Medicare and Medicaid spending will exceed $1 trillion in FY 2013.  Together, the two programs now serve about 113 million Americans – over a third of the population.  Policymakers in Washington and the states face a daunting challenge to containing costs in Medicare and Medicaid – both health programs are fiscally unsustainable and must be reformed.  However, it’s important that policymakers focus on fundamental reforms positive for both beneficiaries and taxpayers.  Further cuts to Medicare provider rates and federal funding  for state Medicaid programs are simplistic and counterproductive.

Here are seven ideas to reduce costs and improve outcomes in Medicare and Medicaid, particularly for seniors and persons with disabilities:

1. Value-Based Payment: 

Stop using traditional fee-for-service payment methods that merely encourage volume, reward inefficiency, penalize clinical performance, and treat providers as piece workers.

Reform provider payment to align financial incentives with positive clinical performance (quality of care, patient safety, and outcomes) and cost efficiency – both for the provider’s own services as well as the patient’s entire episode of care.

Medicare and state Medicaid programs, in concert with health plans and self-insured employers, should take action to bring at least half of all health care spending under value or performance-based payment by 2020.

2. Drive Market Share to Best Performing Providers: 

Drive market share to the best performing providers.  This can be done directly through various network and care management strategies.  But Medicare and Medicaid should create a tiered co-payment structure where patients pay more to see poor performing providers and nothing to see top performers.

Given the impact of performance on patient’s lives and taxpayer’s wallets, charging Medicare beneficiaries the same 20% co-pay to see a high-quality physician as a low-quality doc is absurd.  It made sense before the days of data-driven, evidence-based measures of quality, safety, and outcomes – but today differential patient cost sharing is essential.  Even the variation of the nominal co-pays permitted in Medicaid could make a difference.  Or states could be permitted to offer incentives – gift cards, etc. – for families that use the top performing providers available to them.

It would also helps address the problem that most consumers, including seniors, don’t check out a provider’s quality scores online.  Value-based, differential cost sharing is a great, highly transparent way to drive attention to and understanding of the scores – by both consumers and the providers.

3. Share Savings Across the Episode Streams in Medicare and Medicaid: 

Medicare should pay Medicaid long-term care providers incentives or shared savings when they improve outcomes and thereby reduce the need for Medicare-funded acute and post-acute care.

Meanwhile, state Medicaid programs should pay Medicare-funded physicians, hospitals, and post-acute providers incentives or shared savings when their performance reduces or delays the need for Medicaid-financed long-term care services and supports (nursing home, home health, personal care, and non-medical home and community-based services).

Much of the need for long-term care can be prevented or reduced in intensity through proper care upstream by physicians, hospitals, and post-acute provider.  For example, if a senior breaks a hip and receives inadequate care, the likelihood she will need Medicaid long-term care skyrockets.  Reward physicians, hospitals, and post-acute providers paid by Medicare for their performance in reducing the need for Medicaid-funded long-term care services and supports (LTSS).  Track how their patients do long after they leave the hospital or rehab provider and share Medicaid savings with those Medicare providers that reduce or delay the need for LTSS.

Conversely, the performance of Medicaid long-term care providers can greatly impact inpatient admissions, emergency department visits, post-acute services paid for by Medicare.  Nursing homes, home health agencies, and home and community-based waiver program providers paid by Medicaid have little or financial incentive to take steps to, for example, prevent a hospitalization paid by Medicare.  Similar to how Accountable Care Organizations (ACOs) are compared for their impact on overall per capita spending of patients they serve and allowed to share in any savings, Medicaid LTSS providers should likewise be compared for their impact on Medicare per capita spending on acute and post-acute services.  And then, as long as they meet quality standards, receive a share of any savings resulting from lower than expected Medicare spending.

4. Integrated Medicare-Medicaid Health Plans for Dual Eligibles:

For dual eligibles, fully integrate all Medicare and Medicaid financing, benefits, and care delivery through integrated, fully capitated health plans.  This should be done carefully but expeditiously nationwide.  The fact that the nation’s most costly, most medical complex and vulnerable patients are, in most states, relegated to unmanaged, uncoordinated, and poor performing fee-for-service systems across the two drastically different programs and benefit designs is, well, nuts.  These folks – and taxpayers – deserve better.

5. Care Coordination in Medicare:

Incorporate comprehensive care coordination and chronic care management in the Medicare benefit package and fee-for-service delivery system, which lags well behind much of the Medicare Advantage delivery model.

6. Think Prevention of Long-Term Care:

Broaden the scope of state long-term care reform efforts to emphasize prevention or minimization of the need for nursing home level of care (LOC).

Historically, efforts to redesign the Medicaid LTSS system have focused on building up home and community-based services (HCBS) and steering utilization away from institutional, nursing home care.  This is certainly essential but again this deals with beneficiaries who are already at or near needing that level of care.

Genuine long-term care reform should include large-scale efforts to, where possible, prevent or mitigate situations that generate or increase a person’s need for long-term care services and supports in the first place.   Home-based care, when done properly, certainly plays a key role in preventing or delaying the need for nursing home care.  There are many other, prevention oriented interventions.  Aggressive efforts to improve medication adherence is an obvious, highly cost effective place to start.  Medication non-compliance is a leading cause of hospitalizations and nursing home admissions by seniors.

Expanding the policy view of long-term care to include prevention is also consistent with state efforts to implement managed care for long-term services and supports (MLTSS).

When we think of nursing homes and home care, we think of life’s inevitabilities.  We get old, frailties kick in, and we need help.  This is true but all too often the need for long-term care can be reduced, delayed, or even prevented entirely by ensuring seniors and persons with disabilities get improved primary, acute, and post-acute care.  States must be practical, realistic, and humane in Medicaid long-term care reform but should avoid thinking of LTSS as a policy silo.

7. Personalized Annual Benefit Report:

Each year, every Medicaid and Medicare beneficiary should receive a personalized report on the benefits they received, including what the providers charged, the government paid on their behalf, what they paid in cost sharing, degree they used recommended preventive services, and how their use and costs compared to their peers (same age, sex, region, health status).  For Medicare beneficiaries, it should also show their Medicare costs to date compared to what they contributed during their working years and how this compares to their peers.  For children or families in Medicaid, the report would go to the parent, guardian, or head of household.

The report should be a simple, aggregate overview – reader friendly and emphasize use of clean infographics.  The annual benefit report can be part of a larger effort to inform Medicare and Medicaid consumers about the performance (quality, safety, outcomes) of providers.

To be a part of the solution, beneficiaries must become more aware of costs.  Yes, most of these reports will go straight to the trash, unread.  But we it’s an important first step in empowering – and respecting – Medicaid and Medicare beneficiaries as consumers.  It also may help reduce the extraordinary ignorance about how programs, especially Medicare, are financed.