How to Cut the Cost of Medicare While Improving its Quality

09/14/2009 04:53 pm ET | Updated May 25, 2011

Now that the public option for health insurance has been all but jettisoned from the health care reform ship that is tacking and veering its way through Congress, it's high time to consider another option--not for consumers but for health care providers treating Medicare patients, whose health insurance is already public.

No matter who ends up paying for health care insurance and how it is paid, the cost of funding Medicare is a tiger we must start taming right now. Last year, Medicare spent 468 billion dollars, 3.2 percent of GDP ( This year it's expected to spend 512 billion, and if we do nothing to change the present system, it will spend nearly one trillion by 2018. Instead of nearly doubling its costs by then, what if we could cut them in half?

This prospect frightens most seniors, who are now overwhelmingly pleased with Medicare (at the rate of 94%) and who fear that cuts in its spending will mean cuts in the quality of care it now funds. But speaking as a Medicare recipient myself, I am anything but frightened by the prospect of better care at lower cost. This isn't fantasy, folks: it's exactly what thirteen health care programs in this country are delivering RIGHT NOW to their Medicare patients.

As I noted just a few weeks ago on this site, these programs are leading the way on two fronts: patient-centered medicine and team medicine ( At the Mayo clinic in Rochester, Minnesota, for instance, the only thing driving decisions is the needs of each patient. Since all doctors there work on salary, none of them earns more by ordering an extra test or procedure, or earns less by referring a patient to someone else. They all work together with one end in view: improving the health of each patient. They don't care what the treatment costs or even whether it's covered by insurance. They don't practice medicine by wrangling with bean-counters on the other end of a phone. A few years ago, a cardiologist treating a patient needing a pacemaker had to choose between 1) a Medicare-approved model requiring surgery and several days of hospitalization and 2) a new, non-Medicare-approved model requiring just one day of hospitalization. The doctor chose #2 because it was "best for the patient." Do you see now how this system cuts costs while delivering better care? In 2006, the Mayo clinic--with the best doctors and all the latest technology--cost the Medicare system just $6,688 per enrollee, less than half the cost in cities such as McAllen, Texas, where health care providers charged Medicare $15,000 per patient.

Is there any reason to fear the kind of care that Mayo delivers? Surely not. But how do we get the rest of America's health care providers to follow the lead of clinics like the Mayo? Not by forging new regulations but by creating new INCENTIVES. To take the place of the "public option" that has just been thrown overboard, therefore, I propose a Best Practices Option for Health Care Providers.

The crucial word here is "option." If an HCP likes the present system, if it likes wrangling with bureaucrats over reimbursements, if it likes having its decisions driven by what is "covered" rather than by what is best and most cost-effective for the patient, then it can go on billing separately for every service it performs and maximizing services so as to put profit ahead of savings and patient welfare. But if an HCP can break its addiction to fee-for-service health care, it stands to gain hugely. With no supervision by or interference from Medicare bureaucrats, it could freely decide how to treat each of its patients in the best and most cost-effective way. In other words, it would be free to practice medicine instead of accounting. And every time it lowered costs while improving health care, it would be rewarded with a percentage of the money it saved for Medicare.

Following is the blueprint for a bill that would motivate HCPs to take this liberating step. Unlike the bills now circulating through Congress, which run to as many as a thousand pages, this ten-point proposal takes up just ONE page.

1. This option will be available only to HCPs that provide full-service medical care, from primary consultation to whatever hospitalization and surgery may be required for a patient. Provided the HCP meets the following conditions, its decisions on patient care will never be questioned by Medicare and it will be promptly reimbursed for each bill it submits as well as rewarded for cutting costs.
2. Every doctor and nurse involved in the treatment of the patient will be working on a salary unaffected by the number of patients he or she treats or the number of services he or she provides.
3. No one involved in the treatment of this patient may have any financial interest--direct or indirect-- in any medical device used, lab test ordered, or drug prescribed.
4. All doctors and nurses involved in treating the patient will work as a mutually consulting team supervised by a primary care physician, who must approve all aspects of the patient's care.
5. All records of the patient's treatment--including all tests ordered and drugs prescribed--must be electronically kept and furnished to the primary care physician.
6. When the primary care physician decides that the patient's condition has been satisfactorily treated, he or she will supervise preparation of a single bill that will list all services performed, whether surgical or medical, but will provide just one figure to be reimbursed for the entire course of treatment.
7. Before submission to Medicare, the bill for treatment must be referred to the patient so that he or she may rate its effectiveness on a scale of 1 to 10. No bill will be paid until and unless the patient gives the treatment a rating of at least 8.
8. No bill for the comprehensive treatment of a particular condition may exceed 90% of the fee-for-service baseline, which is what the HCP most recently charged in total fee-for-service costs per average Medicare patient treated for that same condition.
9. Whenever any bill for comprehensive treatment is less than 90% of the fee-for-service baseline, Medicare will pay a bonus of 15% of the savings to the HCP.
10. Whenever a patient gives the HCP a grade of 9 or 10 for the quality of his or her treatment, Medicare will grant the HCP an additional bonus of 5% of savings for a grade of 9, and 10% of savings for a grade of 10.

Of course it would take most HCPs in this country at least five and probably ten years to switch from fee-for-service medicine, to start basing its practices on what is best for the patient rather than most profitable for the HCP or most compliant with Medicare regulations. Even an HCP that wanted to change its system immediately would have to wait for at least five years to find enough primary care physicians to make the system work. But the present system is simply unsustainable, and we will never truly reform it until we truly begin to control its costs. The ten points listed above offer one blueprint for doing so. If you think this proposal is worth at least some consideration in Washington, send it to your representative and Senators.