With the release of Progressive Caucus co-chair Pramila Jayapal’s Medicare for All bill, we are mired in the usual debates about the concept, which inevitably come down to cost. “How will you pay for it,” ask skeptics and opponents, pointing to impossibly large estimates ($32 trillion!) of covering the entire population with a comprehensive health program that covers more than current Medicare and is free of co-pays.
The $32 trillion number, of course, discounts the even larger number that Americans currently spend in national health expenditures, which would be saved in the event of a transition. It’s really just thrown out there as bait to get Medicare for All defenders to suggest various taxes, which are then used as a cudgel to weaken public support.
But if we’re really going to talk about cost, we should acknowledge that the Jayapal bill is demonstrably more serious about the issue than any comprehensive bill on the right or the center-left, including Obamacare, which was allegedly all about bending the cost curve. Jayapal included a bit of secret sauce that has the potential to dramatically reduce health expenditures while refocusing our entire health system on quality and care. And paradoxically for an allegedly socialist concept, it does so by leveraging market forces.
It’s called global budgeting, and it would alter the way Medicare pays out health-care private providers for treatment. Under the current “fee for service” model, Medicare pays individually for any care provided by a doctor or hospital. The Jayapal bill finds a different way: Every health-care provider would get a set budget for the year. Then it’s up to them to manage its services within that budget.
This attacks the biggest problem in American health care: costs. We pay more for individual services, whether an MRI or a surgical procedure or really anything, than any other country in the industrialized world. Prices are maddeningly opaque, as our insurance providers ultimately pay the cost. So we don’t necessarily feel these prices until our insurer raises premiums or declares a procedure outside of our coverage plan. And anyway, people don’t normally shop around for knee surgery for the best bargain. So this cost inflation has continued despite all efforts to arrest it.
One of the virtues of Medicare for All, according to its supporters, is that it can bargain with providers to bring down these costs, and remove administrative overhead that funnels money to paperwork when it could go to care. But even a single-payer world can overpay for services, particularly when providers are highly concentrated. Just look at our one universal single-payer system: kidney dialysis.
Under a program signed by Richard Nixon, Medicare pays for all dialysis treatment. The industry has only two major participants, DaVita and Fresenius, and costs have been high. The Trump administration is drawing up a new payment system that would favor in-home treatment, which is cheaper than outpatient care. But Fresenius just merged with NxStage Medical, one of only two companies that manufacture an in-home dialysis machine. The other company is … Fresenius. With a monopoly provider, the price of in-home dialysis is fated to spike, even though Medicare is the only purchaser of this service.
Global budgeting is one way to fix this problem. It’s used in Australia, Belgium, Canada, Finland, France, Germany, the Netherlands, Sweden, Switzerland, and the United Kingdom. The Jayapal version would not only set a global budget for each hospital, but restrict how that money is spent—bonuses for employees, marketing, or political donations would be disallowed. There would be a separate fund for capital expenses like new equipment, and an emergency fund if hospitals need to treat an epidemic. But in general, hospitals would need to stay under the global budget to turn a profit.
They would have a number of ways to achieve this. Reducing readmissions, for one, would limit the care provided. Eliminating excessive or unnecessary treatments could help. Best practices would become an important priority. Procurement of supplies and medical devices and drugs would have to be mindful of cost efficiencies, instead of the pay-to-play clown show we currently have, which artificially increases prices. And, perish the thought, salaries for hospital administrators might have to go down.
The bulk of these strategies would focus providers on patient care. As the Urban Institute wrote in 2016, “Global budgeting fundamentally changes the incentives hospitals face, providing a direct incentive to improve operating efficiency and reduce volume of cases, outpatient encounters, and services per patient.” It gives providers flexibility to dedicate funds to particular areas of care. Plus, it’s simpler to manage and less susceptible to fraudulent claims, because there’s literally only one line item for the budget annually.
There are potential drawbacks, like in any system. Hospitals could get under the global budget simply by cutting spending through delaying technological improvements or rationing, to the detriment of patients. Strong monitoring from Medicare would have to be part of the program. Medicare would also have to ensure the global budget isn’t so austere that hospitals cannot survive, even if they’re efficient. There are also concerns that global budgeting fails to promote competition among hospitals, although there functionally isn’t much competition now in our concentrated hospital networks.
Fortunately, America has a demonstration project for global budgeting, in Maryland. The state implemented a global budget for acute-care hospitals in 2014, which limits growth in per capita health-care spending on a year-by-year basis. Studies of the program found that total hospital expenditures in Maryland dropped and readmissions fell. Because the program was applicable to hospital services rather than all providers, and because hospitals continued to bill per admission, the benefits were somewhat limited. Nonetheless, global budgeting in this small example did show promise.
Hospitals in Maryland generally supported global budgeting, but you could expect the provider community to resist any major cuts to their pay and lobby to boost the global budget number. Of course, this will be the major fight around Medicare for All more generally—hospitals and doctors don’t want to end the gravy train where they can charge what they want with virtual impunity. At least Jayapal’s bill takes that fight on directly.
Obamacare had some similar pilot programs to global budgeting, such as so-called “bundled payments” for discrete services. But it was nowhere close to as comprehensive as the system Jayapal contemplates. In her own way, Jayapal is far more serious on cost than the bean-counters in the Obama administration were. She knows that Medicare for All will bring millions more into the system, and at least at the outset, increase utilization of medical care. Given that, it’s incumbent that she wring out savings, and global budgeting could provide that option.
Democrats who previously supported Medicare for All when it was aspirational have demurred in the face of a more concrete plan. They should explain what their plan is for controlling skyrocketing health-care costs. Because like it or not, the Jayapal Medicare for All bill actually answers that question.