Real entitlement reform

To avoid the looming “fiscal cliff” of draconian tax hikes and spending cuts scheduled to hit in January, Republicans insist on serious entitlement reform of our nation’s healthcare programs. But if “entitlement reform” is just code for dismantling the safety net and shifting costs to seniors and businesses, that’s not real reform.

Conversely, “entitlement reform” that leads to modernizing and transforming Medicare and Medicaid into a value-based system is the kind of reform that should be on the table. The Center for American Progress recently released a plan that would curb overall healthcare spending without forcing people to forgo necessary care.

Here’s a simple guideline: Before we ask seniors, children and disabled people to pay any more, let’s exhaust all savings from eliminating waste and inefficiency. And waste is prevalent: multiple independent reports, including most recently by the Institute of Medicine, estimate that our entire healthcare system wastes about $750 billion per year.

So what would real entitlement reform entail?

First, the U.S. must reform the way prices are determined for healthcare products and many services. Right now, the government sets these prices, for the most part. Instead, Medicare and Medicaid should adopt market-based prices, allowing manufacturers and suppliers to offer quality products at competitive prices. Under a pilot program last year, market-based prices were 35 percent lower than government-set prices, on average.

Second, we must reform the way healthcare is paid for and delivered. Right now, Medicare generally pays a fee for each service. As every health economist knows, this creates incentives for doctors to order more and more profitable tests and procedures.

Instead, Medicare and Medicaid should pay a fixed amount for a bundle of services or for all of a patient’s care. Alternatives to fee-for-service would focus doctors on reducing wasteful tests and treatments, medical errors and readmissions to the hospital.  

Third, we should encourage states to become accountable for controlling healthcare costs. “Accountable care states” that keep overall healthcare spending below a spending target would be rewarded with bonus payments. Only states can influence many factors that lower healthcare costs, such as encouraging the use of advanced practice nurses, telemedicine for rural patients and generic drugs.  

These are structural reforms that both liberals and conservatives can support. Guess who proposed using market-based prices for clinical laboratory services? Former President George W. Bush. And in an article published in August in the New England Journal of Medicine, prominent conservative health economists proposed using market-based prices and alternatives to fee-for-service. 

In addition to these structural reforms, the Center for American Progress plan includes a substantial down payment of guaranteed federal savings over the next 10 years. These savings would help pay for investments that create jobs in the short term and help stabilize the debt over the long term.

The independent Medicare Payment Advisory Commission, made up of doctors and business leaders who advise Congress on Medicare, has identified numerous ways that healthcare providers should be more efficient. The usual protest is that these reforms would harm seniors by reducing access to care, but targeting waste would actually improve the quality of care.

The real threat to access to care is a series of blunt, across-the-board cuts in provider payment rates. Under our plan, hospitals and doctors would fare much better by using a scalpel to cut waste.

If — but only if — providers and drug companies contribute substantial savings, then seniors who can afford to pay more should contribute too.

In any budget deal with tax reform and spending cuts, the overall deal must be progressive — not just the tax reform. That means protecting low- and moderate-income seniors, concentrating savings among providers and companies that can best absorb them and raising premiums for high-income seniors.

If the real goal of negotiations is to reduce healthcare spending, then our plan achieves that goal. But if conservatives are intent on pursuing an ideological agenda to shift costs from the government to seniors and other consumers, they should not hide what they want.

Here’s a good test: Does a policy bear any relation to the problem of rising healthcare costs? Or, like raising Medicare’s eligibility age, does it just move costs from one side of the ledger to the other — and even increase overall healthcare spending?

When a policy doesn’t solve the problem — and even exacerbates it — then you know ideology is driving policymaking. Let’s focus on structural reforms that reduce overall healthcare spending and strengthen the Medicare and Medicaid programs for future generations.

Tanden is the president of the Center for American Progress, where Emanuel is a senior fellow and Spiro is the managing director of health policy.