The legislation before Congress uses the blunt instrument of new rules, regulations and payment cuts in what surely will be seen as a misguided effort to increase the efficiency of hospitals, nursing homes and home health agencies.

The chief actuary of the Centers for Medicare and Medicaid Services, Richard S. Foster, analyzed the impact of these cuts in a recent study and concluded that the proposal is unlikely to save the government money and could put many agencies out of business, jeopardizing access to care for patients.

Congress plans to pay for its reform plans partly with about $150 billion in Medicare cuts to hospitals, nursing homes and home health agencies, referred to as “permanent annual productivity adjustments to price updates.” George Orwell would be proud.

Payments to these providers would be based upon their ability to keep pace with economy-wide productivity gains, even while they are buried under mountains of government paperwork to comply with a barrage of new rules.

Mr. Foster concluded that these annual payment “adjustments” would provide a strong incentive for providers to become more efficient, but he added “it is doubtful that many could improve their own productivity to the degree achieved by the economy at large.”

He says that over time these cuts would mean that Medicare payment rates would lag behind the costs of providing services.

In fact, the Senate bill acknowledges that “payment increases” may be “less than 0.0 for a year, and may result in payment rates … being less than such payment rates for the preceding year.” In English, that would be a cut.

The result, Mr. Foster concludes, is that “providers for whom Medicare constitutes a substantive portion of their business could find it difficult to remain profitable and might end their participation in the program (possibly jeopardizing access to care for beneficiaries).”

Congress would be well advised to go back to the drawing board. Taking a government hatchet to payments will not achieve the goal of enhanced productivity. That requires the creativity of market forces that are strongly out of favor with this Congress and administration.

Published in The New York Times: Room for Debate, Dec. 2, 2009.

The legislation before Congress uses the blunt instrument of new rules, regulations and payment cuts in what surely will be seen as a misguided effort to increase the efficiency of hospitals, nursing homes and home health agencies.

The chief actuary of the Centers for Medicare and Medicaid Services, Richard S. Foster, analyzed the impact of these cuts in a recent study and concluded that the proposal is unlikely to save the government money and could put many agencies out of business, jeopardizing access to care for patients.

Congress plans to pay for its reform plans partly with about $150 billion in Medicare cuts to hospitals, nursing homes and home health agencies, referred to as “permanent annual productivity adjustments to price updates.” George Orwell would be proud.

Payments to these providers would be based upon their ability to keep pace with economy-wide productivity gains, even while they are buried under mountains of government paperwork to comply with a barrage of new rules.

Mr. Foster concluded that these annual payment “adjustments” would provide a strong incentive for providers to become more efficient, but he added “it is doubtful that many could improve their own productivity to the degree achieved by the economy at large.”

He says that over time these cuts would mean that Medicare payment rates would lag behind the costs of providing services.

In fact, the Senate bill acknowledges that “payment increases” may be “less than 0.0 for a year, and may result in payment rates … being less than such payment rates for the preceding year.” In English, that would be a cut.

The result, Mr. Foster concludes, is that “providers for whom Medicare constitutes a substantive portion of their business could find it difficult to remain profitable and might end their participation in the program (possibly jeopardizing access to care for beneficiaries).”

Congress would be well advised to go back to the drawing board. Taking a government hatchet to payments will not achieve the goal of enhanced productivity. That requires the creativity of market forces that are strongly out of favor with this Congress and administration.

Published in The New York Times: Room for Debate, Dec. 2, 2009.