If the federal government really wants to reform health care, it should start by fixing Medicare.

Witnesses from the insurance industry made that case today at a Senate Finance Committee hearing on reforming the U.S. health care delivery system.

Ronald Williams, chairman of Aetna Inc., Hartford, and Dr. Allan Korn, chief medical officer at the Blue Cross and Blue Shield Association, Chicago, appeared on a panel that also included representatives from think tanks such as the Brookings Institute, Washington; employer groups such as the Pacific Business Group on Health, San Francisco; and provider and consumer organizations.

The round table was convened by Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, and Sen. Charles Grassley, R-Iowa, the highest-ranking Republican member on the committee.

Baucus and Sen. Edward Kennedy, D-Mass., chairman of the Senate Committee on Health, Education, Labor and Pensions, wrote Monday in a letter to President Obama that they want their committees to move quickly on passing broad health reform legislation.

“Right now, all of the incentives in our system encourage health care providers to deliver more care, not better care,” Baucus said today at the hearing. “Today’s conversation is about how to lower costs and improve quality in the system for the millions of hard-working Americans that are tired of seeing their health care costs rise faster than inflation.”

Panelists talked about creating incentives in the Medicare program to eliminate waste, using health information technology to improve provider communications, and conducting more research on the comparative effectiveness of various treatments.

Panelists also talked about ways to reduce fraud and abuse in federally financed health care programs.

Williams spoke at length about the importance of health IT efforts and wellness efforts.

The United States has the highest per-capita health care spending in the world, but the quality of care delivered by our health care system falls far short of expectations, Williams said.

“Our seat belt laws and anti-smoking efforts have achieved great results, and we need this same type of commitment in the wellness challenges facing us in the areas of obesity and encouraging healthy behaviors,” he said.

Williams also talked about provider compensation.

“Improving our delivery system starts with reforming our payment system to focus on quality and value,” Williams said. “Aetna supports transforming the payment system into one that aligns provider reimbursement incentives with achieving high quality outcomes for patients.”

Reimbursement changes are especially important for the Medicare and Medicare Advantage programs, Williams said.

The programs must be revised so that the focus of health care services “rests on value and quality rather than volume,” Williams said.

Under Medicare’s current fee-for-service payment structure, providers are paid on the basis of volume rather than value, often with suboptimal results, Williams said.

“Moreover, lower payment rates paid by public programs result in cost shifting to those who are privately insured,” he added.

If Congress wants to reduce the cost of Medicare Advantage as compared to Medicare as part of a down payment for financing a health reform program, Congress also must examine Medicare’s operational structure and the Medicare Advantage bidding process, Williams said.

“If we decide to follow a pathway to Competitive Bidding in Medicare Advantage, we should look at the development of a viable structure that includes several guiding principles,” Williams said.

Williams said the principles should include generating meaningful cost savings from the Medicare Advantage program; maintaining access for all beneficiaries and minimizing disruption; and providing incentives to improve quality.

Korn also talked about the importance of wellness and prevention programs, comparative effectiveness research, and health IT.

Like Williams, he called for changes in provider compensation arrangements, especially in the Medicare program.

Korn described a “3-tier” Medicare reform strategy that would start with efforts to pay physicians based on quality, build up to promoting wellness and condition management programs, and eventually work up to encouraging providers to combine to form “virtual” care delivery system.

Eventually, Korn said, Medicare should pay the virtual care delivery groups bundled amounts for treating health care “episodes,” rather than paying individual providers separate fees for each type of service delivered.

Korn criticized the Obama administration proposal to create a new, government-run health insurer that would be open to healthy, working-age U.S. residents with above-average incomes.

“Private plans in general and Blue plans in particular, have been active innovating in these priority areas,” Korn testified. “Creating a new government plan that would compete with the private sector would undermine the ability of the health care sector to implement meaningful delivery system reforms. The private sector has led the way in developing innovative programs (e.g., chronic care management, wellness programs, and Centers of Excellence) that would not be possible under a government plan due to enormous political pressure.”

Links to the written versions of the witnesses’ testimony and other documents are available here.