Former OMB director Peter Orszag observes that Medicare spending growth seems to have slowed down. He writes the following:

The Mount Sinai experience may be instructive. From September 2010 to May 2011, the hospital’s Medicare revenue rose only 2 percent over the previous year — in part because the number of inpatient cases fell. Why was that? One important reason was that the number of patients readmitted to the hospital within 30 days of discharge was 5 percent less than what it had been the previous year.

He then describes an innovative program at Mount Sinai devoted to reducing readmissions. But he also adds:

Reimbursement from Medicare is still primarily based on how many services hospitals perform rather than on how well they care for patients, so hospitals are often financially penalized for improving value and quality. The Mount Sinai program to reduce readmissions, for example, is costly for the hospital both because of the extra expense of running it and because fewer readmissions means less revenue. Ken Davis, the president and chief executive officer of Mount Sinai, says the hospital won’t be able to afford continuing the successful program if the financial incentives remain so skewed against it.

The Mount Sinai experience is precisely why right-of-center reformers have been calling for a health system that allows for more diversity and experimentation among medical providers and insurers, spurred along by Medicare reform that would put private plans and Medicare FFS on an even footing.