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Witness: Medicare needs help from private payers

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Managers of Medicare need help from private insurers to get controll over health care costs

Robert Reischauer, an economist who serves as a trustee for the Medicare and, made that argument today at a hearing on Medicare finances organized by the House Ways and Means health subcommitte.

Reischauer noted that Medicare managers have had trouble making spending-control provisions, such as the sustainable growth rate (SGR) system, actually take effect.

Legislation and regulation have more effect over U.S. Medicare health care promises than market forces do, Reischauer said. 

Medicare makes up such a large fraction of the overall health care market, but that does not mean Medicare is free to set its own course with respect to future cost growth, Reischauer said.

One illustration of Medicare’s weakness is Medicare’s inability to impose the 25 percent cuts in physician pay required by the SGR system and adopt new efficiency measures, he said.

To make that kind of shift in mode of delivery, Medicare needs help from its peers, Reischauer said.

“A transition will not happen unless private payers as well as Medicare continue to pursue cost saving innovations aggressively and providers respond to incentives to moderate cost growth and improve quality,” he said. “Medicare’s ability to moderate the growth of its costs over the long run depends critically on the private sector’s success in its efforts to slow its spending and vice versa.”

An earlier version of this story described the origins of the SGR system incorrectly. The system was created by the Balanced Budget Act of 1997.

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