to prioritize quantity over quality of services.

"If we don't get incentives right, everything else is commentary," said Len Nichols, a professor of health policy at George Mason University. He offered several suggestions but noted there are no "silver bullets."

Conrad said that changing that system, as well as the tax treatment of health care, could help reduce overutilization of services.

David Cutler, a professor of economics at Harvard University, said that one-third of all medical spending is not associated with improved health, amounting to more than $100 billion in Medicare each year. He called for aggressively implementing new information technology, expanding demonstration programs that have proven to be successful, and bringing down administrative costs.

James C. Capretta, a fellow at the Ethics and Public Policy Center, said Medicare premiums should be based on competitive bidding, with the traditional fee-for-service system vying with private health plans for beneficiaries. The government contribution for Medicare would vary by geographic region and whether beneficiaries would have to pay more to remain in the fee-for-service system would depend on the bids.

Such a dynamic marketplace within Medicare is preferable, Capretta said, to more government regulation and demonstration programs built on current rules. Capretta pointed to the success of the market-based Medicare Part D prescription drug program as evidence that such a system could work.

"Medicare is a big part of the problem and the solution is not actually more government micromanagement, but actually a functioning marketplace," said Capretta, who is a former committee staffer.

Conrad was encouraged by the recommendation for more competitive bidding within a Medicare marketplace. "I am personally convinced of what you just described," he said.

As usual, Democrats and Republicans split on the ability of the 2010 health care overhaul (PL 111-148, PL 111-152) to reduce spending.
Conrad said that the law was a good start, but more needs to be done. He also noted that the GOP goal of repealing the law would be costly.

"We need to build on reforms already in place and find further savings in health care," he said. He praised the law's promotion of bundled payments, accountable care organizations to better coordinate medical services, comparative effectiveness research to determine best treatments, and the new Center for Medicare and Medicaid Innovation as ways to contain costs.

But ranking Republican Jeff Sessions of Alabama said the law failed to address the long-term sustainability of the entitlement program, and he criticized President Obama for not offering more proposals.

"His budget shows no leadership in addressing the cost of Medicare entitlements, now or in the future," Sessions said.

Nichols said the law would be improved with two features: changing the medical malpractice liability system and overhauling the formula Medicare uses to determine its reimbursements to physicians. In addition, he said the Center for Medicare and Medicaid Innovation should create an initiative on community-wide improvements to payment and delivery systems.

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