The Cost of Medicare: You Get What You Pay For

Caroline Poplin

First posted 8/26/11 on The Health Affairs Blog

Copyright ©2011 Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.

In the battle over bending the cost curve in Medicare, a recent article in Health Affairs should set off alarms.  In it, Francis Lukas and colleagues describe the proliferation of new cardiac surgery programs—300 in 10 years–at exactly the same time that the number of cardiac bypass grafts fell.  Moreover, the new programs generally did not appear in rural areas, where they might have increased access for underserved populations: instead, they appear in markets that are already well resourced.

It would be nice if the new programs generated competition, particularly, given our urgent cost problems, price competition.  However the researchers found no evidence for this, and there is no reason to expect it: price competition is problematic in medicine, where because of varying degrees of market power, everyone outside Medicare pays a different price, and the uninsured pay the most.  More likely there is competition on perceived quality, where each program touts its new, expensive equipment and pricey, up-to-date facilities: the so-called arms race.

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