By Bruce Chernof, MD

Simplistic rhetoric that Medicare is “broken” fails to diagnose where the real challenge lies in creating enduring financial stability for this critical program. Medicare is doing exactly what it was designed to do: draw in funds from working individuals and beneficiaries to help millions of older Americans and people with disabilities pay for medical care. A fundamental problem is how Medicare pays for services and how the delivery system responds to that payment structure.

The current medical care delivery system that Medicare pays for is fragmented, uncoordinated, favors the health care provider over the person receiving care, and is exceedingly expensive. How traditional Medicare pays for services — through a fee-for-service model that values quantity of services over quality of health outcomes — validates the current delivery system. However, with growing overall health care costs, increased use of expensive high-tech medical services, and the coming of age of baby boomers, rising Medicare costs for this broken delivery system threaten to upend the program and bankrupt the nation. But there is hope: Medicare can be used to transform our broken health care system by changing the way it pays for services.

Medicare’s antiquated payment system and the inefficient health care delivery system it encourages creates an even more egregious problem for those individuals who are part of Medicare’s most expensive population: seniors who have chronic health conditions (such as heart disease, asthma or cancer) combined with difficulty with activities of daily life. They see multiple doctors, take numerous medications, and are faced with the difficult task of managing this complex array of providers, services and treatments on their own. The 15 percent of seniors who have both chronic conditions and functional impairments account for nearly one-third of total Medicare costs. Medicare spends almost three times more on these individuals than on those with chronic conditions alone.

Seniors with chronic conditions and functional limitations usually have one other thing in common: the need for daily living assistance. This entails a variety of services and supports, ranging from help at home with bathing or preparing meals to transportation assistance, all the way to needing nursing home care. Nearly half of this population is low-income, making them eligible for Medicaid, which covers these long-term care costs. Yet the other half of this group does not have Medicaid. Without coverage for these critical supports, vulnerable seniors who have a daily living crisis — even if it is not medical in nature — can end up in the emergency room or hospital, which are the least intimate and most expensive care settings. Using the hospital as a back stop in the absence of long-term services and supports is costly and bad public policy.

The best place to seek solutions that catalyze payment and delivery system reform is within this most expensive group of Medicare beneficiaries. The key to more efficient and effective care for people with chronic conditions and functional impairments lies in addressing both the patient and the underlying person — the illness and its functional impact. This is how we define “person-centered care,” a concept that when properly executed can both bring down costs for Medicare while also enabling people to age with dignity and independence. Person-centered care focuses on an individual’s desire to retain choice and independence in their lives, even in the presence of substantial health conditions and functional impairment. This can be done through improved targeting of care matched with robust care coordination efforts across the full range of services, encompassing long-term care as well as medical care for people who need both.

Successfully targeted care considers the range of variables in a person’s life that drive health care use and costs, and in return offers the right mix of services to meet their needs. The result is that people receive the right care, by the right provider, at the right time, in the right place, and for the right cost. This includes long-term services and supports when necessary, a critical component to help keep people out of the hospital when they do not have to be there. Providing substantive, person-centered, coordinated care is the glue necessary to deliver targeted services, a critical function that is simply not available nor paid for in any meaningful way by traditional Medicare. Seeing the patient first as a person and focusing on their daily functioning in the context of existing health conditions are the keys to making Medicare more cost effective, humane and sustainable.

Bruce Chernof, M.D., is president and CEO of The SCAN Foundation, an independent, non-profit public charity devoted to transforming health care for seniors in ways that encourage independence and preserve dignity. In February 2013, House Democratic leader Nancy Pelosi appointed Dr. Chernof, along with several others, to the bipartisan Commission on Long-Term Care, created earlier this year and responsible for developing a plan to establish, implement and finance a comprehensive set of long-term care services.