President’s Medicare

President Clinton has the right idea in trying to save Medicare dollars though discounted purchases. But his plan announced this week misses the fastest-growing cost in health care: prescription drugs. Before he tries to wring more money from hospitals, he should find a more effective, lower cost delivery system for drugs.

The president’s announcement comes as the Senate Finance Committee and the House Ways and Means Committee debate whether to increase Medicare payments to service providers, although both houses have dropped the idea of a major reform of Medicare. The White House plan would have Congress steer Medicare patients to certain hospitals and doctors that meet quality standards and agree to charge discounted prices. The plan would serve to counterbalance increases in Medicare reimbursements contemplated by Congress.

The White House plan falls short on several counts. First, it fails to account for how much hospitals have been squeezed already by Medicare reform and by contracts negotiated with health maintenance organizations. Hospitals, unlike under the old fee-for-service system, now have a harder time spreading out costs over private-pay patients. Second, the administration is being disingenuous when it claims that beneficiaries would not be coerced into participating in this program. The proposal would have qualifying hospitals designated as centers of excellence for high-operations such as heart surgery or hip replacement, then hire specialists to coordinate care for treatment of conditions such as congestive heart failure. Of course, patients are going to be shunted toward this supposedly voluntary proposal; that’s how it saves money.

Another shortcoming of the proposal is its dependence on competition among hospitals to entice them into the lower reimbursement plan. In densely populated areas, that may be a reasonable strategy. But for most of Maine, it is not. Why would a hospital participate if patients had no choice but to use its facilities? What good is a center of excellence if it is seven or eight hours away?

Nevertheless, the idea of demanding a large volume of patients in exchange for discounted prices has made some HMO accountants and lawyers very rich people. There is every reason for the government to use this standard practice of industry to make Medicare more efficient. But it should start with prescription drugs, which now make up 8 percent of the nation’s health care budget, are growing at twice the rate of total health care spending but are largely not covered by Medicare.

Rep. Tom Allen has been promoting a plan that would require for the federal government to receive the same kind of negotiated price discounts from drug companies that HMOs currently enjoy. The plan would reduce the cost of buying drugs for the nation’s elderly without placing a burden on the Medicare program. It is a reasonable, market-driven response to an industry that not only is taking up an increasing amount of health-care dollars but is registering record profits.

President Clinton earlier this year expressed interest in offering prescription drugs as part of Medicare, and his recent proposal suggests he understands the importance of using the large number of beneficiaries as a way to save health care money. He needs to put the two together to create a cost-saving benefit that Medicare recipients could really use.