Medicare for All Requires Healthcare Delivery Reform

In an op-ed in The Guardian, Sen. Bernie Sanders (D-VT) and Rep. Pramila Jayapal (D-WA) make a powerful argument that the COVID-19 pandemic has shown the need for the U.S. to adopt Medicare for All as soon as possible. If the Democrats take back the White House and the Senate in November, a public option that might lead to Medicare for All is more likely to become law than Sanders’ or Jayapal’s current single-payer bills. But more than two-thirds of Americans now support of Medicare for All, and it’s possible that rising public pressure could force Congress to pass Medicare for All legislation in the near term.

The United States should guarantee tax-financed, high-quality, comprehensive healthcare to every resident, as Sanders and Jayapal propose. The problem is that grafting Medicare for All onto our dysfunctional healthcare delivery system will not control the growth in U.S. healthcare spending, which is consistently higher than the growth in GDP or workers’ wages.

By eliminating private insurance, Medicare for All would subtract administrative costs that represent about 10% of healthcare spending. But, after that one-time reduction, healthcare costs would resume their upward trajectory. The government could also cut costs by negotiating prices with drug companies, although the amount of money that might save is a matter of debate. 

Finally, most observers believe that the Sanders-Jayapal approach would result in hospitals, doctors and other providers being paid at near Medicare rates across the board. Decreasing provider revenues that dramatically, however, might result in many hospital closures and widespread layoffs. Moreover, physicians strongly oppose the idea of such draconian cuts in their incomes. At a time when both hospitals and physicians are being economically crushed by the pandemic, this might not be a productive option. On the other hand, out-of-control costs would inevitably lead to higher taxes, lower benefits or both under Medicare for All.

There is an alternative that could enable us to bend the cost curve under a single payer financing system. This option, which I call “physician-led healthcare reform,” would require a massive restructuring of the care delivery system. Ideally, this restructuring would start during the transition to Medicare for All, and it would probably take 10 years or more to complete.

Under this reform approach, healthcare providers would have robust financial incentives to reduce healthcare waste, which represents about a third of total spending. The only players in a position to eliminate this waste without hurting patient care are physicians, because only they know which services are unnecessary and/or redundant. 

The linchpin of a restructured system would be primary care groups large enough to take financial risk and powerful enough to influence spending on specialty, hospital and post-acute care. It makes sense to place primary care physicians in charge of the healthcare system, because they’re upstream of the major cost drivers, and they’re the only doctors who treat the whole patient, rather than just a particular physical system or disease. 

The primary care groups would have two kinds of incentives to provide high quality care as efficiently as possible. First, they’d be taking two-sided financial risk for the total cost of care. While similar in concept to the Medicare Shared Savings Program for accountable care organizations, this approach would encompass all patients, not just those on Medicare, and would give the physician practices an opportunity to earn more than they do today. To guard against the financial downside, they’d have to build the requisite infrastructure and financial reserves, perhaps with the help of outside infrastructure vendors that now work with ACOs.

Second, the primary care groups would compete with one another in healthcare markets supervised by regional health authorities. Using published cost, quality and patient experience scores, consumers would choose a primary care doctor in one of these groups; depending on how well the group performed, their health taxes would be higher or lower. This mechanism, which proved successful in Minnesota in the 1990s and early 2000s, would motivate the groups to deliver value to their patients.

To make any of this possible, the government would have to compel hospitals and health systems to divest their employed groups. According to the experts I’ve spoken to, it’s likely that hospitals would do just as well or better without employed physicians than with them. Most of the hospitals’ staffs would continue to refer patients to them, and they’d no longer be saddled with annual practice losses of nearly $200,000 per physician.

While divestment of their practices would reduce the healthcare systems’ market power, they’d still be able to extract high payments from private payers unless the government negotiated hospital rates during the transition to Medicare for All. Currently, because of the formation of increasingly large systems, commercial insurers pay hospitals an average of 241% of Medicare rates; some locally dominant providers get as much as 400% of Medicare. This has been a major driver of cost growth, and rates could be set much lower than that without destroying the hospitals’ ability to stay in business. 

The COVID-19 pandemic has made Medicare for All an increasingly viable proposition. Its proponents, however, have overlooked the need for a major restructuring of healthcare delivery to control cost growth. Physician-led healthcare reform could provide the missing link to make Medicare for All economically feasible by giving physicians sufficient incentives to reduce the endemic waste in our system.

3 thoughts on “Medicare for All Requires Healthcare Delivery Reform

  1. Respected health economics journalist Ken Terry is right that Sen. Sanders and Rep. Jayapal’s Medicare for All will achieve universal health insurance for all Americans. And he is right, that Medicare for All, on the other hand, would not, in itself, control healthcare costs (beyond a one-time reduction in administrative costs). And he is right that relentless increase in healthcare spending is baked into our dysfunctional system. And, lastly, he is right that physicians should play a key role in healthcare reform necessary to fight waste, that is, spending that produces no marginal benefit in health outcomes.

    The premise of Fixing U.S. Healthcare blog is that ALL stakeholders contribute to the non-costworthy system. And ALL – not just physicians – need to commit to restructuring and reform. I invite readers interested in more detail to visit: http://fixushealthcare.blog/2018/07/03/healthcare-hits-a-pothole-and-how-to-fix-it , and http://fixushealthcare.blog/2019/12/10/fixing-u-s-healthcare-annual-review-summary .

    One more thing Mr. Terry is right about – fixing the system will take a decade or more.

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