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.