Adding “value” to Medicare payments

Continuing his lessons on Medicare payments (worth reading in full) Uwe Reinhardt challenges,

While no one likes the cost-based Medicare fee schedule, its critics should be challenged to suggest a workable alternative based on “value to patients.” For starters, the critics should explain concretely how they would define and measure value in this context, in monetary terms, keeping in mind the administrative cost of any such system.

I know what Reinhardt is daring critics to produce, and I agree that it’s a tall order. But I think there’s a first step that admittedly only very roughly gets at “value” in the sense he means it but is worth taking anyway.

If patients cannot be sufficiently informed to assess and communicate value and/or it would be unwieldy or impractical to design a system to harness just that, then we could at least imagine a system that approximates value in a way that a fully informed patient who is paying his own way might. A fully informed patient would want to know how to rationally choose between therapy A and therapy B based on expected quality and quantity of life each would deliver. In other words, the patient would want to know the comparative effectiveness of the two therapies.

This is knowable, with research. Medicare could incorporate comparative effectiveness findings into what it pays. David Leonhardt and Peter Orszag described how it could work. In brief, the Independent Payment Advisory Board could propose that the program only pay the lowest price among equivalent therapies and/or only pay for the most cost-effective (in some sense). Beneficiaries wanting more expensive and/or less effective therapies would have to fund the marginal cost themselves. Politics aside, it is not pie-in-the-sky. Why should taxpayers pay more than they have to? Why should they pay for what doesn’t work? Why should they pay whatever physicians have determined their costs to be? Why can’t we harness research to improve efficiency?

We can get more value out of Medicare. Changing the payment system is precisely how to do so.

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