NCPA - National Center for Policy Analysis


March 23, 2009

Mark McClellan was a major policy figure in health care during the Bush administration.  Along with several other health care experts, he is trying to persuade President Barack Obama's reform team and Congress to pay hospitals and doctors more if they can show they're improving treatment for Medicare patients while lowering costs.  McClellan argues that sharing savings could keep Medicare viable without bankrupting the federal government.

  • Medicare, the federal program for seniors that accounts for 20 percent of health care spending, pays providers on a fee-for-service model.
  • Each visit, each test, each procedure a doctor performs pays a certain amount; the system creates an incentive to see lots of patients, lots of times.
  • For many years, reformers have argued in favor of payment systems based on performance rather than volume.
  • Pay-for-performance advocates argue their approach gets patients the most effective type of care rather than an uncoordinated cascade of diagnostic tests, prescriptions and treatments.

Dr. Elliott Fisher of Dartmouth's Institute for Health Policy and Clinical Practice developed a pay-for-performance approach called Accountable Care Organizations that McClellan is now backing in Washington.

Fisher came to his model after sifting data that shows Medicare pays twice or even three times as much per patient in different parts of the country:

  • The average enrollee in Medicare in Dallas, for example, consumes $10,103 a year in medical treatments, while Medicare enrollees in Salem, Ore., get by on half as much.
  • The Dartmouth researchers found that Medicare spending in Dallas was growing at an average of 5.25 percent a year.
  • The national average was 3.5 percent, while spending in Salem was going up just 2.31 percent a year. If the rate of increase could be dropped from 3.5 percent to 2.4 percent ("bending the curve"), the Dartmouth research showed, Medicare spending could be lowered $1.4 trillion by 2023.

Fisher argues the regional cost disparities can be bent toward lower costs if physicians group together around hospital networks where each Medicare patient's care is coordinated and each treatment is evaluated for quality and effectiveness.

If the network can demonstrate its care regimen reduces average spending by 2 percent or more a year, the doctors and hospital would get bonuses amounting to 80 percent of the savings. If the network fails to meet either its quality or savings targets, its compensation would be penalized.

Source: Jim Landers, "Texan working to make Medicare savings a reality," Dallas Morning News, March 23, 2009.


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