WASHINGTON (Reuters) - The Medicare program for the elderly may offer ways to encourage better care at a lower cost as a big part of reforming the U.S. healthcare system, a leading Senate Democrat said on Tuesday.

White House Chief of Staff Rahm Emanuel talks to Senate Finance Committee Chairman Max Baucus before a dinner at the White House, March 4, 2009. REUTERS/Jonathan Ernst

“Medicare is the big driver here,” Senate Finance Committee Chairman Max Baucus told reporters following a committee discussion with industry groups on ways to change the payment system.

Politicians and experts agree it is important to reward doctors and hospitals for better quality of care and move away from a system that pays them based on the number of procedures and treatments.

Medicare accounts for about one-fifth of U.S. healthcare and private insurers tend to follow the government program’s payment structure.

Baucus, who is taking a lead on writing healthcare reform legislation in the Senate, said he was optimistic Congress would enact a healthcare overhaul. Revamping the $2.5 trillion healthcare system is a top priority for President Barack Obama, who argues it is crucial to long-term U.S. economic recovery.

“Everybody here wants to address quality and reimbursements based on quality,” Baucus said.

It was the first of three meetings on reform, which Democrats who control Congress hope to deliver to Obama by the end of the year. The next session will focus on covering the uninsured, Baucus said.

“More is spent per person on health care in the United States than in any other nation in the world, and yet America has some of the worst health outcomes,” committee member Senator Jay Rockefeller said in a statement.

Glenn Steele, president of the Geisinger Health System in Danville, Pennsylvania, told the committee Medicare could help lead changes.

LEVERAGE IN MEDICARE

“I think the leverage is in Medicare,” Steele told the panel.

The Geisinger system has been held up by analysts as an example of how to make payment reforms to improve quality of care and lower costs.

Steele said Medicare should focus reform efforts on patients with costly chronic conditions, who often do not receive good continuity or quality of care.

Studies show those patients account for a huge share of Medicare’s costs. Studies also have shown that patients in high cost areas do not get better care than those in lower cost regions.

Steele said Medicare should be given the flexibility to innovate and test different models of payments to improve care without undermining the quality of care. But he also urged lawmakers to come up with a “plan B” if the system does not show improved care with lower costs in a short time.

AARP, an influential group that represents older Americans, said in a statement that changing Medicare to provide better care coordination, especially for people with multiple chronic conditions, was crucial to system reform.

“Many gaps in care often occur at care transitions, as individuals move from one setting to another, such as from a hospital to home. A lack of coordination and follow-up care can lead to unnecessary hospital readmissions,” AARP said.