Overall, the Bush administration is being less than aggressive in fixing the nation’s troubled health care system. But the Medicare program — a large portion of that system — is pioneering change. [IMGCAP(1)]

Besides catching up to modern medicine by providing a prescription drug benefit to seniors beginning next year, Medicare is leading the way in such necessary reforms as emphasizing prevention and health outcomes rather than just paying to treat illness, and is improving the quality of care that patients receive.

The driver of change is Mark McClellan, director of the federal Centers for Medicare and Medicaid, widely regarded as one of the most effective of all Bush appointees. He was passed over as a candidate to become secretary of Health and Human Services, but he may end up having more impact at CMS than he would have in the Cabinet.

In the meantime, as McClellan works on Medicare, one of the nation’s top entrepreneurs, former AOL Chairman Steven Case, has let it be known that he’s investing $500 million to create businesses that will modernize the private health market.

In an interview with The Washington Post last week, Case declined to be specific about the ventures he intends to pursue, but his comments led Post reporter David Vise to conclude that he wants to correct the imbalance by which 90 percent of U.S. health spending goes to treat the sick and only 10 percent goes to keeping people well.

In general, the Bush administration has given little priority to the nation’s health care crisis: the rapid growth in the number of uninsured Americans, now upwards of 45 million, and double-digit annual cost increases.

Bush’s health care proposals, including individual health savings accounts, tax credits and association health plans for small business, have the potential to cover only about 9 million of the uninsured. And caps on medical malpractice awards will have only limited cost-saving results.

Bush also has been attacked, legitimately, for concentrating on Social Security reform when Medicare represents a much bigger fiscal threat to the nation and is scheduled to go bankrupt 22 years earlier than Social Security — in 2020, not 2042.

McClellan confirmed in a speech March 25 at the American Enterprise Institute, and also in an earlier meeting with journalists that I attended, that cost growth in Medicare is “unsustainable.” But he said that he’s aggressively moving to reform the program using tools created by Congress in the 2003 Medicare Modernization Act.

The most attention-getting, expensive and controversial item in that bill was the prescription drug benefit, which Democrats criticized as too small and which critics predicted would be so confusing to seniors that they wouldn’t sign up for it.

McClellan said “based on the strong response to this program … I can tell you that we will deliver the drug benefit on schedule, everywhere in the country, on Jan. 1. Seniors will get the medicines they need, and because they can choose their drug coverage competitively, they will have coverage that automatically keeps up with their medicines.”

Also, contrary to criticism from Democrats who wanted to impose price controls on drugs, McClellan claimed that cost containment measures authorized under the law will mean that “total spending on drugs on behalf of seniors won’t change much, but utilization will go up substantially as average prices go down substantially.”

The drug benefit, McClellan said, is one key step toward preventing and postponing sickness and hospitalization, which account for 95 percent of Medicare costs. Actuaries estimate that a 1 percent reduction in Medicare hospital outlays (“Part A”) would cut the system’s long-term budget shortfall of $30 trillion by two-thirds.

Besides the drug benefit as a preventative measure, McClellan said Medicare is now offering an initial physical exam for new enrollees and free cardiovascular and diabetes screenings for those at risk.

The program is also stepping up chronic disease management by paying doctors for improvement in their patients’ conditions, not just for office visits and treatment procedures.

The pay-for-performance scheme is most advanced in Medicare Advantage, the program’s managed care system, where cost savings are shared with beneficiaries.

Prior to the 2003 law, HMOs were bailing out of the Medicare system because reimbursement rates were too low to match costs.

The law contained what Democrats regarded as excessive incentives for health plans to rejoin Medicare. McClellan reported that they are returning, with 125 plans applying to offer services, including 50 that never had served Medicare beneficiaries before.

And, contrary to criticism during debate on the law, plans are being established in rural areas as well as cities, with 47 states scheduled to have Medicare Advantage plans available.

Medicare also is engaged in pilot programs whereby pay-for-performance will apply to traditional fee-for-service Medicare as well as to Medicare Advantage, which is headed for 100 percent payment based on patient improvement. “As we implement pay-for-performance programs,” McClellan said, “we are seeing changes in medical practice.”

Medicare is also working on improving the quality of medical care — a problem that studies have shown causes as many as 100,000 unnecessary deaths per year.

CMS is issuing 10 quality-of-care measures for the nation’s hospitals and plans to provide similar measures for other providers, as well.

The importance of what McClellan is doing is this: Medicare, whose budget is close to $300 billion a year, represents about 17 percent of the entire U.S. health budget.

But in many ways it sets the example for non-government medicine. Traditionally, by setting rigid reimbursement schedules, it has set the price for various medical procedures. And, basically, it has paid only for treating sickness.

Now, it is using its leverage to change American health care — by emphasizing prevention, healthier lifestyles, closer attention to patients, more computerization, higher quality and payment for patient improvement.

This isn’t the kind of comprehensive overhaul of the U.S. health system that many experts think is necessary — say, by guaranteeing everyone health insurance — but it’s more than the Bush administration is usually given credit for.