NCPA - National Center for Policy Analysis

Medicare Rewarding Inferior Care

December 8, 2003

Critics say Medicare's payment system is fundamentally flawed. Medicare pays a fixed sum of money to treat a specific diagnosis or perform a given procedure. Providers that work to improve quality are not paid extra. And poor care is often rewarded because it often creates the need for more services.

Intermountain Health Care, a network of 21 hospitals in Utah and Idaho provides a good case study:

  • When Intermountain prescribes the most effective pneumonia drug, it forgoes about $1 million per year in Medicare payments; in contrast, if a pneumonia patient deteriorates so much they need a ventilator, the company collects $19,000 per case.
  • The average pneumonia patient brings in $5000 per case; consequently, while Intermountain makes money on the sicker patient, it loses money on the healthier one.
  • Averting hospitalizations for congestive heart failure costs Intermountain nearly $4 million per year.

Some public health officials claim "lost revenue" from providing quality care isn't truly lost. In fact, health care providers are being paid to do what they're supposed to do. Yet policy analysts counter that how hospitals and doctors are paid is a critical component of motivating them to improve care.

Source: Reed Abelson, "Hospitals Say They're Penalized By Medicare for Improving Care," The New York Times, December 5, 2003.


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