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Bending the curve on health spending

July 19, 2009
In The News

Over the past several weeks, President Barack Obama and some congressional leaders have cited Mayo Clinic and other medical group practices as "a great value" for your health care dollar: high-quality care at costs that are significantly less than other parts of the country.

While we appreciate this recognition, we question whether our political leaders realize that many doctors and hospitals that offer this high-value care are reaching the point where we cannot afford to provide it to patients with government-sponsored insurance such as Medicare and Medicaid. We worry that the same could hold true for patients in a new government-run public insurance plan.

Despite the fact that we strive to give patients the right level of care -- everything they need, no more and no less -- we consistently suffer huge financial losses due to the government price-controlled Medicare payment system, which financially punishes providers who offer higher quality care at a lower cost.

Last year alone, Mayo Clinic lost hundreds of millions of dollars caring for Medicare beneficiaries -- the very patients with complex, complicated illnesses that we want to see and can serve well. Because of this shortfall, our other patients pay more to make up the difference. Someday soon, neither Mayo Clinic nor those other payers will be able to afford this situation.

Meanwhile, overall Medicare spending is ballooning because many providers have responded to price controls by increasing the number of services they offer . . . spending less and less time with patients but having them return for more frequent office visits, tests and procedures, driving up the volume of billable services. An example: From 2001 to 2005, Medicare cut payments to physicians yet spending-per-beneficiary rose because volumes increased. Research from the Dartmouth Atlas of Health Care shows that many of these "extra" services add nothing but cost to the patient's care.

To stem skyrocketing health care costs, lawmakers must create financial incentives that reward caregivers for working together to provide high-quality, affordable care. They must pay for value. More than 25 years of experience have proven that price controls do the opposite, yet more than half the financing in proposed health care reform bills comes from continued across-the-board reductions in price-controlled payments. That won't work.

Instead, lawmakers should put the money where their mouth is. Define and pay for "a great value": superior patient outcomes, safety and service provided at the lowest possible cost. We can create this simple value score for clinics and hospitals by using standard performance data and hone these measures as better information becomes available.

Over the long term, we should pay for value without artificial price controls. Recognizing that price controls will not go away tomorrow, however, we support an interim approach that would work within the existing Medicare payment model.

A bill recently introduced by Rep. Ron Kind (D-Wis.) and others entitled the Medicare Payment Improvement Act (H.R. 2844) takes an initial step at rewarding value (a similar bill was introduced in the Senate by Sen. Amy Klobuchar (D-Minn.) and others). It is a simple concept: Insert a value "index" into the current Medicare payment formula to financially reward high-value providers and offer an incentive for low-value practitioners to improve. In this case, a health care value index is a basic indicator of "a great value" -- a positive medical outcome and high satisfaction compared to the total bill that later arrives in the mailbox.

Over time, we believe that a value index has potential to put downward pressure on the cost curve by rewarding high-quality, efficient providers with payment increases over the standard Medicare rate. When a portion of their payments is based upon value, doctors and hospitals will begin to seriously weigh the benefit of ordering more tests because additional medical spending that does not improve outcomes reduces overall value -- and consequently would reduce their Medicare reimbursement. Health care professionals also will begin to understand the value they can add by working in teams to improve care and reduce costs.

To be clear, this is not about rationing care or denying access to needed treatment. That would not be high-value care -- outcomes would be poor and satisfaction horribly low. Rather, it's about holding doctors and hospitals accountable for everything we want in health care -- quality and efficiency. Then, institute a "grading scale" for health care payments, rewarding (not penalizing) people and institutions that can deliver the complete package.