This week the president’s budget for 2009 was submitted. The Medicare portion of this budget should be viewed as a stark warning. Medicare, on its current course, is 11 years from going broke.

Let’s acknowledge that American sensitivity to entitlement warnings has been numbed by a repeated cycle of alarms and inaction. They are like the cherry blossoms blooming in April, part of life’s natural rhythm. We note them and move on.

The president’s budget on Medicare warns in a different way. It illuminates with specificity the hard decision policymakers — no matter their party — will face every year until we change the current system.

Some will be unhappy with this budget. Though Medicare spending under the budget will increase by 5 percent annually, they will see any attempt to slow the rate of Medicare’s growth as a cut.

Our proposed budget includes a group of legislative and administrative improvements aimed at extending Medicare’s viability. The slower growth rate they produce saves $183 billion over five years. The proposals include:

• Encouraging provider competition and efficiency.
• Promoting high-quality care.
• Rationalizing payment policies.
• Improving program integrity.
• Increasing high-income beneficiary responsibility for healthcare costs.

The slower growth rate also reduces the premiums beneficiaries face by $6.2 billion over the next five years.

But to keep our national commitment to seniors, we must do more to change how Medicare is managed.

There are competing visions of what America’s healthcare system should look like

Some in Congress envision a healthcare system run by the government. In a government-run healthcare system, government decides who gets treated; government decides how much they are treated; government decides how much doctors and hospitals get paid. This is government-run healthcare. Taxes are raised to pay for it.

I envision a healthcare system where consumers define the priorities of the system. Consumers choose their doctor or hospital on the basis of who gives them the best care at the best cost. Doctors and hospitals are paid in part on the value of what they provide, not just volume. Tax dollars are used to help those in hardship like the poor, elderly and disabled.

The primary difference between these two ideologies is the role of government. Rather than owning and operating the system, I see government acting as an organizer of efficient markets, eliminating injustice and subsidizing the poor.  

This difference of ideology will play out in the coming year as we debate the budget for Medicare, Medicaid and the State Children’s Health Insurance Program.

For competition and choice to flourish, our healthcare sector must be organized into an economic system that has four cornerstones: interoperable electronic records, quality standards, price groupings people can compare, and incentives that reward value.

We are making steady progress on all four of these cornerstones. The standards to make electronic records interoperable are being developed rapidly. Likewise, the medical community has been hard at work defining quality standards and cost buckets. Without both, transparent comparisons, so necessary for competition, aren’t achievable.

Our progress is moving fast enough that it is time to make another important step: linking e-prescribing to Medicare reimbursements. I have proposed to Congress that when they deal with reimbursements for doctors in June, they require doctors to use e-prescribing in order to get the highest rates of compensation.

We are also establishing a Medicare demonstration project to help us learn how to solve a problem that seems to keep many small to medium-sized medical practices from adopting electronic medical records: affordability. Many of these practices worry that while electronic health records require a significant investment from them, the benefits go mostly to the consumer and payer.

In the demo, 1,200 small and medium-sized physician practices, serving 3.6 million Americans, will be eligible for Medicare incentive payments if they improve the health of their patients through the use of certified electronic records.

Finally, we are building a network of regional Chartered Value Exchanges. These new nonprofit CVEs will use national standards but be managed and governed locally. They will provide information to practitioners and patients on quality and cost differences between doctors and hospitals.

All of this is vital to making Medicare sustainable. It will not happen with business as usual. We need a system of healthcare competition based on value. Then — and only then — will Medicare be sustainable.

Leavitt is the secretary of Health and Human Services.