Spending Medicare’s Dollars Wisely: Taking Aim at Hospitals’ Cultures of Overtreatment

Abstract

With Medicare’s rising costs threatening the country’s fiscal health, policymakers have focused their attention on a primary cause of Medicare’s high price tag—the overtreatment of patients. Guided by professional norms that demand they do “everything possible” for their patients, physicians frequently order additional diagnostic tests, perform more procedures, utilize costly technologies, and provide more inpatient care. Much of this care, however, does not improve Medicare patients’ health, but only increases Medicare spending. Reducing the overtreatment of patients requires aligning physicians’ interests with the government’s goal of spending Medicare’s dollars wisely. Toward that end, recent Medicare payment reforms establish a range of financial incentives that encourage more efficient practices among physicians. Physicians, however, do not practice medicine in a vaccum. Rather, they are profoundly influenced by the organizational cultures of hospitals. Far too often hospitals’ cultures lead physicians to provide Medicare patients care of questionable value. If Medicare is to successfully contain costs, it must prod hospitals to move from cultures of overtreatment to cultures of efficiency. Current Medicare reform proposals, however, do too little to address hospitals’ cultures of overtreatment. That is unfortunate, as regulators will have limited success in constraining Medicare’s growth if hospitals’ cultures continue to foster the overtreatment of Medicare patients. This Article therefore sets forth a more robust proposal for reforming Medicare payment policy, one that would facilitate hospitals fully embracing a culture of efficiency. Specifically, federal regulators should reform the Medicare Hospital Value-Based Purchasing Program so that a hospital’s Medicare payment rates are tied to the hospital’s success in lowering the cost of treating patients both inside and outside the hospital setting. Regulators could accomplish this goal by incorporating into the program efficiency measures based on broadly defined episodes of care.