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U.S. Hospitals, Doctors Criticize Medicare Reimbursement System

By Reed Abelson

The New York Times -- SALT LAKE CITY

By better educating doctors about the most effective pneumonia treatments, Intermountain Health Care, a network of 21 hospitals in Utah and Idaho, says it saves at least 70 lives a year. By giving the right drugs at discharge time to more people with congestive heart failure, Intermountain saves another 300 lives annually and prevents almost 600 additional hospital stays.

But under Medicare, none of these good deeds go unpunished.

Intermountain’s initiatives have cost it millions of dollars in lost hospital admissions and lower Medicare reimbursements. In the mid-’90s, for example, it made an average profit of 9 percent treating pneumonia patients; now, delivering better care, it loses an average of several hundred dollars on each case.

“The health care system is perverse,” said a frustrated Dr. Brent C. James, who leads Intermountain’s efforts to improve quality. “The payments are perverse. It pays us to harm patients, and it punishes us when we don’t.”

Intermountain’s doctors and executives are in a swelling vanguard of critics who say that Medicare’s payment system is fundamentally flawed.

Medicare, the nation’s largest purchaser of health care, pays hospitals and doctors a fixed sum to treat a specific diagnosis or perform a given procedure, regardless of the quality of care they provide. Those who work to improve care are not paid extra, and poor care is frequently rewarded, because it creates the need for more procedures and services.

The Medicare legislation that President Bush is expected to sign on Monday calls for studies and a few pilot programs on quality improvement, but experts say that it does little to reverse financial disincentives to improving care.

“Right now, Medicare’s payment system is at best neutral and, in some cases, negative, in terms of quality -- we think that is an untenable situation,” said Glenn M. Hackbarth, the chairman of the Medicare Payment Advisory Commission, an independent panel of economists, health care executives and doctors that advises Congress on such issues as access to care, quality and what to pay health care providers.

In a letter published in the current edition of Health Affairs, a scholarly journal, more than a dozen health care experts, including several former top Medicare officials, urged the program to take the lead in overhauling payment systems so that they reward good care.

“Despite a few initial successes, the inertia of the health system could easily overwhelm nascent efforts to raise average performance levels out of mediocrity,” they wrote. “Decisive change will occur only when Medicare, with the full support of the administration and Congress, creates financial incentives that promote pursuit of improved quality.”

Medicare’s top official is quick to agree that the payment system needs to be fixed. “It’s one of the fundamental problems Medicare faces,” said Thomas A. Scully, who as the administrator of the Centers for Medicare and Medicaid Services has encouraged better care by steps like publicizing data about the quality of nursing home and home-health care and by experimenting with programs to reward hospitals for their efforts.

But the steps taken so far have been small, and many experts say that rather than paying for more studies, Congress should start making significant changes to the way doctors and hospitals are paid.