Medicare pays for any treatment it deems "reasonable and necessary." How much it pays depends on the underlying costs of providing the treatment.
Sounds reasonable as far as it goes, but the system leaves out a key element: Sometimes one "reasonable and necessary" treatment is better, or more expensive, than another.
So, for example, Medicare sometimes winds up paying for an expensive, new treatment that's no better for patients than an older, cheaper treatment.
In the latest issue of the journal Health Affairs, two doctors propose an alternative.
To encourage innovation, Medicare should pay for new treatments it deems reasonable and necessary, even if they're more expensive and haven't been proved superior to existing treatments.
But these payments should initially be limited to a three-year trial period, the authors say.
The trial would allow the new, more expensive treatment to be compared to the older, cheaper treatment. If evidence shows the new treatment is better for patients than the old treatment, Medicare should continue to pay for it at the higher rate.
But if the new treatment is not superior to the old, Medicare shouldn't pay any more for the new treatment than for the older, cheaper treatment.
This may sound like a mild, rational approach to curbing costs in Medicare, which is projected to be one of the biggest drivers of the deficit in the coming years.
But within the world of health care, it's a radical idea that would be a big shift from current practice.
For example: Medicare currently pays for a $50,000 prostate-cancer treatment that hasn't been proven superior to a $10,000 prostate-cancer treatment, according to the NYT's David Leonhardt, who highlights the Health Affairs article in his column today.
The authors argue that their model would also create an incentive for more testing to compare different treatments against each other. That would lead to stronger evidence about what's best for patients. They write:
For providers, this approach offers not only the prospect of better evidence with which to care for individual patients, but also the beneficial and sobering effect of removing perverse incentives to invest in and deliver services that add to the cost but not the quality of care.