While President Obama's win won’t establish a clear path forward on Medicare, it is highly unlikely to lead to a radical restructuring of the program. There is quite a bit of middle ground that policymakers, think-tank experts and academics have agreed to explore.

Although they haven’t yet penetrated the partisan fog on Capitol Hill, there are several ideas that may gain currency in the coming year, with some involving market-based approaches and items contained in conservative agendas.

At the epicenter of a third way on Medicare reform is a growing realization that Medicare is not only part of the larger health care cost debate but that it can be reformed incrementally. Part of that strategy revolves around both a gradual departure from the fee-for-service model and a dissection on how health care is provided.

Front and center in this debate has been Dr. Ezekiel Emanuel, a bioethicist and a professor at the University of Pennsylvania. Emanuel has served as a presidential advisor and has led a team of academics interested in comprehensive health reform. He's uniquely qualified to be a thought leader in this arena as he also has a doctorate in political economy from Harvard University, and was involved in the formation of the Affordable Care Act (ACA). His brother is former White House chief of staff Rahm Emanuel, now the mayor of Chicago. 

There's little question that when it comes to the first step in reform, the ACA is the right path, according to Emanuel, who will be instrumental in pairing market-based and internal reforms. The combination of pilot programs and bundling of expenses for certain treatments in the ACA are little-known but innovative ways that Medicare can reduce costs while improving care. In the wake of the election results, the ACA will loom large as a lodestone for future cost reductions.

Near the top of Emanuel's long-term agenda is a phase-down of the fee-for- service model, which he and many other academics cite as an unnecessary cost driver. "I recommend telling doctors and hospitals that by 2022, 75 percent of their payments won't be fee-for-service; they need to begin planning now how to alter their practices," he said to a Chicago audience gathered at the University of Illinois–Chicago on Nov. 3.

What would replace the conventional billing model of Traditional Medicare? Emanuel offers new ways of charging for services, such as "episode-based" payments. For example, say a person needs to have a hip replaced. Instead of receiving a payment for each clinical, diagnostic and hospital visit, providers would receive a lump sum that would cover all of the costs associated with the procedure. Emanuel predicts that this would make providers more efficient.

Adopting a payment technique from the managed-care world, Emanuel also favors "capitation," or limiting total payments, for care on an annual basis. This is another direct strike at the fee-for-service model, and what is currently practiced within Medicare Advantage Plans (Part C) and other managed care programs.

A Comprehensive Approach

By addressing Medicare reform, Emanuel actually opens up a dialogue on the way medicine should be practiced. He's openly critical of the lack of supporting services such as psychological care, as well as the fact that medical schools don't provide adequate training and that they may keep students in school too long. When I asked him (at the end of his Chicago lecture) what were the key items on his agenda, he highlighted some reforms that have been pushed by conservative leaders for years:

• Payment Reforms: These are critical. In addition to gradually phasing out fee-for-service, Emanuel would like to see bundled payments adopted immediately and applied universally throughout the health care system. This relatively new method (akin to the "episodal" payment described above) would aggregate payments for single procedures such as cardiac or orthopedic treatment. As it stands now, every provider has an incentive to run up bills because they charge separately for their services. Emanuel says that Medicare/ACA demonstration projects already have proven that this bundling method saves money.
• Increased Competitive Bidding: Echoing what conservatives have been saying for years, Emanuel said, "Government is not good at price setting" for services and medical equipment. He added that certain commodity items ought to be put up for national bid to get lower prices.
• Greater Transparency: If patients wanted to know what local providers charge for, say, CAT scans or colonoscopies, how would they find out? It's extremely difficult because clinics and hospitals don't publish their prices, and there are no services that compare them like there are for cars or electronic items. Knowing the actual costs of services would bring about an element of competition. "If you want the market to work, you need real information."
• Malpractice Reform: Long a plank on the conservative platform, "tort" reform, in Emanuel's view, would establish "safe harbors" for doctors who follow generally accepted guidelines on certain procedures. This would protect those who follow evidence-based care guidelines and single out the doctors who don't, he surmises.
• Increased Comprehensive Care: This step involves paying special attention to those patients with complex, multiple or chronic ailments. This means, for example, meticulous wound care for diabetics to avoid infection and amputations; psychiatric support for cancer patients; "tertiary" prevention that goes beyond check-ups and vaccines; and more home care. Emanuel cited the comprehensive model currently practiced by CareMore/Wellpoint as a good example in this area.
• Expanded Implementation of Electronic Medical Records: Emanuel says this will not only cut down on medical errors over time but will also result in fewer unnecessary medical services.

Medicare will come back into focus as a political concern that can be addressed with incremental reforms, he suggests. It's one-half of the overall quest to reduce the U.S. budget deficit (the other half being taxation), and one which will continue to be fueled by health care cost increases. Right now, the estimated $2.8 trillion the United States will spend on health care alone is the equivalent of the world's fifth-largest economy. If it's not reined in, the United States won't be able to afford the system it has now into the future.        

"The most important fact," Emanuel offers, "is that we can control health care costs without resorting to rationing." For policymakers on both sides of the aisle, that is indeed common ground.  

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