The Congressional Budget Office (CBO) released its January Issue Brief this week. The brief was an evaluation of Medicare demonstration projects on disease management, care coordination, and value-based payment. These projects aimed to find ways to bend the cost curve down in Medicare by realigning incentives to encourage the system and all participants to seek better outcomes rather than just more health care. Their conclusion is important in evaluating our entitlement programs,

“The evaluations show that most programs have not reduced Medicare spending: In nearly every program involving disease management and care coordination, spending was either unchanged or increased relative to the spending that would have occurred in the absence of the program, when the fees paid to participating organizations were considered…Demonstrations aimed at reducing spending and increasing quality of care face significant challenges in overcoming the incentives inherent in Medicare’s fee-for-service payment system…” (emphasis added)

Texas utilizes managed care in its Medicaid program which has been successful at reducing costs, but it has not been successful in bending the health care cost curve down. The incentives in Medicaid are perverse. With no skin in the game for clients, they are incentivized to consume as much health care as they wish and often do so in inappropriate ways. With the provider rate cuts that were driven by the lack of state flexibility to reform the program, providers are incentivized to call for extra tests and procedures to offset losses from low rates.

The CBO report makes clear that trying to institute free market principles in the current Medicare/Medicaid is like trying to start a fire in a rainstorm. Medicaid, especially, is so poorly designed that the only solution is fundamental reform. This reform must re-engage the patient as a consumer in order to realign incentivizes to maximize value and quality. The future of Medicaid and health care does not lie in fee-for-service, pay-for-performance, or managed care government programs. The future of Medicaid and health care lies in patients making value based decisions on their own health care.

-Spencer Harris