President Obama needs to find someone new to further socialize America’s health care system. Tom Daschle has withdrawn his name. Apparently, being Secretary of the Department of Health and Human Services is not all that enticing, especially if you have to start (gasp!) complying with the internal revenue code. Unfortunately, rather than learn a good lesson about the need to junk America’s complicated tax system, the politicians are probably going to use this fiasco as an excuse to give the IRS even more power. But there is a lighter side to Daschle-Gate. This 1986 campaign commercial is rather ironic considering that Daschle got caught because he neglected to report his use of a luxury car and chauffer:

Last month, Cato released a paper titled, “Does the Doctor Need a Boss?” Our friend Greg Scandlen called it “one of the most offensive papers I’ve ever read.” Scandlen is one of the leading lights of the consumer-directed health care movement. He is a senior fellow at the Heartland Institute, founder and director of Consumers for Health Care Choices, a former Cato health policy scholar, and has written for health policy journals such as Health Services Research and Health Affairs. I invited Scandlen to exchange thoughts on the issues raised. Here I set up the issues and offer my first response.

In “Does the Doctor Need a Boss?”, Arnold Kling and I argue that “the traditional model of medical delivery, in which the doctor is trained, respected, and compensated as an independent craftsman, is anachronistic” given the growing complexities of medical care:

Patients with multiple diagnoses require someone who can organize the efforts of multiple medical professionals. It is not unreasonable to imagine that delivering health care effectively, particularly for complex patients, could require a corporate model of organization.

Kling discusses our paper in a recent podcast.

Scandlen disagrees. In the latest issue of his Consumer Power Report newsletter, Scandlen addresses our paper under the title, “Cato Goes Off Track.” Here are Scandlen’s comments in full:

Boy, I hate it when this happens.

Two gentlemen I admire have published one of the most offensive papers I’ve ever read. Arnold Kling and Michael Cannon just released a paper, “Does the Doctor Need a Boss?” in which they conclude that independent physicians may be okay for treating simple things, but when it comes to anything complicated they ought to be working for a corporation. YIKES!

In coming to this conclusion, they cite a host of discredited work such as Alain Enthoven and the Institute of Medicine’s “To Err is Human.” But they seem driven by the personal experience of Mr. Kling, whose 88-year-old father was poorly treated in a hospital. One might think the lesson here would be less corporatization, not more, since a hospital is nothing but a corporate entity.

The paper says, “During his father’s illness, Arnold observed firsthand the lack of continuity and coordination of care, which squandered the sincere efforts of many individual doctors and nurses.” I don’t doubt that is true, and repeated thousands of times a day. But is the answer adding another corporate bureaucrat … or turning to someone like a concierge physician who knows the patient, knows the family, and is able to advocate for the patient at every level of care?

The gentlemen also fall into the old trap of blaming the problem on fee-for-service medicine when it should be well-established by now that the problem is not FFS but third-party payment (speaking of corporate medicine). Obviously this level of expense required insurance coverage, but it did not require third-party payment. Providers will always respond to their paymaster. They get into the habit of tailoring what they do to please whoever is paying the bill. Third-party payers have rules and procedures that must be followed and providers learn to perform in ways that maximize their pay.

What failed here was not the doctors and nurses, but the fact that Mr. Kling was crushed between corporate entities (the hospitals and the health plan) that were more interested in their bottom lines than in the well being of the patient.

I won’t belabor this. It underscores the emotional side of health care and how personal experience can color our thinking. I don’t blame Mr. Kling for being unhappy with the system. But to conclude that competent physicians created this system and are to blame for it boggles my mind. Read the paper and draw your own conclusions.

Though Kling tells a very personal story, the paper was not driven by anecdote or emotion — in fact, quite the opposite. “Does the Doctor Need a Boss?” came about because I read an article Kling wrote about his father’s illness, and I noticed that Kling’s anecdote matched the data. The elder Kling’s experience personalized many problems that the health-services literature has addressed ad nauseam, but often facelessly: fragmented care, poor quality, and possibly even medical errors. I asked Kling to elaborate on his article, and that led to our collaboration.

Scandlen suggests that the solution to those problems is “less corporatization, not more, since a hospital is nothing but a corporate entity.” In one sense, that is correct: hospitals are owned by corporations. But in another sense, it is flat wrong: the multiple physicians who treat a complex hospital patient are not part of the corporation. They are typically independent contractors on whom the hospitals rely for revenue. They typically have significant autonomy and their own idiosyncratic practice styles. Our paper contains a lovely quote from Jeff Goldsmith that describes just how not incorporated the two groups are. As we analogize in our paper, it is as if the bricklayers, plumbers, and electricians building your house can largely do as they please, without having to take orders from the general contractor — and no one is responsible for the final product.

We should expect that, nevertheless, those independent, autonomous, idiosyncratic subcontractors would at least try to coordinate their activities. But consider the heavy favoritism that Medicare and other government interventions show toward fee-for-service payment, where providers receive additional revenue for each additional service. When those subcontractors fail to coordinate care, FFS payment systems reward them. Poorly coordinated care leads to patients needing more services (more antibiotics, more doctor visits, more hospital admissions, etc.). Low-quality care thus results in more revenue. It’s not that doctors and hospitals consciously respond to that financial incentive by providing low-quality care. It’s that when docs try to coordinate care, FFS payment systems punish them. Coordinated care means fewer hospital admissions, fewer services, and (you guessed it) less revenue. The problem is not FFS payment itself, but the fact that government tips the scales in favor of FFS. As a result, we lose the benefits of open competition between different payment systems. If FFS providers had to worry about losing patients to health systems that use capitation/​prepayment — which encourages coordinated care — then the threat of competition would create financial incentives that overwhelm the perversities of FFS payment. (And competition from FFS providers would overwhelm the perverse incentives inherent in capitation/​prepayment, such as the incentive to skimp on care.)

Despite Scandlen’s claim, Kling and I never laid the blame for this sad state of affairs on “competent physicians.” The physician lobby deserves its share of the blame for supporting corporate-practice-of-medicine and licensing laws that block competition by truly incorporated delivery systems. The physician lobby also deserves criticism for supporting government interventions that flood the health care sector with subsidies and favor fee-for-service payment. Yet we would never suggest that the physician lobby behaves as competent physicians would.

I doubt that Scandlen and we really disagree all that much about these things. I imagine we agree that fee-for-service, capitation/​prepayment, and everything in between should have to compete without government favoring any one payment system over the others. Likewise, solo practitioners, HMOs, and everything in between should compete on a level playing field. And I suspect Scandlen would agree with our policy recommendations: that we should deregulate the medical profession, and let consumers control their health care dollars and choose their own health plan. 

And may the best delivery system win.

In his recent book Critical, HHS secretary-nominee Tom Daschle proposes to create a federal health care rationing board empowered to deny medical care to patients in government health care programs and, ultimately, private health plans.

The stimulus bill moving through Congress gives Daschle his wish. It provides $400 million for HHS to launch a 15-member “Federal Coordinating Council for Comparative Effectiveness Research” that would conduct research intended to help government bureaucrats overrule your doctor.

Here are my nominations for Daschle’s rationing board:

Or so say I, over at National Review Online:

The $819 billion “stimulus bill” passed by the House includes $1.1 billion that has nothing to do with economic growth and everything to do with letting government control your medical decisions.…

Health and Human Services secretary-nominee Tom Daschle … propose[s] a new federal board that would … make “specific coverage decisions” for all government health-care programs and “exert tremendous influence on every … provider and payer, even those in the private sector.”

Daschle understands that refusing to cover specific services is “not so clean cut,” that patient advocates often view those decisions as “matters of life and death,” and that “doctors and patients might resent” the board’s decisions. He therefore proposes to have the board operate under “a decision-making process that is one step removed from Congress and the White House.”

That’s a delicate way of saying that Daschle wants government bureaucrats to have more room to ignore you, even if you have good reason to think your child would respond better to a non-covered chemotherapy agent than the average patient would.…

[The] “stimulus” package would give Daschle $400 million to get his rationing board going.

Path dependence plays a huge role in shaping nations’ health care sectors. Path dependence is also why we want health care reform to nudge America toward freer markets.

Government exacerbates path dependence. Government gives the old order the power to block the new. The larger the role government plays in health care (or anything else), the harder it is to make incremental changes that would yield greater benefits than existing arrangements. 

That’s why, as Gawande observes, Medicare does a lousy job of improving quality. (Or containing costs, for that matter.) Medicare and other government interventions are also why we don’t see enough innovation in the private sector, either.

So if you want tomorrow’s health care sector to have the same problems with cost, quality, and access as today’s, then by all means expand Medicare. Or create a government-run “exchange” like the Federal Employees Health Benefits Program. Or expand the Veterans’ Health Administration. Or expand Medicaid and SCHIP. 

But if you’d rather a health care sector that constantly makes improvements in cost and quality, you need to let seniors and non-seniors alike control their health care dollars and choose their own health plan.

Once again, James Pethokoukis of U.S. News & World Report’s Capital Commerce blog suggests to Alaska Gov. Sarah Palin (R) that if she aspires to higher office, she needs to read Arnold Kling’s Crisis of Abundance.

Paul Testa of the New America Foundation has kind words for the briefing paper that Arnold Kling and I coauthored, “Does the Doctor Need a Boss?” He notes “how similar the authors’ core arguments and ideas were to other calls we’ve heard for delivery system reform from across the political spectrum.”

But Testa loses us here:

The emerging consensus on the means as well as the ends of delivery system reform create can lay the foundation for broader health reform. It’s up to Congress and the Obama Administration to build off that foundation bringing in the necessary pieces of cost, coverage and financing reforms to create a truly sustainable health care system that works for all Americans.

As Kling explains in this Cato podcast, Congress and the president are the wrong people to direct delivery system reform.