Getting Medicare and Health Reform Backwards

by Tim Foley

categories: Enemies of Reform, Medicare and Medicaid

Published September 28, 2009 @ 08:03PM PT

I’ve noticed that many opposing health care reform -- many of them Republicans -- have started using “don’t let them cut any money from Medicare under any circumstances” as their favorite argument. But the “Bizarro world” quality of seeing the minority party so defensive over a program that they have long sought to prevent outright, cut or entirely replace or privatize doesn’t just stop with the applause line. A lot of the arguments they’re using have a similar “up is down” quality.

Take John Goodman’s blog today (the conservative economist, not the guy in The Big Lebowski) devotes a post to perverse incentives waiting for our medical system if reform passes. “At the risk of oversimplification,” he lays out a vision of perverse incentives for physicians if reform is passed. With government setting fee-for-service rates for all medical procedures, doctors have the incentive to do more services. But then if Medicare growth exceeds a certain limit, the federal government “will impose an across-the-board percentage reduction in all doctor fees.” The behavioral anarchy is shocking to Goodman. Each individual doctor has a miniscule ability to affect Medicare growth, and so will continue following his or her natural instinct to do more services -- even though in aggregate, that will cause the across-the-board cut to trigger. Paradoxically, this cruel blind injustice will just make it more likely that more doctors will do more services. More care means more wasteful care, and it perpetuates the situation it was designed to curtail.

Yes, that sounds massively inefficient.

However, Goodman has described a problem that exists now, not a projected future. The exact adjustment he describes was strongly advanced by the Gingrich Congress of the late 1990s -- called the Sustainable Growth Rate, it cuts doctors rates across-the-board by an arbitrary rate if aggregate Medicare growth crosses a certain threshold. It does, indeed, create that system where doctors are powerless to fix the situation but incentivized to perpetuate it. In fact, it creates a situation that is slightly worse -- the cut has never materialized. Every year, Congress passes a law at the last second to put a one-year postponement on the cut. So all the fear and perverse incentives to waste more Medicare dollars are there, but Medicare spending is never, ever reduced. Curiously, the legislators most inclined to believe Goodman’s economic theories are the ones who have consistently voted against delaying or removing the SGR cut -- including last year where a newly-diagnosed Ted Kennedy needed to walk onto the Senate floor to break a Republican filibuster that would have let the cut take place.

But here’s the kicker -- fixing the SGR is one of the main adjustments to Medicare in the House bill. Goodman’s projected inefficiency isn’t what happens when health reform passes -- it’s what health reform would prevent.

I suppose I shouldn’t be surprised that Goodman’s offered solution -- “Services provided over three visits, for example, might be provided with one visit plus a phone call or two, or one visit plus an e-mail exchange -- provided that the government pays more for the one visit” -- exactly describes the medical home model of care, a better, higher quality and more cost-effective model of delivering care which the proposals in Congress, in fact, double down on in terms of investments. After all, when it comes to arguments against health reform these days, up is down, and black is white.

(Photo credit: http://www.flickr.com/photos/sico_activa/ / CC BY 2.0)