David Leonhardt has written an interesting column on Medicare that touts an interesting and worthwhile proposal:

In the new issue of the journal Health Affairs, two doctors, both former Medicare officials, have laid out a plan to do so. It would give expensive new treatments three years to prove that they worked better than cheaper treatments, or their reimbursement rates would be cut to that of the cheaper treatments.

I do hope that Leonhardt takes a look at the Medicare reform proposal from Robert F. Coulam, Roger Feldman, and Bryan E. Dowd:

The authors contend that the federal government should pay only the cost of the most economical health plan in each market area. To accomplish this, both traditional fee-for-service (FFS) Medicare and private Medicare Advantage (MA) would submit bids for the government’s business; the federal contribution to premiums would be set to equal the lowest bid in each market area. This competitive pricing system would penalize plans that bid too high–their beneficiaries would pay higher premiums–providing an incentive for plans to offer their best prices. Meanwhile, low-bidding plans would be rewarded with increased enrollment. Such an approach would reduce Medicare spending by 8 percent, shoring up the program’s finances while empowering consumers to make sensible choices about their health care.

The approach recommended by Steven Pearson and Peter Bach may very well improve the cost-effectiveness of Medicare FFS at the margin. But a competitive pricing system creates a powerful incentive for MA plans to embrace a wide variety of strategies that would go much further than Pearson-Bach.

I applaud Pearson and Bach for their efforts. But my sense is that a centralized approach to achieving cost savings has some disadvantages.

P.S. I should note that Austin Frakt has written about the potential — emphasis on potential — virtues of this approach.