February 15, 2008 7:58PM

Did the CBO Just Blow a Hole in HillaryCare 2.0?

By Michael F. Cannon

Sen. Hillary Clinton promises to “reduce the geographic variation in care” provided to Medicare beneficiaries. That’s code for government rationing — i.e., giving seniors in high‐​spending regions less medical care. That may or may not be a bad thing. For one, it may not affect seniors’ health. But the Congressional Budget Office today released a report that may take the wind out of the sails of many variation‐​reducers.


Some argue that the driving force behind this variation in medical spending is Medicare’s fee‐​for‐​service payment system, which gives doctors an incentive to do more stuff. Some doctors just appear to get carried away by that incentive.


Opponents of fee‐​for‐​service payment argue that global budgets and capitation — such as exist in the Veterans’ Health Administration — would reduce unwarranted variation in medical spending by eliminating the financial incentive to over‐​treat patients.


Enter the CBO report, which states:

It appears … that the centrally budgeted VA system does not display much less geographic variation in spending than is exhibited in the unbudgeted Medicare program .… In addition to exhibiting geographic variation in spending, the VA system shows substantial variation in patterns of clinical practice despite the fact that VA’s management tracks providers’ compliance with national guidelines for the treatment of many medical conditions .… The implication is that local norms can influence practice patterns, even in a relatively centralized system that places a strong institutional emphasis on adherence to clinical guidelines for care.

Egad, could this mean that unwarranted variation would persist even under a single‐​payer system? Or that government planners can’t control doctors as much as proponents of planning claim?


Perhaps. But it also means that the less‐​stringent payment reforms that Sen. Clinton proposes — “pay‐​for‐​performance” financial incentives that work within Medicare’s fee‐​for‐​service payment system — aren’t likely to make a dent in unwarranted variation.