Medicare is designed to pay more than necessary for health care through absurd incentives and lack of effective health care management. It’s quite simple.
If you were paid based on a percentage of what you spent and you had 100% control over what you spent, what would you do? Chances are you would spend more right? Welcome to Medicare. As the editors of Bloomberg.com point out in a April 14 article:
When a doctor administers a drug in his or her office, Medicare pays 106 percent of its average selling price. The doctor keeps the extra as compensation for administering the injection.
So, drug A costs $100 and drug B which treats the same condition as A costs $25, which drug would you tend to prescribe if you received 6% of the cost? Do you care about saving money or being efficient? On the contrary, the incentive is to spend more. Has anyone ever asked the logic of paying a percentage of the cost of a drug rather than a fixed fee? Could it be that drug companies had something to do with this because it encourages use of the most expensive brand drugs and discourages use of generics?
As Bloomberg notes:
What has this got to do with eye doctors? The drug Lucentis, used to treat macular degeneration, cost Medicare almost $2,000 a shot in 2012. Another drug, Avastin, which works just as well, costs about $50… That Medicare spent a total of about $1 billion on Lucentis in 2012 suggests most ophthalmologists went with the more expensive one.
Looking at the bigger picture, Medicare does virtually nothing to manage health care utilization. Basically it says it can’t because the law prevents such intervention.
You have probably read many times the benefits of low administrative costs with single payer programs such as Medicare. What you don’t here is that between minimal active claims administration and restrictions in the law, not only can’t health care be effectively managed, but there are incentives to spend more. On top of that, with minimal or no cost sharing for many Medicare beneficiaries (because of Medigap coverage), NOBODY cares what doctors spend or what Medicare costs.
The Centers for Medicare & Medicaid Services, the agency that runs Medicare, says it’s required to pay for treatment that a doctor deems medically necessary, and it lacks the authority to direct treatment based on cost. All Medicare can do to control costs is tell doctors the price of what they’re prescribing, as well as the alternatives. Which is to say, almost nothing. Bloomberg.com
So, if you think government is efficient and best equipped to run health care, consider the way it runs Medicare. You get what you pay for or should I say you pay for what you get.
QUINNSCOMMENTARY 
Dick,
I’m not sure exactly what my insurance company is thinking. The drug in question is available as a generic in combination with another drug. Unfortunately, that other drug is one I cannot tolerate. I do agree with you however that health care rationing of some sort is inevitable in the U.S. as it is now in Canada and the United Kingdom.
My initial point was that when I read that one drug works “just as well” as another, I know that is a judgment subject to some scrutiny.
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When I read that one drug works “just as well” as another, I look at the source of the information and the incentive that source may have in making that determination.
I currently take a somewhat expensive drug which is a brand name for which no exact generic equivalent is currently available in the United States. My insurance company pays 50%, I pay 50%. My insurance company classifies it as a drug “for which cheaper alternatives are available” and therefore does not pay a higher share than it does for most other drugs.
I’m not complaining, but note that my insurance company has a financial incentive to get me off this drug and on to another. I have had several bad experiences with prescription drugs, and am willing to pay for this particular drug the $85.00 a month versus the usual $15.00 to $20.00 a month for a generic drug.
My insurance company made a decision I believe based more on economics than medicine. I get that. I have a choice to change insurance companies, which I won’t based on overall satisfaction. So I see the “free market” at work.
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Isn’t the whole idea of everything that is being done to change financial incentives to use less care, to avoid the doctor, to use less of this expensive procedure or test (or drug)? In your case is the insurance company saying there is an alternative in the same class of drugs that is the same, i.e. using a formulary? We Americans complain about the cost of health care and compare ourselves with the rest of the world, and yet the transition to doing things in a less expensive way is no easy task. The people who cannot afford to pay for what they want will be the first to feel the affects of various forms of rationing which is coming closer every day.
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