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Better Cost Control in Medicare

October 25, 1987

The Health Care Finance Administration in Washington, responsible for administering both Medicare and Medicaid, is moving ahead with new strategies to try to get better control over Medicare expenditures for physicians. So it should.

Part B Medicare premiums, covering medical care, will increase from $17.90 to $24.80 a month in January--the largest increase in the history of the program. Most of the increase is to cover expanded utilization of tests and medical procedures by doctors, including some practices that are at best controversial and subject to suspicions of over-utilization.

In an effort to slow the growth of these costs, the Health Care Finance Administration is drawing up plans to be presented to Congress next year that would establish financial incentives for doctors to follow more restrictive strategies in ordering tests and procedures, including the utilization of costly scanners. Doctors would be invited to join preferred-provider lists established by Medicare, for which standards of practice would be prescribed. Patients would have reduced co-payments if they turned to doctors on the preferred list. Doctors would be removed from the preferred list if their performance failed to meet generally established standards.

Much the same sort of control is already in effect for the compensation of hospitals under Part A Medicare. Hospitals receive a fixed fee for a given service, regardless of how long the patient is in the hospital. This system of diagnostic-related groups--DRGs--creates an incentive to speed the release of patients, and, at least in its first years of application, it led to a rapid decline in hospital utilization and a significant shift to less-expensive outpatient treatment. It led also to concern about "quicker and sicker" releases and evidence of some errors in the timing of patient releases, and accounted for at least some of the growth of service by doctors in their offices. But the quality controls and the appeal procedures now in place should minimize mistakes.

The American Medical Assn. is concerned that the proposed preferred-provider programs for doctors serving Medicare patients will reduce the quality of care by reducing physician discretion. That is a risk. There is, however, no evidence that patients are well served by excessive tests and procedures. And it is evident that the continued uncontrolled inflation of medical fees could imperil the whole Medicare system.

Furthermore, medical professionals themselves have recognized the need to eliminate what appear to be unnecessary tests. Earlier this year the American College of Physicians, representing most internists, presented guidelines for diagnostic testing that are expected to be adopted broadly by health-insurance companies.

The Reagan Administration also has considered the possibility of applying DRGs to doctors under Medicare, along the same lines as the DRGs for hospitalization. Congress has rejected a proposal, however, that would have placed hospital-based anesthesiologists, pathologists and radiologists under fixed diagnostic-related fees. That would have been a logical place to begin. In the absence of congressional support for that kind of reform, the preferred-provider approach appears to be the most promising way to go.

With health care this year consuming more than 11% of the gross national product, the highest rate in the world, the pressure inevitably will build to control costs. The Administration's initiative for Medicare medical coverage is an appropriate next step in this effort.

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