If our nation keeps spending at its current rate, there is no question that we'll go broke (and soon). Against the backdrop of rising deficits, stagnant consumer confidence and an economy struggling to regain its footing following the worst downturn since the Great Depression, America's near-term economic prospects remain unclear. Add to this our longstanding commitments in Iraq and Afghanistan, and new role in Libya, and it's evident that kicking the can down the road is no longer a viable option.
Domestically, the primary challenge we face is entitlement spending (above all, Medicare). While non-defense, non-homeland security discretionary spending is 16 percent of the budget, Medicare represents 15 percent. And, Medicare is growing. It is predicted to reach 17 percent of federal budget outlays and four percent of the gross domestic product by 2020.
While there was significant discussion of "bending the cost curve" during the health reform debate, the truth is that little was done that would impact overall growth of federal health care spending. The law contains Medicare cuts, but the savings achieved are then used to pay for new federal spending, such as the Medicaid expansion and new subsidies to purchase health care in state-based exchanges.
When a federal program is growing, the easiest path forward is to continue to cut it. But the problem with Medicare is that it is so complex that if you cut growth in one area, costs are simply shifted to other areas. What ensues is a sophisticated and high stakes game of "whack-a-mole." This is exactly what health reform did through the creation of the Independent Payment Advisory Board, or IPAB.
IPAB is an unelected board that can propose binding cuts to Medicare. These cuts can only be overridden by a Congressional supermajority vote. The IPAB's mission is to meet government standards of cost-cutting, with little to no regard for the impact on the consumer or health care providers. Instead of placing the decision in the hands of unelected bureaucrats, let's put it back where it belongs -- in the hands of doctors and patients.
As someone who knows firsthand the intricacies our nation's health care system, the far better approach is to realign existing incentives. Stated simply, the fee-for-service system is fundamentally flawed -- it rewards providers for the volume of services they provide rather than rewarding them for providing the best care to the patient. The more procedures performed, the more a doctor gets paid. Further, our third-party payer system removes patients from having a financial stake in their health care decisions. We need to shift the incentives to build a system that focuses on providing high quality, low cost care that focuses on the patient.
The good news is that we don't have to wait to begin to realign physician incentives. The Affordable Care Act gives great discretion to the CMS Administrator to experiment with alternative payment systems. CMS has created an "innovation center" and is looking for ideas. I believe the administration should use its discretion to begin to experiment with capitated payment, where one fee is paid for a patient episode of care, regardless of how many procedures are performed. This gives the physician a financial incentive to improve quality by performing the right procedure the first time. Under a capitated system, the government is not on the hook to pay for unneeded procedures.
In addition to properly aligning the physician's incentives, we need to align the patient's incentives. House Budget Chairman Paul Ryan (R-WI) is leading an important conversation about how to develop a system that would encourage consumers to put some skin in the game. Ideas that give financial incentive for patients to get more involved in their care and making them more responsible for their health care choices are an important part of the dialogue that must take place if we are ever going to truly bend the cost curve.
Regardless of party, it's time to adopt a constructive approach to federal spending. To that end, let's work to shift Medicare to a system that incentivizes the right care, every time, and helps patients be more responsible for their consumption of health care services. Simply cutting Medicare isn't the answer by any means. Instead, let's focus on the most effective fiscal path forward with the least amount of impact on millions of seniors, their families and our broader economy.
In other words, reform Medicare, don't cut it.