FOR DECADES, outdated ideologies have hamstrung national politics. Now it’s happening again: Healthcare reform threatens to derail over the burning question of whether we need another public program. This is a massive diversion.
If structured correctly, a new public program could help transform the healthcare marketplace. But if it’s Medicare-for-all, with fee-for-service reimbursement, it could intensify the rate of healthcare inflation and make universal coverage unsustainable. The crucial issue is not public or private. It is the incentives and performance standards built into the system. If we don’t change those, we’re sunk.
Put simply, we must change the way we pay for care. The financial incentives in our system are backwards. Under fee-for-service payment, providers make more money by performing more services. If a hospital makes a mistake and the patient has to be treated again, the hospital makes more money. If a provider group figures out economical ways to keep patients healthy, it starves.
When the incomes of doctors and hospitals are squeezed, they do more procedures. Research by John Wennberg and Elliott Fisher at Dartmouth University shows that regions with more doctors per capita have higher rates of hospitalization and procedures - often twice the level of regions with fewer doctors. Yet this higher spending yields worse outcomes!
Wennberg says that up to a third of the $2.4 trillion spent on healthcare each year is wasted on unnecessary treatments, overpriced drugs, and end-of-life care.
Wennberg’s research also shows that integrated, managed healthcare providers are more efficient. Regions dominated by such providers have costs that are up to one-third lower than in other areas, because those providers use “evidence-based standards of care,’’ electronic records, and other methods to keep costs down and quality up.
We need to replace fee-for-service reimbursement with price competition between integrated providers that are paid by the year, not the procedure. They, in turn, should pay their doctors and hospitals lump sums for cycles of treatment for medical conditions - such as a knee replacement or a year’s treatment of diabetes. In Massachusetts, a commission created by the Legislature recommended a shift to such “global payments.’’
The outcomes of that care should be measured and reported to buyers (including health plans, consumers, employers, and public programs like Medicare and Medicaid), so they can make choices based on both price and quality.
How do we get there? First, Medicare should shift to this kind of “global payment’’ system.
Second, federal reform should empower states (and multi-state regions) to create purchasing exchanges involving all their public programs - Medicaid, the State Children’s Health Insurance Program, government employees’ and retirees’ plans, and subsidized insurance - plus private employers willing to join the pool. States would then invite health plans to compete for this market.
Wisconsin’s insurance program for state employees shows how this could work. The program defines a basic benefit package, asks health plans to submit bids specifying the annual dollar amount they would charge for this package, then ranks the bids into three tiers.
Low-price, high-quality plans, ranked in tier one, cost the least for state employees. If employees prefer a tier-two or -three plan - because their physician is not part of a tier-one plan, for instance - they are free to choose it and pay part of the difference. But the majority of members choose tier-one plans, and this helps keep prices down.
Wisconsin put this approach into effect in 2003. In Dane County, which includes the state capitol, the employee plan covers 25 percent of the private market. By 2006, state employee costs for individual and family plans in Dane County had fallen 14 percent below the statewide average and 30 percent below the most expensive regions. This has in turn slowed rising costs among private market providers in the county, compared with the rest of the state.
Let’s drop our ideological blinders and admit that adding one more public program will not solve all our problems (nor destroy the system). To get quality care for all at a price we can afford, we have to change the incentives and standards operating within medicine.
David Osborne is co-author of “Reinventing Government,’’ “The Price of Government,’’ and a chapter on reinventing healthcare in “Memos to the New President.’’ 
