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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

Frist on Health Reform



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Bill Frist calls for sweeping Medicare reform:

Medicare and private insurance companies should reimburse providers not for each discrete service they provide but for managing a patient’s condition over an entire episode of care. In my own field, transplantation, for example, a payer should not separately reimburse 56 different nurses, doctors, pharmacies, imaging centers and hospitals. Instead, it should pay a heart transplant team a fixed sum (adjusted for risk) based on the diagnosis of “heart failure requiring transplantation.” The disbursement of that payment would then be made at the local level, where value can be most accurately determined, and waste most likely eliminated.

Ezra Klein suggests that “bundling” is in the bill, and he’s right, in a sense. The bill does try to nudge the health system in this direction through the use of various pilot programs. 

Bill Frist wants Medicare to “reimburse providers not for each discrete service they provide but for managing a patient’s condition over an entire episode of care.” This is called “bundling,” and it’s one of the central Medicare reforms in the bill.

But as Ezra knows, the bill does not actually do away with Medicare FFS wholesale. Frist is advocating something more far-reaching. 

One thing I find a bit vague is the following: “The disbursement of that payment would then be made at the local level, where value can be most accurately determined, and waste most likely eliminated.”

Would this entail the creation of new local bureaucracies? Roger Feldman outlines another approach — the medical indemnity approach — in How to Fix Medicare: Let’s Pay Patients, Not Physicians.

Under Feldman’s “medical indemnity” proposal, Medicare would pay each patient a fixed amount of money, reserving larger subsidies for sicker people. Patients, in turn, would select their own medical services from providers who would set their own competitive rates. A medical indemnity system would do away with the distortion in patients’ incentives wrought by conventional Medicare coverage. Given a fixed amount of money to spend on medical care, patients would have strong incentives to shop for the combination of services, providers, and prices that most closely meet their needs.

I can’t speak to how well this approach would work in practice, but it’s intriguing.



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