Topic: Cato Publications

P4P Hubris

Dr. Rob Lamberts also comments on my paper on pay-for-performance (P4P) in Medicare. Lamberts (like Holt) seems to have blogged that paper having only read the press release. Though the paper probably would answer most of the questions they raise, I’ll respond to two of Lamberts’ comments.

1. Lamberts argues that a P4P experiment in Britain’s National Health Service (NHS) refutes my claim that “provider-focused P4P incentives can encourage inappropriate care or reduce access to care for patients with multiple illnesses or low incomes.”

Not quite. A P4P scheme can avoid those effects, but not without causing other problems. For example, the financial incentives could involve only additional payments to physicians and no payment reductions for “low-quality” care. That’s what the NHS did; physicians’ gross incomes increased by an average of $40,000.

A rewards-only approach reduces the incentive for physicians to avoid very sick or very poor patients, who make it difficult for the physician to meet the performance goals. However, that approach makes the P4P effort more costly. Lamberts himself suggests that Medicare’s P4P efforts should be budget-neutral, which would make it more likely that physicians would give outlier patients inappropriate care, avoid those patients, or otherwise game the system.

Another way the NHS experiment avoided inappropriate care or a reduction in access for outliers was by allowing physicians the discretion to disregard as many of their patients as they wished when calculating their compliance score. But the availability of such “exclusion reporting” also gave physicians an opportunity to game the system. Rather than provide the desired type of care to their patients, physicians could use exclusion reporting to increase their incomes without changing their behavior. The authors of the study cited by Lamberts note: “More research is needed to determine whether these practices are excluding patients for sound clinical reasons or in order to increase income.”

2. Lamberts writes that the Brits “were able to achieve astonishing improvements to their quality numbers and improve physician incomes at the same time.”

Of course, these two ends are not in conflict. It’s easy to get people to do what you want when you dangle $40,000 in front of them.

But we can’t even be sure that the NHS P4P experiment made any improvements in quality — much less astonishing improvments in quality. Although median reported achievement was an impressive-sounding 83.4 percent, according to the authors of that study:

There is no baseline with which to compare performance in the first year of the U.K. program, although the quality of care was already improving before its introduction.

If we don’t know what compliance rates were before the NHS introduced financial incentives for compliance, and quality was improving anyway for other reasons, how do we know whether or how much their quality numbers improved, or how much of that change was due to P4P? 

If we don’t even know that, we certainly don’t know whether the effort was worth the $3.2 billion the NHS spent in 2004.

Medicare Reform: It’s All about Control

Matthew Holt of The Health Care Blog takes a thoughtful stab at my recent paper on “pay-for-performance” and Medicare. 

Pay-for-performance is one of those hip health policy buzzwords that comes with a catchy acronym: P4P. The idea is that private insurers or the government can improve health care quality through financial rewards for providers who deliver what the payer considers “quality” care. P4P stands in contrast to “pay-for-volume,” which is how third-party payers have traditionally paid providers.

My thesis is that P4P has promise, but is very, very tricky. A bureaucracy that rewards providers for what it considers high-quality care can actually encourage low-quality care for the poor saps who happen not to be the average patient. 

There’s nothing wrong with P4P, so long as patients who are getting short-changed have the right to opt out (i.e., switch insurers). P4P’s potential is sure to be lost if the Centers for Medicare and Medicaid Services (CMS) get into the game. For example, since Medicare’s P4P scheme would be emulated by Medicare Advantage plans and other private insurers, many patients would have no escape.

Holt tries to link (reconcile?) my opposition to P4P in traditional Medicare (and support for P4P in Medicare Advantage plans) with my suggestion that Medicare should subsidize seniors with a risk-adjusted voucher rather than coverage. Let me see if this helps thread the two together:

There’s a difference between helping someone in need and making all her decisions for her. Medicare has traditionally tried to do both, offering subsidies to seniors but also dictating what their coverage looks like, payment rates, etc.  If CMS starts defining “quality” for 45 million seniors (and by extension, millions of non-seniors), the government will be making even more decisions that it’s really not qualified to make. Better that Congress just give seniors the cash and let them make their own decisions about coverage and care and quality. Markets have a funny way of helping people make those decisions.

Yes, there will still be some seniors who are ill-equipped to do that. But that small minority of seniors already needs — and gets — similar assistance. They can be taken care of without turning the rest of the health care sector into a high-cost, iffy-quality, rent-seeking cesspool. 

Republicans for Big Brother

The Cato Institute has noted for some time that conservatives and Republicans have abandoned their limited-government principles when it comes to health policy.  Examples can be found here, here, here, here, and here

The New America Foundation just made our job a little easier, by producing a paper titled, “Growing Support for Shared Responsibility in Health Care.”  In this context, “shared responsibility” means allowing the government to force all Americans to purchase health insurance – a power the Left has craved but no government had dared assume until Massachusetts did so this year.

The paper helpfully compiles a list of comments that Republicans and Democrats have made in support of this new expansion of government power.  The Republicans included:

  • Massachusetts Gov. Mitt Romney (no surpise there)
  • Former Bush HHS Secretary Tommy Thompson
  • California Gov. Arnold Schwarzenegger
  • Former Bush Treasury Secretary Paul O’Neill
  • Former House Speaker Newt Gingrich

One might add to that list the Heritage Foundation (whose health policy scholars wrote the Massachusetts mandate) and Ronald Bailey of Reason magazine. 

Next to those, Schwarzenegger is probably the biggest disappointment, having once bragged that Milton & Rose Friedman’s PBS series Free to Choosehas changed my life,” and that “Being free to choose for me means being free to make your own decisions, free to live your own life, pursue your own goals…without the government breathing down on your neck or standing on your shoes.”  Now that he’s governor, “being free to choose” presumably means being free to choose for you.

This new expansion of state power would be less frightening if it delivered more affordable or higher-quality health care.  But as Mike Tanner demonstrates in two papers on the idea (here and here), it will do neither of those things. 

Unfortunately, there has been too little debate within the limited-government camp over this idea.  This is in part because Heritage Foundation scholars have repeatedly declined to debate Cato scholars or other free-market critics of their proposal.

Until we’re able to have that fuller debate, here’s a helpful algorithm for judging this and other health care proposals:

  1. Does it limit government power?
  2. If not, move on to the next proposal.

ID-Based Security Is Broken - and Can’t Be Fixed

The Government Accountability Office testified to the Senate Finance Committee today that investigators were easily able to pass through borders using fake documents. Indeed, sometimes documents were not checked at all.

“This vulnerability potentially allows terrorists or others involved in criminal activity to pass freely into the United States from Canada or Mexico with little or no chance of being detected.”

That’s true, but shoring up that vulnerability would add little security while devastating trade and commerce at the border.

Identity-based security works by comparing the identity of someone to their background and determining how to treat them based on that. To start, you need accurate identity information. That’s not easy to come by from people who are trying to defeat your identity system.

Here’s a schematic of how identification cards work from my book Identity Crisis.

As you can see, proof of identity involves three steps: Info goes from the person to the card issuer; info goes from the issuer to the verifier via the card; and the verifier checks to make sure the person and the card match.

Each of these steps is a point of weakness. Let’s take them in reverse order:

Obviously, as the GAO found, if nobody looks at the ID card, the “verifier check” can’t be done and the system fails. If the verifier is careless, the system will also fail. This weakness can be fixed with machine-read biometrics, but that is time-consuming and it typically subjects everyone to monitoring, tracking, surveillance – whatever you prefer to call it.

If the card can be forged or altered, this compromises card security, the second point of weakness in the process. Weakness in card security (non-obvious forgery) is what GAO sought to expose when it stumbled across the fact that border agents weren’t checking IDs at all. Card security can also be fixed various ways, though the best, such as encryption, will also tend to increase monitoring, tracking, and surveillance of every card-holder.

The first step is the hardest by far to fix: getting accurate information about people onto cards. For anyone wanting to defeat the current U.S. identification system, there is a substantial trade in documents that are false but good enough to fool Department of Motor Vehicle employees into issuing drivers’ licenses and cards. Criminals also regularly use the option of corrupting DMV employees to procure false documents. Can this problem be curtailed? Yes. Solved? No.

For the sake of argument, let’s fix all these things with a cradle-to-grave, government-mandated, biometric tracking system. Enough to make even the irreligious think “mark of the beast.” Even then, we will not have effective security against serious criminals and terrorists. The greatest weakness of identification-based security remains.

Knowing who a person is does not reveal what they think or what they plan to do. Examples are legion in terrorism, and routine in crime, of people with no record of wrongdoing being the ones who act.

For example, Al Qaeda selected operatives for the 9/11 attacks who had no known records of involvement in terrorism. (See 9/11 Commission report, page 234.) It was operating in a mode to defeat watch-listing well before the spasm of watch-listing that underlies identification-checks like the ones GAO has found so flawed.

If we were to have a comprehensive, mandatory, biometric identification system, it would help find bad people after they are identified, but do little to secure against attackers who are not already known. Al Qaeda planners would have to continue factoring in a risk they have already accounted for.

And having such a system should be a big “if.” Subjecting all Americans to increased monitoring, surveillance, and tracking, then delaying their lawful trade and travel at the borders, would do a lot of damage to liberty and commerce. It would provide only a tiny margin of security – almost no margin against sophisticated threats.

Getting to Government Transparency

There’s technology policy, and there’s how technology affects policy.

That’s why I found my colleague Chris Edwards’ recent Tax & Budget Bulletin so interesting.  He discusses a number of federal databases that bring some transparency to federal spending, including the Federal Assistance Award Data System and the Federal Audit Clearinghouse.  Between them, they reveal quite a bit of information about federal spending and the staggering number and amount of subsidies and grants handed out by the federal government each year.

Edwards also hails a proposal by Senator Tom Coburn (R-OK) to create a comprehensive Internet database of federal contracts, grants, and other payments.  It would be a great leap forward in terms of transparency about spending, like the Thomas system was for the legislative process.

Advocates from across the political spectrum want a government that “works.”  Most believe that their perspective would “win” if the politics and government worked.  Whatever the case, transparency is widely agreed to be good — the more the better.

Thomas was an improvement.  Yet it hasn’t transformed the legislative process the way some might have hoped.  Lawmaking remains murky and confusing to the vast majority of the public.  Even if it was done well, a federal spending database probably wouldn’t transform the politics of government spending either.

Information technology will surely help, but transparency isn’t enough.  The twin problems that must be overcome are rational ignorance and rational inaction.  It’s hard to learn about government, and hard to affect it, so people make better uses of their time.  Operating a lemonade stand would be far more lucrative and enjoyable for most people than campaigning for a tax reduction.  (The piece linked here is a good discussion of rational ignorance.)

There are some efforts to defeat the twin plagues of ignorance and inaction.  GovTrack.us, for example, attacks ignorance with more information presented more accessibly than Thomas.  Wikipedia founder Jimmy Wales recently took after inaction with a wiki devoted to campaigns

My favorite — because I run it — is WashingtonWatch.com.  It displays pending legislation with its price-tag per person, per family, etc. and it gives visitors a chance to air their views.  A little run at ignorance, a little run at inaction.  Given time, it could blossom into transformed government.  In the meantime, the more transparency the better.

Ready to Pay More for Longer Lines at the DMV?

The Decatur (Alabama) Daily News reports that a server shut-down froze driver licensing operations on Friday.

Lines that tend to be long on the best days meandered double-file through hallways at the Morgan County Courthouse after a computer server in Montgomery shut down at about 12:45 p.m. The faulty server, which came back online at 3, is owned and maintained by Oregon-based Digimarc Co., a state contractor, according to [the Alabama Department of Public Safety].

Digimarc is one of several companies that are in the business of licensing and regulating driving. Another cited in the story is AAMVA, the American Association of Motor Vehicle Administrators, which operates a variety of driver surveillance programs under the AAMVAnet brand.

AAMVAnet is the conduit most states use to access various databases involved in driver license applications and renewals. Alabama uses the service for commercial driver license information, problem-driver point systems and Social Security number verification.

AAMVA is particularly interesting because it styles itself as a neutral interlocutor on motor vehicle administration, police traffic services and highway safety. But according to its non-profit disclosure form, its $30 million in 2003 revenue was comprised of $11 million in government grants and more than $14 million from “contracts/user fees” - most of it likely from operation of the Commercial Driver License Information System.

Anyone who understands the role of self-interest in guiding organizations - even ‘non-profits’ like AAMVA - must recognize that this is an advocate for increased driver regulation and surveillance, most recently through the REAL ID Act’s national identification card. If REAL ID is implemented, AAMVA stands to increase its revenue ten times over.

Department of Public Safety spokeswoman Martha Earnhardt told the Decatur Daily News, “As more and more states go through AAMVAnet, it hasn’t been able to handle the volume.” But AAMVA intends to move you into the national ID program - long lines or not - using your state and federal tax dollars.

More on AAMVA and the REAL ID Act can be found in my book Identity Crisis: How Identification is Overused and Misuderstood.