The relationship between Medicare and healthcare providers has long been contentious, and recent developments suggest it’s only deteriorating. Hospitals continue to be reimbursed by Medicare at a fraction of what private insurers pay, and Medicare payments to physicians still fail to account for inflation. These problems illustrate ways in which our healthcare system is broken. There is a way forward, but it requires broad, system-level solutions that treat root causes rather than just symptoms.
Medicare’s policy of underpaying providers isn’t new. But it represents short-term thinking that doesn’t address decades-long misaligned incentives and underlying inefficiencies in the industry. Positive long-term change can only come from implementing a new business model that aligns payments with quality outcomes.highlights the difference in reimbursement rates between private insurers and Medicare.
The lack of a meaningful connection between payment and outcomes has enabled healthcare delivery organizations and independent physicians to profit in both fee-for-service and capitated payment models without necessarily improving care. On the one hand, they may provide more services than may be optimal, and on the other, by providing fewer than may be required. The problem in both cases is a lack of connection between payment and outcomes—or little real accountability.
Medicare’s underpayment of doctors and hospitals is a symptom of this deeper business-model problem. Reducing costs temporarily by squeezing providers does not address underlying issues of inefficiency, misaligned incentives and lack of transparency, which remain unaddressed. It’s like taking painkillers to treat a broken arm. The pain might go away briefly, but the arm is still broken. Medicare is responsible for the health of an increasingly large and growing proportion of the U.S. population.
Recent healthcare headlines about unfair Medicare reimbursement practices highlight one aspect of the problem in American healthcare. But focusing solely on Medicare’s underpayment is not enough. We need a holistic approach that tackles the root cause: a deficient business model that leads to inefficiency and misaligned incentives. Fixing it will require a whole system correction. Only then will providers be compensated at rates that reflect the value of their services and the true cost of care.