Market Health Care Reform

The Wall Street Journal reports on a market solution to health care reform:

Virginia Mason Medical Center has made unusually aggressive moves in the past two years to cut health-care costs. Consulting with the big insurer Aetna Inc. along with Starbucks Corp. and several other big local employers, the hospital revamped how it treated some expensive ailments, cutting down high-tech tests and high-end specialists.

But a troublesome pattern emerged: The more cost-effective it became, the bigger financial hit the medical center took. “Everyone gained but Virginia Mason,” says its chief of medicine, Robert Mecklenburg.

A novel solution, crafted with the help of the big employers, ultimately let Virginia Mason share in some of the savings it created — by paying the medical center more for some cheaper treatments. It offers a lesson in dealing with one of the most confounding elements in America’s health-care crisis: a perverse system of payments that rewards doctors and hospitals not for how well they treat patients, but for how much they treat them.

This reform seems to fit with Arnold Kling’s premium medicine hypothesis.