NCPA - National Center for Policy Analysis

Can Medicare Save Money by Giving Patients Cash?

June 20, 2011

With major changes to the Medicare program tied up in political gridlock, health wonks are on the hunt for innovative ways to lower spending.  Lorens Helmchen, a professor at George Mason University's Department of Health Administration and Policy, has proposed a novel method of constraining the program's spending: He thinks the program may be able to save money by spending money -- specifically by giving cash to patients who make more cost-effective choices, says Peter Suderman, an associate editor at Reason Magazine.

  • The basic idea, dubbed cash-for-care, is as simple as a year-end performance bonus.
  • When faced with two treatments of roughly equal efficacy but dramatically different cost, Medicare would pay patients a cash fee if they chose the less expensive option.
  • The idea is a form of shared savings.
  • But where most shared savings plans share exclusively with health care providers, Cash for Care shares it with patients.

Greater utilization of lower-cost treatments could be a vehicle for savings.  But many doctors are reticent to factor cost into their treatment decisions, says Suderman.

  • So-called shared-savings programs give providers an incentive to provide less care overall, and to only steer patients toward the cheapest treatments.
  • But the underlying idea -- giving patients financial incentives to make wise health care decisions -- isn't new.
  • According to Devon Herrick, a senior fellow and health care expert at the National Center for Policy Analysis, Cash for Care is "definitely trying to harness the same type of incentives as consumer-driven health care plans," which typically pair high-deductible insurance with health savings accounts.
  • Under those plans, patients have a financial stake in their care decisions and can save money depending on what sort of care they choose.

Source: Peter Suderman, "Spend More, Save More," Reason Magazine, June 16, 2011.

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