Gilbert Gaul Earns a Voxy

We bring the Voxy out of retirement to honor Gilbert M. Gaul's series of articles in the Washington Post this week on the waste in Medicare spending. He gets off to a good start last Sunday in "Bad Practices Net Hospitals More Money," the first of the series:

As far back as 1999, federal and state regulators began to receive complaints that the heart surgery unit at Palm Beach Gardens Medical Center in Florida was a breeding ground for germs.

Dust and dirt covered some surgical equipment. Trash cans and soiled linens were stored in hallways. IV pumps were spattered with dried blood. One patient's wife said she saw a medical assistant tear surgical tape with his teeth.

State inspectors in 2002 found "massive post operative infections" in the heart unit, requiring patients to undergo more surgery and lengthy hospital stays.

In a four-year period, 106 heart patients at Palm Beach Gardens developed infections after surgery, according to lawsuits and government records. More than two dozen were readmitted with fevers, pneumonia and serious blood infections. The lawsuits included 16 patients who died.

How did Medicare, the federal health insurance program for the elderly, respond?

It paid Palm Beach Gardens more.

Under Medicare's rules, each time a patient comes back for another treatment, a hospital qualifies for an additional payment. In effect, Palm Beach Gardens was paid a bonus for its mistakes.

Medicare's handling of Palm Beach Gardens is an extreme example of a pervasive problem that costs the federal insurance program billions of dollars a year while rewarding doctors, hospitals and health plans for bad medicine. In Medicare's upside-down reimbursement system, hospitals and doctors who order unnecessary tests, provide poor care or even injure patients often receive higher payments than those who provide efficient, high-quality medicine.

This moral hazard problem exists everywhere in the economy where actions are imperfectly monitored. The problem here is that Medicare is a $300 billion a year program that is rife with hidden actions. The classic economic answer is to pay based on performance (or the quality of care), assuming that there are measures of performance that are informative about the actions taken. In an environment like health care, where there are lots of random factors that can affect outcomes, the following statistic is particularly disheartening:

Medicare has difficulty controlling waste because of deficiencies in the way it monitors and enforces quality standards. Its oversight system is fragmented, underfunded and marred by conflicts of interest, records and interviews show. For every $1,000 that it pays to hospitals and doctors, it invests just $1 or $2 to oversee and improve patient care.

Plenty of progress has beeen made in health outcomes research. Some of the most interesting work is done by a team at the Dartmouth Medical School on the geographic variation in health care spending, compiled in the Dartmouth Atlas of Health Care. This work figures prominently in the article:

One result: striking variations in what Medicare pays for care in different states, or even neighboring Zip codes. In 2001, the typical Medicare patient in Los Angeles cost the government $3,152 more than a comparable patient in the District. A patient in Miami cost $3,615 more than one in Baltimore.

Those disparities cannot be explained by differences in local prices or rates of illness, said John E. Wennberg, a Dartmouth physician and an expert on geographical variations in medical care. Rather, higher spending is related to the number of specialists, hospital beds and technology available. "If you have twice as many docs in a community," said Wennberg, "you end up with twice as many office visits."

Yet most high-spending states rank near the bottom in quality of care, Medicare data show. Louisiana ranked 50th in quality yet first in Medicare spending in 2001, the most recent year available. New Hampshire was first in quality but 47th in spending.

Medicare acknowledges that its system rewards bad care. Officials have only recently begun to address the problem.

This year, Medicare began requiring hospitals to report their performance on a handful of measures, such as how many heart attack patients received recommended beta blockers and aspirin. Officials say the reports will pressure hospitals to improve and save money. But officials don't use the data to punish poor performers or to steer patients to the best performers.

That last step is critical. A bit later in the article, we learn of more efforts underway:

Recently Medicare officials have begun an effort to transform the way the program pays for care, with a renewed focus on quality. Congress also has joined in, mandating that Medicare try ways to increase competition and link payments to quality.

Medicare has a pilot program to reconfigure how it pays for patients with chronic conditions such as diabetes, heart disease and kidney failure. While relatively small as a percentage of all patients, these beneficiaries account for about half of all money spent. Medicare is testing the idea of paying doctors a single, all-inclusive fee for managing each patient's care, linking the payment to whether the patient gets better.

Another initiative is studying the effect of paying doctors and hospitals small bonuses when they provide preventive treatments such as an annual eye exam for diabetics. Recently, Medicare also began tapping its databanks to give patients access to basic information about the quality of care provided by hospitals, nursing homes, home health and dialysis centers. Much of the information is now reported by the health care providers and posted on Medicare Web sites.

By linking payments to performance, Medicare hopes to shift the culture of medicine away from automatically doing more. In theory, that could lead to savings and improve care.

This is what we would hope for: case management of the highest cost conditions, payment based on best practices, and greater information dispersion through the customer base. The series contains quite a bit more information and good writing.

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