Opinion: Stop Subsidizing Medical Errors, Cut Costs

Don’t subsidize mistakes

Each year, we spend billions on care for problems the healthcare system creates. Medical errors are one obvious example; preventing them would help, but they are just the tip of the iceberg. Infections acquired in hospitals or other health care settings and duplicative diagnostic tests are other examples. So are relapses that require people to be re-hospitalized because they didn’t understand or get the support they needed to make a complete recovery from surgery or manage a long-term problem such as diabetes or high-blood pressure.

Problems such as these cause needless spending and unnecessary suffering. So how can we start minimizing them? One common-sense approach is to stop subsidizing them.

Today, if a person is hospitalized with a broken arm and gets an infection in the hospital, the hospital gets paid twice: once for setting the arm and again for treating the infection. That’s what economists call “moral hazard” – the hospital benefits financially from the infection. This is not to say the hospital is malicious – just that the incentives are stacked against quality care. If, instead, we base payments in part on how well providers avoid such problems, we can align the incentives with what we actually want – quality health care.

Savings in the billions

These common-sense payment reforms are already being used by a few states and some in private industry. Maryland tied its hospital payment rates to complication rates in 2009. During the first year, the state saw a nearly 12 percent drop in the incidence of complications. New York and Texas expect significant savings using similar approaches. And private insurers, like Blue Cross of Iowa, are beginning to adjust payments so providers have stronger incentives to reduce the incidence of avoidable problems. In fact, here at the state level, North Carolina could save millions in our Medicaid budget if we adopted the Maryland approach.

But state reforms aren’t enough. The federal government is America’s single largest health care purchaser, so federal leadership can deliver the most value for our economy. The Affordable Care Act, the nation’s health reform law, begins moving the federal government into this role. We need to do much more, and the stakes are high. Even small reductions in spending for care we don’t need can make a big difference in delivering the care we do.

A review of publicly available Medicare data suggests that these smart payment policies can save at least $12 billion during the first year alone. The health care needs that money could meet are staggering – more than 15,000 heart transplants, three years of the flu vaccine for every American, or 60 million asthma inhalers. And that’s just Medicare – if we made similar improvements to Medicaid and other health care payment systems, the national savings would be even greater.

Be heard by your senators

This past summer’s deficit debate could have used Medicare payment reforms as a springboard to make America’s health care system better, more accountable, and more cost effective. Unfortunately, congressional budget negotiators missed a critical opportunity when they failed to put smart, practical, ideas like these on the deficit reduction agenda.

We have another chance right now. If enough of us speak up, and if congressional leaders make these reforms their priorities for the next budget debate, we can move past the myth that fiscal responsibility and better care are mutually exclusive.

It’s time for America to stop paying for what we don’t need and to start paying for what we want: better care, sustainable costs and more value for every health care dollar.