Medicare reforms are degrading the practice of medicine


Patient Eilleen Corrigin (L) stands next to a nurse while checking in for an appointment at an anti-coagulation clinic at the Staten Island University Hospital in Staten Island, New York May 7, 2012.

Article Highlights

  • President Obama is promising to “protect” Medicare, but his plan really transforms the practice of medicine.

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  • Obamacare puts more aspects of medical decision-making under closer government supervision.

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  • The ACA solution puts Medicare regulators in control of decisions, schemes already degrading the practice of medicine.

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President Obama is promising to “protect” Medicare by lowering the cost of healthcare. What his plan really does is transform the practice of medicine.

It will put more aspects of medical decision-making under closer government supervision and could make healthcare harder to access for seniors.

The president’s three principal cost-cutting measures are already part of ObamaCare. 

The first of these strategies is to shift the financial risk of medical care to providers. 

ObamaCare does this by creating new medical practice arrangements such as medical homes, accountable care organizations and bundled payments. All of these new arrangements are just variations on the old concept of capitation, where doctors are paid fixed sums of money to care for patients. Under these measures, providers are deliberately given a strong financial incentive to self-ration the services they provide. Since doctors get a fixed sum for providing services, the more money they spend on patient care, the less cash left over to flow to their bottom line.

The problem with capitation is the same flaw that prompted a backlash when these tools were used by health plans in the 1990s. Most patients aren’t aware of the options that doctors never offered them. The rationing will be subtle and concealed. The Obama team argues that regulation will thwart the worst attributes of these arrangements. 

That’s putting misplaced faith in Medicare’s remote bureaucracy.

The second tool Obama adopts is to turn providers into salaried employees of large healthcare systems. The premise is that once doctors are staff members of entities like hospitals it will be easier for Medicare to regulate their decisions and reduce “wasteful” procedures and treatments. Instead of regulating individual physicians, Medicare will be able to regulate the institutions that employ doctors, and use these entities to enforce the agency’s rules.

ObamaCare is accelerating these arrangements by changing how providers are paid. More than 60 percent of doctors are now employees of hospitals and health systems. 

"Most of the enduring innovation in how care is delivered came from start-up companies that pioneered successful new concepts that in time became mainstream." -Scott GottliebAlmost two-thirds who signed employment contracts in 2009 were hired by hospitals. This includes half of all doctors leaving residency training.

The president’s plan envisions that the institutions employing doctors will implement strict guidelines to regulate the decisions that providers can make, in order to steer doctors to more “efficient” choices. It’s unlikely to evolve that way.

For one thing, studies show that productivity declines as doctors enter into these staff-model arrangements. Moreover, there’s little reason to believe that the entities employing doctors will introduce genuine innovations in how care is delivered — changes that actually improve quality while lowering costs. In fact, hospitals have historically been some of the least innovative institutions in the healthcare industry. 

Most of the enduring innovation in how care is delivered came from start-up companies that pioneered successful new concepts that in time became mainstream.

The final tool that the president implements is an explicit cap on the amount that Medicare spending can grow each year. Obama says that Medicare’s rate of growth can’t exceed 0.5 percent of the rate of growth of gross domestic product. So if GDP grows at 2 percent, Medicare spending can’t rise by more than 2.5 percent.

Obama caps the growth in Medicare spending by empowering a government board to implement cuts to the program whenever spending is projected to exceed that 0.5 percent target. This Independent Payment Advisory Board (IPAB) is supposed to focus on sanding down the reimbursement rates for drugs, devices and providers. Arguing that this won’t reduce seniors’ benefits supposes that access isn’t affected by the price being paid for services. 

Several large studies already show a rising proportion of doctors refusing to take on new Medicare patients because of its low payment rates. Medicaid provides ample evidence that as reimbursement rates fall, so does patients’ access to care.

All of this turns on misguided faith that efficiency and innovation in the delivery of medical care can arise through government fiat rather than market competition. ObamaCare thwarts efforts to empower consumers to make cost-conscious decisions. The president’s plan deliberately rolls back Bush-era reforms aimed at creating more consumer-led insurance arrangements.

There’s plenty wrong with the way that doctors are paid for providing medical care and the imprudent incentives that patients have to overuse it. The president’s solution is to put Medicare’s regulators more firmly in control of decisions. These schemes are already degrading the practice of medicine in America. 

Gottlieb is a physician and resident fellow at the American Enterprise Institute.


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