When it was introduced in 1965, Medicare’s payment structure inadvertently encouraged hospitals to inflate the cost of delivering medical care. Over the past few decades, various reforms have sought to fix this incentive by providing a single payment to cover the costs of treating individuals with specific medical conditions. The attempt to bundle reimbursement for joint replacements was one of the most promising steps in this direction, but on August 15, the Centers for Medicare and Medicaid Services (CMS) announced that it was scaling back this and other similar initiatives.
“Traditional fee-for-service payment rules still greatly influence the structure of the healthcare delivery system, and are therefore well worth getting right.”
Having made this move, the Trump administration needs to demonstrate that its qualms about specific models do not represent an abandonment of attempts to improve the efficiency of the healthcare delivery system.
So that hospitals would support the launch of the Medicare program, Congress originally promised to pay them according to whatever they claimed it cost them to treat beneficiaries. This caused an enormous increase in their capital investments, greatly augmented the number of hospitals in the United States, provoked the widespread expansion of existing facilities, and led the program’s hospital costs to soar from $3 billion in 1967 to $37 billion in 1983. This incentive for hospitals to inflate the cost of providing care caused their expenditures to increase six times more than one would expect from an expansion of insurance coverage alone — driving up the cost of treatment for those who were not even enrolled in Medicare.
Read the entire piece here at The Hill
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Chris Pope is a senior fellow at the Manhattan Institute. Follow him on Twitter here.
This piece originally appeared in The Hill