Tag: Alain Enthoven

Oops, Maybe ObamaCare’s Cost Controls Won’t Work after All

One of ObamaCare’s big selling points was that it would launch lots of pilot programs so that Medicare bureaucrats could learn how to reduce health care costs and improve the quality of care. Yesterday, the Congressional Budget Office threw cold water on the idea.

In 2010, Peter Orszag and Ezekiel Emanuel explained the promise of ObamaCare’s pilot programs:

[The law’s] pilot programs involving bundled payments will provide physicians and hospitals with incentives to coordinate care for patients with chronic illnesses: keeping these patients healthy and preventing hospitalizations will be financially advantageous…And the secretary of health and human services (HHS) is empowered to expand successful pilot programs without the need for additional legislation.

Atul Gawande wrote even more glowingly:

The bill tests, for instance, a number of ways that federal insurers could pay for care. Medicare and Medicaid currently pay clinicians the same amount regardless of results. But there is a pilot program to increase payments for doctors who deliver high-quality care at lower cost, while reducing payments for those who deliver low-quality care at higher cost. There’s a program that would pay bonuses to hospitals that improve patient results after heart failure, pneumonia, and surgery. There’s a program that would impose financial penalties on institutions with high rates of infections transmitted by…

You get the idea.

The thing is, pilot programs in Medicare are not new.  And in a review of dozens of Medicare pilot programs released yesterday, the Congressional Budget Office revealed they aren’t very successful, either:

The disease management and care coordination demonstrations comprised 34 programs…

In nearly every program, spending was either unchanged or increased relative to the spending that would have occurred in the absence of the program, when the fees paid to the participating organizations were considered…

Only one of the four demonstrations of value-based payment has yielded significant savings for the Medicare program.

No big deal, you say. Startups fail all the time. What’s important is not that 37 startups failed, but that one succeeded.

That’s how things are supposed to work. But as Alain Enthoven explained to Gawande, the really perverse thing about Medicare pilot programs is that even the successful ones die:

Gawande got it wrong about pilots…The Medical Industrial Complex does not want such pilots and often strangles them in the crib. For example, nothing lasting and significant came of the pilot to reward people for getting their heart bypass surgery at regional centers of excellence. I don’t remember the details of how it died, but I believe it was tried and went nowhere.  No doubt every hospital thought it was a center of excellence and wanted to be so rewarded.

Another more recent example is durable medical equipment.  David Leonhardt had an excellent article in the New York Times on June 25, 2008 called “High Medicare Costs Courtesy of Congress.”  Someone had sold the good idea that prices of durable medical equipment should be determined by competition, and there was a provision in law for pilots to test competition. The industry lobbied hard to stop it and promulgated scare stories. “Grandma won’t get her oxygen.”  Leonhardt recounts how Democratic and Republican leaders got together and postponed the pilot— and, I suspect, postponed it forever.  There were proposals to test health plan competition, fought off by the industry of course.  So this is not a fertile political environment for pilots.  In fact, one of the most important lessons that has come out of the current “reform” process is the enormous power of the medical industrial complex and their large financial contributions and armies of lobbyists to block any significant cost containment.

Rather than a reason for more government interference in health care, the death of these pilots is a consequence of government interference. If the federal Medicare program weren’t such an enormous player in the U.S. health care sector, industry lobbyists (and their servants in Congress) wouldn’t have so many ways to protect themselves from competition by more efficient providers.

Enthoven summed up ObamaCare’s approach to cost control best:

The American people are being deceived. We are being told that health expenditure must be curbed, therefore “reform is necessary.”  But the bills in Congress, as Gawande acknowledges, do little or nothing to curb the expenditures.  When the American people come to understand that “reform” was not followed by improvement, they are likely to be disappointed.  Our anguish is only intensified by the fact that the Republicans are no better at fiscal responsibility, probably worse as they demagogue reasonable attempts to limit expenditures.

Congress is sending the world an unmistakable signal that it is unable or unwilling to control health expenditures and the fiscal deficit.  That is not going to make it easier to sell Treasury bonds on international markets. I fear this will lead to higher interest rates.

FYI, Enthoven wrote those words in 2009.

Shifting the Blame for America’s Health Care Woes

I must be losing my touch. I’ve let nearly two months pass without responding to Ezra Klein’s defense of RomneyCare, ObamaCare, and other centrally planned health care systems.  (For those who want to get up to speed: his original post, my reply, and his response.)  So here goes.

Klein notes that he and I had each used flawed measures of RomneyCare’s impact on health insurance premiums in Massachusetts.  Fair enough.  But Klein ignores the study I cited by John Cogan, Glenn Hubbard, and Dan Kessler, which estimates that RomneyCare increased premiums in Massachusetts by 6 percent.  The CHK study has limitations, but it is the best estimate available.  I hope Klein addresses it.

Klein’s fallback position is that even if RomneyCare increases premiums, that’s not an indictment of the law because cost-control was not one of its goals.  Never mind that Mitt Romney boasted, “the costs of health care will be reduced.”  Klein knows political rhetoric when he sees it.  Yet he oddly sees no parallels between the phony-baloney promises of cost-control used to sell RomneyCare and the phony-baloney promises of cost-control used to sell ObamaCare – despite ample assistance from people like Medicare’s chief actuary and Alain Enthoven (“the American people are being deceived”).

Then Klein throws down his trump card:

[E]ven a cursory read of the evidence would show that whatever the drawbacks of central planning, it covers people at an extremely low cost. Romney Care’s cost problem is a result of pasting a coverage-oriented quick fix atop our insane health-care system. Compare its costs to the British system, the French system, the German system, or any other system, and whatever your conclusions, you won’t walk away unimpressed by the ability of centralized systems to cover whole populations for much less money than we spend.

Oy, where to begin?  First, Klein violates Cannon’s First Rule of Economic Literacy: he writes that centrally planned systems cost less, when what he means is that they spend less.

Second, the phrase “whatever the drawbacks of central planning” is some serious hand-waving.  Those “drawbacks” include (among other things): the Medicare program’s suppression of comparative-effectiveness research, error-reduction efforts, care coordination, and other delivery innovations; Canada’s human-rights violating Medicare system; and the suppression of untold innovations in health insurance and medical treatment by government price controls.  Other than a few drawbacks, Mrs. Lincoln…

Third, our “insane health-care system,” as I blogged previously, “is the product of the old raft of government price & exchange controls, mandates, and subsidies.”  Prior to ObamaCare, government already controlled half of all U.S. health care spending directly, granted control over another quarter to employers, and regulated health care more heavily than perhaps any other sector of the economy.  Klein and his fellow central planners can’t deny paternity.  Our “insane health-care system” is the product of central planning.

Finally, only a cursory read of the evidence could lead to the conclusion that central planning contains health care spending.  Klein posts the following charts and concludes that since all those (other) centrally planned systems spend less on health care than the United States, central planning must result in lower health care spending.

Photo credit: By Robert Giroux/Getty Images

But if that were true, then one would expect per-capita spending on elderly Americans – who have universal coverage through the centrally planned Medicare program – would not be far out of line when compared to how much other nations spend per elderly resident.  Yet the United States is just as far out of here as overall.  According to the OECD, the United States spends about twice as much per elderly person as Canada, and more than twice as much as Australia spends.  (Alas, I’m not cherry-picking; these are the only four nations for which the OECD provides recent data.)

Source: OECD, author’s calculations

(One could argue that the reason for this is that Medicare exists alongside the world’s largest (ostensibly) private health care sector, whose evils spill over into Medicare.  If that were the case, then moving all Americans into Medicare should reduce U.S. health care spending, bringing it back into line with other nations.  But consider that Klein and The New Republic’s Jonathan Chait both acknowledge that Congress had to throw $2 at the health care industry for every $1 that ObamaCare cut from future Medicare spending. How exactly could Congress move 250 million Americans into Medicare (which presumably would reduce overall spending), or reduce Medicare spending later, given those constraints?  How, exactly, would an independent rationing board survive the political dynamics that produce such outcomes? Prediction: it won’t.  The narrative that central planning contains health care spending just doesn’t hold water.)

Klein, The New Republic’s Jonathan Cohn, and others have taken a big step by acknowledging that RomneyCare is struggling.  When they shift the blame to “the American health care system,” however, they obscure what’s really happening.  As I closed my previous post: “RomneyCare and its progeny ObamaCare are attempts by the Left’s central planners to clean up their own mess.  If Klein and Cohn want to defend those laws, pointing to the damage already caused by their economic policies won’t do the trick.  They need to explain why government price & exchange controls, mandates, and subsidies will produce something other than what they have always produced.”