A frequent accusation against conservative Medicare reform proposals is that they would “end Medicare as we know it.” But the reality is that Obamacare has already accomplished this. One example is a new program that will, for the first time, attempt to pay for quality by penalizing hospitals that fail to meet bureaucratically created standards for quality and efficiency.

Achieving better value in Medicare should be a goal of any serious reform plan, but the new law’s solution is unlikely to succeed. Instead, it will negatively impact patients and the hospitals that serve them.

Obamacare sets up “value-based purchasing” for hospital payments under Medicare. Starting in October 2012, hospitals and other providers will see payments redistributed based on performance scores calculated according to the methodology chosen by the Obama Administration. Payments will be reduced across the board to a new, lower “base” payment, after which hospitals could receive “bonuses” for performing well on the quality measures.

This “pay-for-performance” scheme is arbitrary at best, and physicians and experts in the field have identified several ways in which it could create perverse incentives that harm patient care. In a recent article, New York Times reporter Robert Pear highlights one: Under the new program, hospitals will be graded on the cost-per-beneficiary of hospital care. Pear reports: “Hospitals could be held accountable not only for the cost of the care they provide, but also for the cost of services performed by doctors and other health care providers in the 90 days after a Medicare patient leaves the hospital.”

If patients receive care from other providers within 90 days of a hospital stay, a hospital could get a lower score—and subsequent lower payment—based on care they did not provide or even know about. Hospitals thus risk receiving punitive payments that do not accurately reflect the quality of care they provided based on factors beyond their control.

Teaching hospitals have even more reason for concern, since Medicare payments based on cost-per-beneficiary calculations will put providers that treat sicker, more costly patients at a severe disadvantage. This will create the incentive for providers to avoid taking high-risk patients in order to obtain higher scores and higher payments.

According to Pear, “Medicare officials tried to allay this concern, saying they would adjust the data to take account of patients’ age and the severity of their illnesses, as well as geographic differences in hospital wages.” But no matter how bureaucrats tweak the program to micromanage seniors’ care, it will not accurately and fairly reward providers for high quality care, since individuals identify value differently based on countless factors that no one-size-fits-all approach can fully consider. Heritage research explains:

Evidence-based medicine is at its best when it informs a clinical decision rather than dictating it. Physicians know that treatments that prove effective for the vast majority of the population studied may not be the best for those who are two or three standard deviations from the mean. Statistical outliers are patients, too. Patient treatment should ultimately be determined by the physician’s decisions based upon what is best and most effective for that individual patient and not for a statistical population of patients. Preserving physicians’ professional independence is absolutely critical to good patient care.

Successful reform will allow patients, not bureaucrats, to discern and reward value in the health care system. Transforming Medicare to directly engage consumers in health care decisions would drive providers to respond to patients’ demands and expectations. To learn more about Heritage’s plan to do this, visit http://savingthedream.org.