Medicare, which insures the elderly and disabled, had 45 million beneficiaries and total expenditures of $468 billion in 2008. As baby boomers age, and more adults become eligible for Medicare, costs will expand further and some have predicted that the program will go bankrupt. But it's already in trouble.
If you really want to get a handle on how much Medicare is contributing to the rising costs of health care, Dr. Atul Gawande's thought-provoking New Yorker article is a must-read. When Gawande visited McAllen, Texas, one of the most expensive health care markets in the country, he learned that per capita spending on Medicare is $15,000, more than twice the national average. Gawande compared the costs in McAllen with those near the Mayo Clinic in Minnesota -- which were less than $7,000 per person.
Why is so much money spent on patient care in this Texas town?
Gawande found that, in short, medical care is "over-utilized" in McAllen. It's a poor area but the hospitals have all the latest equipment and technology, and the physicians do more tests, procedures and provide more services than doctors in other areas of the country.
But that's not all. While snooping around Gawande also discovered that some local doctors opened a hospital, and receive a percentage of its profits when they admit patients. The doctors also refer patients to laboratories and radiology centers where they get a cut of the profits.
As I've mentioned in previous installments in this series, doctors get paid more for performing procedures and doing tests on patients, which in turn drives up health care costs. In addition to the usual financial incentives, there was an even greater impetus for physicians in McAllen to order more tests because the doctors had a share in the pot of virtually every service provided.
On the other hand, at the Mayo Clinic, large groups of multi-specialty doctors work together to provide coordinated care in a cost-effective manner without consideration for cost. One way they do this is to salary doctors, which I'll address further down.
The really interesting part of the story is that the people getting the most expensive care weren't necessarily getting better care. In fact, in some cases they got worse care because complications can arise from a hospital stay or from undergoing medical procedures.
This finding does not surprise me. In fact, other evidence, including 2007 Senate testimony by current White House Budget Director director Peter Orszag, backs it up. He pointed out substantial geographical differences in health care spending within the U.S., and he documented that the areas where more money is spent on health care don't experience higher life expectancy or other health advantages.
I agree wholeheartedly with Gawande's assessment that we need to eliminate the overuse of medical services if we want to control health care spending. In fact, I'll go a step further and say that if we do this, we can reduce Medicare -- and overall health care spending -- without rationing or sacrificing quality.
While the Mayo model has been replicated, it would be hard to expand nationally -- especially because you'd have to convince doctors to give up their current fee-for-service compensation structure for a salary. A front-page article in the New York Times last week described another hospital in Cooperstown, New York where the Mayo model seems to be working well, although doctors who left did so because they wanted to earn more money.
Let's keep in mind that the reason doctors have begun entrepreneurial endeavors like those in McAllen is that their salaries have been slashed in recent years mainly due to lowered insurance reimbursements. At the same time, graduating medical students beginning their careers face massive debt. Doctors nationwide are coming up with all sorts of ways to offset these income losses from performing cosmetic procedure to ordering more tests -- even buying hospitals.
The solution may be to salary doctors, and pay them well, and the savings would still be worthwhile. To many doctors, this concept is anathema. I experienced working under a similar model in the 1990s at Kaiser Permanente in northern Virginia, where we had incentives to give the best care possible in the most cost-effective manner. It sure beats haggling with insurance companies and government bureaucrats over every decision, and it was enjoyable to focus on medicine itself.
Health reform will not be effective unless we figure out a way to eliminate incentives for doctors to profiteer and compensate them for giving high-quality, cost-effective care. Now, the opposite is true. The only motivation is pure ethics, and that seems to be a hard sell.
Russell Turk, M.D. is an obstetrician and gynecologist in Fairfield County, Connecticut.
This is the final article in a 10-part series, 10 Reasons to Reform Health Care Now: Part 8: End-of-life costs are too high
Part 1: Syrocketing costs are choking American businesses
Part 8: End-of-life costs are too high