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How Medicare Impedes Health Care Innovation

President at Paragon Health Institute
Brian Blase, Ph.D., is the President of Paragon Health Institute. Brian was Special Assistant to the President for Economic Policy at the White House’s National Economic Council (NEC) from 2017-2019, where he coordinated the development and execution of numerous health policies and advised the President, NEC director, and senior officials. After leaving the White House, Brian founded Blase Policy Strategies and serves as its CEO.

Harvard Business School professor and one of the deans of consumer-driven health reform Regina Herzlinger has remarked that “choice supports competition, competition fuels innovation, and innovation is the only way to make things better and cheaper.” Unfortunately, there are significant constraints on innovation improving health care quality and driving cost reductions. Many of these problems are because of the structure of the Medicare program, an issue that Paragon’s Joe Albanese tackles in his new paper, Roadblock to Progress: How Medicare Impedes Health Care Innovation.
Joe finds that the Medicare program creates obstacles for innovators while its structure favors those with political power and impedes technological progress. The decisions of the Centers for Medicare and Medicaid Services about what new items and services to cover are unclear and inconsistent and fail to encourage better evidence collection. CMS’s price-setting methodologies also cannot properly measure the value of health care procedures and technologies, which distorts the health care system and the incentives that innovators face.
To reform the health care sector, it’s vital that individuals, rather than bureaucrats, are in charge of determining value. Joe recommends that government’s policy decisions should be based on the preferences of consumers and other private actors. Below is the executive summary of the paper, which you can access here
What This Paper Covers
This paper compares how innovation works in health care versus other markets. It explains how the unique structure of the U.S. health care system is largely a result of public policy and provides examples of obstacles, perverse incentives, and poor decisions from government agencies and programs, with a particular focus on Medicare. It concludes by outlining principles for how policy can promote innovation.
What We Found
Medicare’s coverage and reimbursement policies increase uncertainty without fostering better evidence, mismeasure the value of health care services, and embed these flaws throughout the health care system. This results in unpredictability, excessive regulatory burden, increased barriers to entry, and misaligned incentives for innovators.
Why It Matters
Innovation can improve the value of goods and services (both quality improvements and cost efficiencies), but innovation does not work in health care the same way as in other markets. The United States needs to improve the quality of health care and lower costs, but government distortions make this harder for the tens of millions of seniors on Medicare as well as the other Americans.
Policy Suggestions
Policymakers should reduce government barriers to health care innovation by keeping in mind that (1) government cannot accurately determine value, (2) consumers should be empowered to decide what they most value, (3) quality and cost are both important considerations for value, (4) coverage criteria should be clear and consistent, and (5) public policy should not unnecessarily increase the risks of innovation.

All the best,
Brian Blase
Paragon Health Institute

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