Thank you for making this point. But two wrongs don’t make a right.

Respectfully,
Justin Logan

HHS secretary-nominee and former U.S. Senate majority leader Tom Daschle owed the IRS more than $140,000 in back taxes and interest. One contributing factor: a spokeswoman says Daschle “naively” believed that the Cadillac and driver provided gratis by a business partner was “nothing more than a generous offer from a friend.”

A former Daschle aide reassures us, “He’s the gold standard for integrity in government.” (Precisely the problem, isn’t it?)

The Washington Post reports that none of this is likely to derail Daschle’s confirmation by his former Senate colleagues. “Senators also cited their personal knowledge of Daschle in justifying their willingness to dismiss the tax issue,” writes the Post. “He and his wife, Linda Hall Daschle, donated over the past two years to at least 14 senators who will be tasked with voting on his confirmation.”

Tom Daschle has joined Timothy Geithner in the not-so-exclusive club of Obama Cabinet appointees who evaded tens of thousands of dollars in federal taxes until they were vetted for their Cabinet nominations.

It’s too bad Leona Helmsley can’t be nominated as Commerce Secretary.

I sympathize with anybody trying to hold down his tax bill. Government is too big and too expensive, few of us feel we get our money’s worth from our taxes, and we all have better uses for our money than bridges to nowhere and free condoms. But honestly, shouldn’t people who want to increase taxes on the rest of us — like Daschle, Geithner, Eleanor Holmes Norton, Chairman Charles Rangel, Al Franken, Governor David Paterson’s top aide, Democratic National Convention staffers, Al Sharpton, and so on — pay their own taxes?

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.

I was asked by a radio host more than once this week what I thought of the fact that some big business leaders were standing by President Obama in his pursuit of the gargantuan “stimulus” package. There is an unfortunate public perception that supporters of free markets are knee-jerk supporters of anything that could be perceived as benefiting “big business.” As the thinking apparently goes, because free marketers favor business, and members of the business community favor the stimulus, shouldn’t free marketers therefore favor the stimulus?

Hardly. In his book, The Myth of the Robber Barons, historian Burton Folsom differentiates between market entrepreneurs and political entrepreneurs:

A key point about the steamship industry is that the government played an active role right from the start in both America and England. Right away this separates two groups of entrepreneurs — those who sought subsidies and those who didn’t. Those who tried to succeed in steamboating primarily through federal aid, pools, vote buying, or stock speculation we will classify as political entrepreneurs. Those who tried to succeed in steamboating primarily by creating and marketing a superior product at a low cost we will classify as market entrepreneurs. No entrepreneur fits perfectly into one category or the other, but most fall generally into one category or the other. The political entrepreneur often fits the classic Robber Baron mold; they stifled productivity (through monopolies and pools), corrupted business and politics, and dulled America’s competitive edge. Market entrepreneurs, by contrast, often made decisive and unpredictable contributions to American economic development.

This afternoon I was forwarded an article regarding IBM chairman and CEO Sam Palmisano’s public endorsement of the “stimulus” package alongside President Obama. According to Palmisano, “We need to reignite growth in our country. We need to undertake projects that actually will create jobs.” 

But as the reporter noted:

Since November, Palmisano has been making a pitch to Obama’s transition team that investing $30 billion in expanding rural broadband access, computerizing health-care records and improving the electrical grid could create 949,000 U.S. jobs. [ The stimulus package] could also create billions in revenue for Big Blue, which specializes in the technology and services used for health-care IT and smart-grid infrastructure, not to mention its recent $9.6 million contract to provide broadband service in rural America.

What we see here is IBM as the political entrepreneur. 

While IBM would stand to make a killing on the “stimulus,” those companies unlucky enough to be left off the government gravy train, the market entrepreneurs, will get stuck partially financing the profligacy. According to Chris Edwards, “The U.S. statutory [corporate income tax] rate is the second highest of the 30 nations in the Organization for Economic Cooperation and Development, and by one estimate, the effective rate is the highest.” Of course, corporate taxes mean bad news for consumers, employees, and investors — not just the corporate owners, as many forget (or ignore).

After his first major interview with an Arab TV network, it is clear President Obama is striking a decidedly different tone in talking about terrorism. In today’s Cato Daily Podcast, legal policy analyst David H. Rittgers discusses the new direction Obama will take in the fight against terrorism.

“This is a serious departure from some of the message that the Bush Administration put forth,” says Rittgers, who served three tours of duty in Afghanistan as an officer in the Army. “Using ‘you are with us or against us’ is appropriate in certain circumstances, but as a blanket approach that is not the message we need to be sending.”

Add the Cato Daily Podcast to your RSS Feed.

No U.S. Supreme Court decision in the modern era has been so quickly and widely reviled as the infamous Kelo decision, in which the Court ruled that the government could take Susette Kelo’s house in New London, Conn., and the homes of her neighbors, and give the property to a private developer. The courts justified the ruling by saying the new use for her property could generate more taxes and jobs.

Kelo told her story at the Cato Institute on Monday.

For more on Kelo’s story, read Little Pink House: A True Story of Defiance and Courage, by Jeff Benedict.