Strengthening Medicare Advantage can improve the quality and cost of care

Concerns about rising health care costs and the imminent financial collapse of the Medicare program continue, increasing pressure on policymakers to curb health care spending and preserve Medicare for future generations. One policy change could keep the program alive and move the health system and the way we pay for health services in a more sustainable direction. And unlike most health insurance reforms, this one is surprisingly simple.

About 64 million Americans are covered by Medicare, a public health insurance program for older and young people with disabilities. For about half of these, so-called traditional Medicare subscribers, the government uses a “service fee” payment system. In this system, the Centers for Medicare and Medicaid Services (CMS) pay a doctor individual fees for his over 10,000 individual services, each assigned a specific code. It forms the basis of the Annual Medicare Physician Fee Schedule (MPFS).

For the past 30 years, these reimbursement rates have been determined primarily by the recommendations of the Specialty Society Relative Value Scale Update Committee (RUC), a small committee of physicians appointed by the American Medical Association.

This system has multiple problems.

First, there is a clear conflict of interest. Physicians have an incentive not to recommend rate cuts because they can influence how much they pay for services provided by CMS (CMS has traditionally accepted most of the RUC’s recommendations). However, MPFS should be budget-neutral, so an increase in fees for some services should be offset by a decrease in fees for other services. Over the past decades, recommendations from specialist-dominated RUCs have understandably downgraded the relative valuation of essential primary care services.

More importantly, reimbursement rates are based solely on estimates of the cost of providing the service and therefore do not necessarily reflect the actual value of the service to the patient. This results in incentives to provide more expensive services such as testing and procedures, and discourages providing lower-priced services such as assessments and coordination of care, even when they are more beneficial.

Given that most private insurers base their rates on the MPFS, this inflationary situation increases costs not only for Medicare, but for the health care system as a whole. If you continue to rely on fee-for-service systems and controlled pricing, you will never be able to cut your spending or enjoy better value for your healthcare costs. Of course, we could continue with decades of unsuccessful reward reform efforts and hope for a different outcome, but this is not a solution, but a much closer approach to a true value-based system. I can not do it.

Fortunately, there is another way to pay for health care that is already popular as part of the Medicare program. In Medicare Advantage (Medicare Part C), private health insurers compete by submitting bids to CMS based on an evaluation of the cost of providing hospital and physician services included in traditional Medicare. Most of these plans also offer additional benefits such as prescription drug coverage, vision and dental services, and even fitness benefits at no additional cost to beneficiaries. If the bid is accepted, instead of the government paying for individual services, private insurers will receive a fixed annual fee to cover the services included in the plan and no more.

When the private plan is inefficient and spends more than it bids for, the burden falls on the private plan, not Medicare or the taxpayer. This motivates us to provide high-value care at an affordable price. In fact, Medicare Advantage outperforms traditional Medicare on many quality measures, especially those related to preventive care and unnecessary hospitalizations.

It’s no surprise that Medicare Advantage has grown in popularity among Medicare beneficiaries over the past decade, and half of all Medicare beneficiaries are projected to include Medicare Advantage by 2025. However, new enrollees are enrolled in traditional Medicare by default unless they choose the Medicare Advantage Her plan. Making Medicare Advantage the default enrollment option would accelerate the move away from inflationary service fee payment systems.

To cut unnecessary spending and keep Medicare into the future, the healthcare payment system needs to focus on what works. Healthy competition provides incentives for high-value care, and the federal government must be freed from its role in pricing thousands of services. Making Medicare Advantage the default enrollment option for new beneficiaries can accelerate these changes.

John O’Shea He is a surgeon and Senior Fellow in Health Policy at the Texas Public Policy Foundation. Kofi Amperben Senior Research Fellow and Data Scientist at the Mercatas Center at George Mason University. They (with Elise Amez-Droz) new research“Medicare Physician Rates: An Overview, Implications for Healthcare Spending, and Policy Options for Modifying the Current Payment System.”

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