09/26/2011 09:55 am ET | Updated Nov 26, 2011

Cut Costs, Not Reimbursement

There is a consensus building in Washington, D.C. -- which has been joined by many leading Democrats (including the President) -- that Medicare outlays must be cut if our national deficit is to be reined in. At the same time, we hear relatively little about cutting the costs of health care. One may ask, "What is the difference? You cut one; you curb the other." Not so fast. Most obviously, if you cut health care costs, you benefit almost everyone; if you cut Medicare, such a cut concerns only seniors and those who serve them.

Less obvious is that if you reduce what Medicare reimburses, but not the health care costs themselves, people are left with the following options: They can (a) pay for the items no longer covered by Medicare from their own pocket (which is okay for those with means, but will force those less well-off to give up some other vital expenditure, such as food, kid's schooling, etc.) or (b) forgo treatments their doctor deems medically necessary.

Those who argue that being expected to pay for some items themselves will turn people into wiser and more frugal shoppers ignore the mountain of evidence demonstrating that when it comes to most health care "shopping," people cannot tell what they truly need from that which they might do without -- or sound medicine from quackery. A recent University of Michigan survey found that less than 50% of patients were able to answer basic questions about their condition, let alone its treatment. A 2004 Institute of Medicine report on health literacy in the U.S. found over 300 studies demonstrating that most people do not understand health information that is intended for them. A consumer who buys a can of beans every other week can learn which one he prefers and whether it is worth the cost. However, how many knee replacements, coronary bypass surgeries, or bone marrow transplants does a person buy before he can benefit from comparison shopping? Add the emotional issues raised by medical decisions, and you see that one cannot rely on patients' judgments to get an efficient market in health care.

Next, one must recall that Medicare is little more than a giant reimbursement machine. Hence, if one cuts overall health care costs -- the costs of Medicare will decline more or less automatically. Take, for instance, the recent finding that using stents to treat certain types of clogged arteries is no more effective than medication and lifestyle changes at preventing heart attacks or extending life. Yet the cost of the procedure is significantly higher than drug treatment, ranging from $30,000 to more than $48,000. If the medical profession ruled that in many instances stents are no longer "customary and ordinary" (that is, the proper treatment) and that medication should be used instead, this would lead to lower health care costs -- and lower outlays for Medicare would follow.

Among many realistic and relatively simple changes that should be made are several that have been recommended by NEHI, formerly known as the New England Healthcare Institute. For example, reducing unnecessary use of emergency departments could save $38 billion each year. 24-hour access to a physician telephone service was found to reduce unnecessary emergency department visits from 41% to only 8%. Reducing preventable hospital readmissions could save an additional $25 billion. (These reductions could be realized by improving follow-up care and having clinical pharmacists make post-discharge phone calls to monitor medication use.) Increasing use of generic rather than brand-name prescriptions would also easily reduce costs as brand-name drugs are about three times more expensive.

There are many other ways to reduce health care costs. Those should be at the focus of the quest for lower Medicare outlays, rather than cutting reimbursements while letting the costs of care continue to skyrocket.

Amitai Etzioni is a University Professor at The George Washington University and the author of New Common Ground (Potomac Books, 2009).