Better and Cheaper Medicaid

05/26/2015 04:54 pm ET | Updated May 25, 2016

Unsurprisingly, Rhode Island Gov. Gina Raimondo is getting pushback from interest groups against her goal of "reinventing Medicaid'' - the federal-state program for the poor. The Ocean State's Medicaid costs are America's second-highest per enrollee (Alaska is first) and 60 percent higher than the national average.

Many in the nursing-home and hospital industries will fight the governor's effort to cut costs even if it can be shown that her plan can simultaneously improve care. After all, the current version of Medicaid has been very lucrative for many in those businesses. The Affordable Care Act has brought them even more money.

As we watch her plan unfold, let's be very skeptical when we hear lobbyists for the healthcare industry and unions asserting that reform would hurt patients. Lobbyists are adept at getting the public to conflate the economic welfare of a sector's executives, other employees and owners with its customers'. Ambrose Bierce called politics "a strife of interests masquerading as a contest of principles.'' Often true!

So "nonprofit'' Lifespan, the state's largest hospital system, has just hired eight lobbyists to work the General Assembly to defend its interests. (And beware healthcare executives' citing their businesses' "nonprofit'' status. Many of these enterprises take their profit in huge executive compensation.) Some unions are also on the warpath. They worry that reform to reduce the overcharging, waste and duplication pervasive in U.S. health care might reduce the number of jobs.

But economic and demographic reality (including an aging population, widening income inequality and employers' eliminating their workers' group insurance) make Medicaid "reinvention'' mandatory as more patients flood in.

Oregon provides a model of how to do it.

There, in an initiative led by former Gov. John Kitzhaber, an emergency-room physician, the state has both improved care and controlled costs. It did so by creating 16 regional coordinated-care organizations (CCO's). The state doesn't pay for each service performed but gives each CCO a "global budget'' of Medicaid funds to spend. The emphasis is on having a range of providers work with each other to create holistic treatment plans for patients that include the social determinants of health (such as access to transportation and housing quality) as well as patients' presenting symptoms.

Oregon's "fee for value'' approach rewards providers for meeting performance metrics for quality and efficiency and punishes them for poor outcomes and increased costs.

Oregon CCO's have great flexibility in spending Medicaid money. For example, they could use it to buy patients air conditioners, which may make it less likely that they'll show up in the E.R. And Oregon CCO's pay much attention to how behavioral and mental problems can lead to the more obviously physical manifestations of illness. After all, many in our health-care "system'' "self-medicate'' through smoking, drinking, drugs, eating unhealthy food and lack of exercise. You see many of these people again and again in the E.R. -wheezing from smoking and obese.

In Rhode Island, 7 percent of Medicaid beneficiaries account for two-thirds of the spending; many of these "frequent fliers'' have mental and behavioral health problems best addressed through Oregon-style coordinated care.

Unlike the Oregon approach, the "fee for service'' system that's still dominant in U.S. health care encourages hospitals and clinicians to order as many expensive procedures as possible, prescribe the most expensive pills and do other things to maximize profit - and send the bills to the taxpayers, the private insurers and the patients.

But "evidence-based medicine'' -- as opposed to "reputation-based medicine''' -- has helped to show that doing more procedures does not necessarily translate into better outcomes; indeed overtreatment can be lethal. I recommend Dr. H. Gilbert Welch's book Less Medicine/More Health.

Meanwhile, Oregon points the way:

Among the Oregon Medicaid reform's achievements: a 5.7 percent drop in inpatient costs; a 21 percent drop in E.R. use (which is always very expensive), and an 11.1 percent drop in maternity costs, largely because of hospitals not performing elective early deliveries before 39 weeks of pregnancy. Thus Oregon officials assert that the state can reach its goal of saving $11 billion in Medicaid costs over 10 years.

Rhode Island can achieve similar successes.

Robert Whitcomb (, a former finance editor of the International Herald Tribune and a former editorial-page editor of The Providence Journal, is a Providence-based editor and writer and a partner in Cambridge Management Group (, a national healthcare-sector consultancy. He is also a Fellow of the Pell Center for International Relations and Public Policy.