Memo to the Super Committee

To: Super Committee
Re: Medicare Savings


I know you haven’t been established yet. Neither you, nor I, know who you really are. Still, it’s possible you’ll be pretty important between now and Thanksgiving so I thought I’d drop you this note.

I heard through the grapevine (OK, it was the internet) that you’ll be looking for some savings from Medicare. First of all, good idea! The program needs to reduce its rate of spending growth as it is a key driver of increasing deficits. I trust you basically know this. If not, ask the CBO for details. (I will spare you the paragraph on the fact that revenue plays a large roll in deficits too.)

I’m certain you’ll have access to the nation’s leading experts on Medicare and how to trim its budget. I know from experience sometimes those experts are busy. Sometimes they don’t think of everything right away. We’re all human. Anyway, I’ve got access to some experts too, the readership of a blog I write for. I know, “blog” sounds kind of lame, but it isn’t! The readers are great. Collectively, they scour pretty much everything there is to consume on health policy. They’re a genuinely useful resource. I’m rambling. Sorry. I just really appreciate my readers and the blog, and you should too. Subscribe here (shameless plug!!!).

Anyway, I’m asking my readers to put together a list of possible ways to save money in Medicare. This is a service to you. I hope you find it helpful. To get started, here’s my (incomplete) list. In time, I think/hope you’ll find more in the comments below.

  1. Competitive bidding, also known as competitive pricing. This idea really puts the market to work to buy Medicare benefits for the lowest possible price on a market-by-market basis. Participants can be public and private entities. It piggybacks on the exiting, hybrid structure of Medicare (FFS Medicare + Medicare Advantage) and makes all participating plans compete directly in a way they never have. Scholars have estimated the savings to be 8% of Medicare spending. I’ve written a lot about this elsewhere. Perhaps this post is the best place to start.
  2. Competitive bidding can be put to work for durable medical equipment too. See the work of Peter Crampton.
  3. Part D formulary design and drug pricing. Did you know the VA buys drugs for 40% less than Medicare? True! That alone suggests Medicare could spend a lot less on drugs. There are many possible Part D reforms that would lower program spending. Kevin Outterson wrote about some. For more about what it would take and mean to make Medicare’s drug benefit more like the VA’s see my post, which links to my paper with Steve Pizer and Roger Feldman.
  4. Reference pricing. This idea came to me via David Leonhardt and Peter Orszag (smart guys, by the way; you should talk to them). The basic idea is that Medicare should only spend an amount on therapy for a condition equal to the lowest cost, effective one (that’s the “reference price”). If individuals want more costly therapies that are no more effective, they should pay the difference out of pocket. There’s more to this. See this prior post and related links therein.
  5. There are lots of things Medicare shouldn’t even be paying for at all because they don’t work. See Rita Redberg’s NY Times op-ed on this.
  6. Support comparative effectiveness research so we can learn more about which therapies are most effective. There is too much we don’t know and it is costing us.
  7. Let ACOs be tested. We don’t know if they’ll work, but they’re worth a try.
  8. Support the IPAB. Isn’t it obvious by now that Congress itself can’t control Medicare costs?
  9. Consider all-payer rate setting. More on that here. Perhaps this post is a good starting point.

There, that’s a good start. I know I didn’t provide cost savings estimates for everything above, but quickly looking through some links, I think it is clear that there is at least 10-20% to be saved without harming health. I hope readers will provide more ideas in the comments.

Best of luck with your work. It’s important. I hope you take it seriously.

LATER: See the addendum.

LATER STILL: If the above is what the Super Committee should do, here’s a post about what it is likely to do.

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