Continued: Amy Klobuchar: Medicare still needs a lot of reform

In 2005, Medicare spent more than $15,000 on the health care of a typical beneficiary living in Miami. It spent more than $10,000 for every patient in Newark, N.J.

But for patients living in Minneapolis, it spent only about $7,000.

You might think people living in Miami and Newark were getting really great medical care compared with people living in Minneapolis.

But you would be wrong. Medicare's own data show that doctors and hospitals treating Medicare patients in Minnesota delivered better health care than in most other states -- despite being paid far less. In effect, our biggest federal health-care program punishes doctors and hospitals for practicing efficient, high-quality medicine.

These are signs of a system crying out for reform.

This month the U.S. Senate passed an important piece of legislation to make a temporary repair in Medicare's payment system. It will avert a harmful cut in physician payments -- a cut that would have driven doctors out of the system and led to reduced dependability of care for seniors. It will also implement some reforms to reward doctors for high-quality care.

But we can do much better -- for America's seniors, for the doctors and hospitals who treat them, and for our taxpayers.

Created in 1965, Medicare provides health coverage to nearly 44 million Americans, including about 37 million people aged 65 and older and another 7 million adults with permanent disabilities. Medicare's annual spending exceeds $400 billion and accounts for nearly one-seventh of the federal budget.

The problem is that, despite periodic efforts at reform, Medicare pays for quantity, not quality. More tests and more surgeries mean more money -- even if the extra tests and operations do nothing to improve a patient's condition. And states that have historically delivered excessive procedures are still rewarded for the wasteful practices of the past, while efficient states such as Minnesota and Oregon are punished.

To be sure, some of this disparity reflects differences in the regional cost of living and demographic factors such as the severity of illness. But the Congressional Budget Office says that those factors explain less than half -- perhaps much less than half -- of the Medicare payment disparities.

Instead, much of the disparity is driven by supply-side factors. Regions with more specialists and more hospital beds tend to provide more services and soak up more money. According to Dartmouth University's Center for the Evaluative Clinical Sciences, high-cost regions in Medicare boast 32 percent more hospital beds, 31 percent more physicians and 65 percent more medical specialists.

In other words, supply is driving demand.

If we reform Medicare so it's buying the best care at the best price, we can improve the quality of care for our seniors -- and save huge sums for taxpayers.

Researchers at Dartmouth studied the records of millions of Medicare enrollees who died between 2001 and 2005 and had at least one of nine major severe chronic illnesses. Total spending for that population was $289 billion over the five years.

If spending everywhere in the country mirrored the efficient level of spending in the Mayo Clinic's home region of Rochester, Minn., Medicare could have saved $50.1 billion over those five years -- or 17.3 percent of all spending on these patients alone.

So how do we get to a Medicare that rewards quality, efficient care?

First, we need to increase incentives to reward doctors and hospitals that deliver high-quality care. For many illnesses, the medical profession has widely accepted practice guidelines proven to result in better outcomes -- such as when to give aspirin to heart patients and how often to perform cancer screenings -- but they are not always followed. These quality guidelines should be the basis for Medicare payments to providers.

Second, Medicare should adopt a "bundling'' approach for its payments. Instead of paying indiscriminately for any and all procedures, Medicare should pay for a "bundle'' of services appropriate for a patient's specific condition. This would encourage better care coordination and reduce incentives to bill Medicare purely for volume.

Third, when Medicare is certifying hospitals it should include a measure of how well they educate patients about appropriate health care and health-care choices. Studies show that educated patients are more efficient, healthier consumers of health care.

Medicare has been one of the great American success stories. Seniors who once went without health insurance now enjoy quality care, longer lives and peace of mind. But now Medicare needs some surgery of its own to make sure that it remains healthy and strong into the future.

Amy Klobuchar, a Democrat, represents Minnesota in the U.S. Senate.