MedPAC: Obama's rudder for the healthcare battleship

In an interview focused on healthcare, Washington Post editorial page editor Fred Hiatt asked Obama why he's set against capping businesses' tax exemption for money spent on health benefits.

It's widely assumed that this would be an effective tool for reducing healthcare inflation, since businesses would have an incentive to keep their healthcare spending per employee below the cap. It's also generally assumed that Obama is resisting this measure because it was a central plank in McCain's healthcare "plan" (such as it was), which Obama campaigned against.

But Obama's answer to Hiatt's question is interesting, and compelling:

Now, this is something that I think economists find appealing partly because it's -- although it's a blunter instrument, it's more measurable than some of the delivery system changes -- although I actually think the delivery system changes are more long-lasting. And you could have a situation in which you cap the exclusion or eliminated the exclusion and, yes, that would drive health care inflation down, but it also could drive quality of health care down because you're not doing anything to change a perverse system in which we pay for more medical care as opposed to medical care that actually makes us healthier.

In other words, as long as a healthcare plan is still indiscriminately reimbursing doctors and hospitals on a fee-for-service basis, the only way it can cut costs is to cut coverage -- and Americans' health plans are already riddled with holes, rising copays, uncovered treatments, lifetime benefit caps. Obama is saying that he does not want to mandate private sector benefit cuts until those cuts will be directed at unnecessary care -- MRIs for every muscle strain, Caesarians for every slow birth, unnecessary prostate cancer operations, proton radiation, the whole panoply of wasteful testing, operating, medicating that Americans have been trained to expect -- rather than against necessary preventive and catastrophic care, which so many plans today cover inadequately.

Obama did tell Hiatt that he'd be open to a cap on the healthcare tax exemption set above today's top spending levels. Obama's thinking/political framing of this issue is structurally similar to his approach to corporate taxation: he is open in principle to reducing the corporate tax rate if and when Congress closes the huge array of loopholes that make the effective corporate tax rate so much lower than the nominal rate. In both instances he is seeking to avoid change with unintended consequences -- or perhaps with stealthily intended consequences -- by insisting that structural change precede a reform that will misfire without it.

In the Hiatt interview, after pivoting away from the tax exemption cap, Obama placed his cost curve-bending chips on "MedPac on steroids," a commission empowered to set reimbursement rates and treatment emphases for Medicare and Medicaid. He cast MedPac as perhaps the chief vehicle for tackling the real fundamental task-- moving the healthcare payment system away from fee-for-service and towards some kind of global payment system, where doctors and hospitals are paid per patient, with performance incentives.

At this point, I am confident that both the House and the Senate bills will contain what we've been calling MedPAC on steroids, the idea that you continually present new ideas to change incentives, change the delivery system, understanding that because this is such a complex system we're not always going to get it exactly right the first time, and that there have to be a series of modifications over the course of a series of years, and we have to take that out of politics and make sure that an independent board of medical experts and health economists are providing packages that are continually improving the system. So I think there's general consensus that that is one of two very powerful levers to bend the cost curve.

The role that Obama envisions for MedPAC is a window on the way he conceives of systemic change generally. He's what you might call a radical incrementalist. Recognizing that the fundamental task in tackling healthcare inflation is to change incentives -- end fee-for-service -- he also recognizes that the payment system cannot be changed by fiat, that the task needs to be done in stages, experimentally, on the basis of what is shown to work. To empower MedPAC in Obama's view is to create a "powerful lever" to "move this big battleship a few degrees in a different direction" and set the stage for a long series of subsequent reforms.

David Leonhardt tries to do Obama's job for him, part II

David Leonhardt continues to do yeoman's work explaining the stakes and outlining the means of health care cost control. Today he compares cost control measures in the House bill, which he finds wanting, with those in the Senate Finance Committee bill, which are stronger. His main theme: that the true test of the Obama Administration's leadership comes now, in the endgame, in the skill and force with which they push for the most promising cost control measures.

Perhaps the single most telling flashpoint, according to Leonhardt, will be the fate of the so-called "MedPAC on Steroids," a commission empowered to make a yearly package of Medicare cost control recommendations to Congress, which Congress would have to vote up or down as a package. Leonhardt calls a commission thus empowered a "Fed for Health" to emphasize the need for political insulation. "Whether one ends up in the final bill," he writes, "will be a good test of Mr. Obama's endgame leadership."

Obama would seem to agree with Leonhardt. Back in July, he highlighted the commission as a a potential guiding light for cost control over the course of years and decades, telling Fred Hiatt:

At this point, I am confident that both the House and the Senate bills will contain what we've been calling MedPAC on steroids, the idea that you continually present new ideas to change incentives, change the delivery system, understanding that because this is such a complex system we're not always going to get it exactly right the first time, and that there have to be a series of modifications over the course of a series of years, and we have to take that out of politics and make sure that an independent board of medical experts and health economists are providing packages that are continually improving the system. So I think there's general consensus that that is one of two very powerful levers to bend the cost curve.

As for the second "lever":

Now, the second idea, which is the one that got more attention, even though Elmendorf, I think, has emphasized the benefits of a MedPAC board, as well, was the elimination of the tax exclusion [on employer-provided health insurance]. And I've been very clear on my position that I think to add additional costs to families right now when they're already seeing their premiums doubled is not the kind of health reform that I'd like to see, but I believe that there may be ways of getting at the same principle.

For example, you could conceivably set up an index of some sort that makes sure that health care inflation -- or to make sure that the exclusion only accommodates a certain amount of health care inflation -- as opposed to 8 percent or 9 percent, or what have you -- without burdening current plans, but over time assuming -- if we're assuming that health care inflation is going to continue to be a problem, that you could get at the problem in that way.

Hiatt: A kind of cap, but one that doesn't hurt anybody --

Obama: Currently.

Hiatt: -- at the current level?

Obama: Exactly. You're also seeing, I think, some interesting discussions in the Senate Finance Committee about a variation that goes after the insurance companies, as opposed to directly taxing the benefits.

That "variation that goes after insurance companies" is in the Senate Finance Committee bill, in the form of a surtax on plans that cost more than $21k per family and $8k per individual. "Along with the Medicare commission," according to Leonhardt, "this tax is the biggest single difference between the Senate and House versions. "

So Leonhardt has highlighted the degree to which the White House is in sync with Senate Finance on cost control, and the key cost control omissions in the House bill.

On the other side of the ledger, the House bill provides more generous coverage than the Senate Finance bill. Many who embrace the basic architecture of the Democrats' health reform efforts dream of a bill that combines House coverage with Senate cost control. Deep pessimism about the way Congress works in this era leads many to supsect that we'll get the opposite. I would bet on a mixed scorecard - maybe 1-for-2 on the excise tax and MedPAC, or both surviving in weakened form, and somewhat more generous subsidies with a stiffer coverage mandate than the Finance bill provides.

If a bill passess at all. The abortion pound of flesh extracted in the House, the weak majority with which the bill passed, Lieberman's grandstanding on the public option...all have made me wonder.

See also: David Leonhardt tries to do Obama's job for him (Part I)

From Palin to Ryan: a short history of demonizing IPAB

The battle between the parties over Medicare reform is a battle about how best to control costs.  Ryan and Romney rely exclusively on the Competition Fairy, -- the notion that if private insurers are induced to compete for Medicare policyholders, they will find ways to hold down costs.  If that fails, Ryan/Romney would most likely shift costs to seniors, with some ostensible protections for low-income beneficiaries.  The Obama administration, via the Affordable Care Act, seeks to use the government's market clout to change the rules of the payment game for providers, creating new incentives to reduce unnecessary care and new rewards and penalties focused on patient outcomes.

The crown jewels of health care cost-cutting

Ron Brownstein has an important post that details the substantial cost-control measures in the Baucus bill that led CBO to score it as a deficit reducer over the long term. The measures, Brownstein notes, center on two themes: "shifting the reimbursement model away from volume to value, and encouraging physicians to work more closely in teams to manage the overall health of patients, particularly those with expensive chronic conditions."

The Baucus bill would also create an empowered oversight commission, the "MedPAC on steroids" that Obama has emphasized as the chief mechanism for sifting, improving and expanding the cost control measures seeded in the bill. Brownstein:

The bill creates a second new institution that could be even more important: an independent Medicare Commission, as Obama has proposed. The commission would be required to offer proposals for cost-savings whenever Medicare spending rises too fast and Congress would be required to give their proposals fast-track consideration. The commission would likely become a vehicle to move into law the most promising payment and coordinated care reforms that emerge from the tests and pilot programs that the bill's other provisions set in motion. "If it develops into a respected independent body it could be one of the most significant parts of this legislation," said the senior administration officials. "I think that's the most auspicious path forward for promoting fundamental reform."

Compare Obama, speaking to Washington Post editor Fred Hiatt in July:

At this point, I am confident that both the House and the Senate bills will contain what we've been calling MedPAC on steroids, the idea that you continually present new ideas to change incentives, change the delivery system, understanding that because this is such a complex system we're not always going to get it exactly right the first time, and that there have to be a series of modifications over the course of a series of years, and we have to take that out of politics and make sure that an independent board of medical experts and health economists are providing packages that are continually improving the system. So I think there's general consensus that that is one of two very powerful levers to bend the cost curve.

Note the gradualism. That's not pusillanimity; it's recognition that our current payment system is a huge battleship that can only be turned by degrees. Compare Atul Gawande, who did so much to spotlight payment incentives as a core driver of health care inflation:

McAllen and other cities like it have to be weaned away from their untenably fragmented, quantity-driven systems of health care, step by step. And that will mean rewarding doctors and hospitals if they band together to form Grand Junction-like accountable-care organizations, in which doctors collaborate to increase prevention and the quality of care, while discouraging overtreatment, undertreatment, and sheer profiteering. Under one approach, insurers—whether public or private—would allow clinicians who formed such organizations and met quality goals to keep half the savings they generate. Government could also shift regulatory burdens, and even malpractice liability, from the doctors to the organization. Other, sterner, approaches would penalize those who don’t form these organizations.

This will by necessity be an experiment. We will need to do in-depth research on what makes the best systems successful—the peer-review committees? recruiting more primary-care doctors and nurses? putting doctors on salary?—and disseminate what we learn. Congress has provided vital funding for research that compares the effectiveness of different treatments, and this should help reduce uncertainty about which treatments are best. But we also need to fund research that compares the effectiveness of different systems of care—to reduce our uncertainty about which systems work best for communities. These are empirical, not ideological, questions. And we would do well to form a national institute for health-care delivery, bringing together clinicians, hospitals, insurers, employers, and citizens to assess, regularly, the quality and the cost of our care, review the strategies that produce good results, and make clear recommendations for local systems.

Dramatic improvements and savings will take at least a decade...

Bending the health care cost curve is not the work of a day, or a single bill. There is a fair amount of consensus among Democrats about how to get the process started. Will the lobbyist-ridden legislative process gut the promising provisions drafted in Baucus's and other bills? Will Obama take a stand on these, as he didn't on the public option? Did he decide long ago that payment mechanisms were more important than insuring mechanisms?

Scat, CAT scan: Obama on U.S. health waste

In a long interview with Obama on healthcare, Time's Karen Tumulty pressed the President on an example of a tough cost/benefit decision on treatment he had raised in an April interview with David Leonhardt -- a hip replacement Obama's grandmother received at the very end of life, when she was terminally ill with cancer. Should Kaiser Permanente have paid for the operation? They did - and Tumulty asked whether that was a good use of healthcare dollars. Obama's answer was evasive - and properly so, I think:

I guess my point is, is that you don't even get to those really tough decisions, you don't even have to get to those really tough decisions before you've already saved a huge amount of money and made people healthier and made sure that Medicare was solvent and bent the cost curve. I mean, there's 20, 25% of the cost — of the system that is wasteful right now, even before you get to tough decisions about end-of-life care...

Let's just take one example, and that is testing. It turns out that we pay 10 times what Japan pays, for example, for CAT scans and MRIs. Well, why is that? And it turns out, by the way, that we are having those tests five, six, eight times as often as folks in other countries who have just as good outcomes.

Now, some of that may have to do with reimbursement models. There may be differences that have to do with the approach that hospitals here take in recovering costs for expensive equipment. There are a whole range of reasons why that might be true, but the point is, is that it's not like people out there are — would automatically be prevented from getting CAT scans if we just tried to think when is a CAT scan or an MRI working and appropriate in improving care and when it's not.

And what we've said is that if doctors and patients had that information, and you start changing some of these delivery systems, you will see significant changes in the cost of health care and you will see improved outcomes and improved convenience, because if people are going through a battery of tests when one test would be sufficient, every time they're going to the doctor, that's gas, babysitting, sitting around for two hours, a day off work. We're not even factoring in those costs.

Obama is right that the U.S. should be able to save huge amounts by eliminating patently unnecessary care, regardless of how public and private insurers resolve the really tough cost/benefit decisions. What he did not make clear in this interview, however -- and I wish Tumulty had pushed him on this as she did on his grandmother's operation -- was how currently proposed legislation would signifcantly change those skewed incentives he keeps citing. He gave a kind of answer to Fred Hiatt on this question -- "MedPAC on steroids." But we need to hear way more about this.

David Brooks gins up another faux consensus

"It’s easy to get lost in the weeds," David Brooks warns, "when talking about health care reform." So Brooks, that genial guide, kindly leads readers off a cliff.

Declining to explain in any detail why he thinks the robust cost-control measures in the Senate health care bill would fail if enacted, Brooks relies instead on his two old stand-bys: mushy generalizations about values and recourse to faux consensus.

What a society gains in security through social welfare programs, Brooks declares without any evidence, it usually loses in vitality. There's a caveat:

Occasionally, our ancestors found themselves in a sweet spot. They could pass legislation that brought security but without a cost to vitality. But adults know that this situation is rare

Interesting to cast successful social welfare programs as the domain of our "ancestors." That projects such doings into a mythical realm, akin the age of prophecy that rabbis deemed to have ended after the post-exilic prophets. Needless to say, then, health care reform won't reach that state of grace. By enacting it, we will sap our vitality!

Perhaps in his next column Brooks can explain how dozens of wealthy countries that provide health care to all their citizens at half to two-thirds the per capita spending of the U.S. have sacrificed their "vitality." Or how subjecting tens of millions of Americans to subpar care and constant risk of financial ruin magically confers "vitality" on the U.S. -- rather than sapping it by chaining people to their current jobs, assuming they can hold them and that their employers do not scuttle or eviscerate their health plans.

According to Brooks, the great vitality drain will presumably be triggered when an enacted reform bill accelerates rather than controlling health care spending and thus redistributes wealth to the most vulnerable. To make this argument he relies on the device he used three weeks ago to prove that Obama lacked the grit to win in Afghanistan: conjuring consensus out of thin air. Here's how it works this time:

The authors of these bills have tried to foster efficiencies. The Senate bill would initiate several interesting experiments designed to make the system more effective — giving doctors incentives to collaborate, rewarding hospitals that provide quality care at lower cost. It’s possible that some of these experiments will bloom into potent systemic reforms.

But the general view among independent health care economists is that these changes will not fundamentally bend the cost curve. The system after reform will look as it does today, only bigger and more expensive.

As Jeffrey S. Flier, dean of the Harvard Medical School, wrote in The Wall Street Journal last week, “In discussions with dozens of health-care leaders and economists, I find near unanimity of opinion that, whatever its shape, the final legislation that will emerge from Congress will markedly accelerate national health-care spending rather than restrain it.”

Now, Dr. Flier is indeed a formidable authority. Doubtless he has spoken with many colleagues and experts as he claims. But his assertion of "near unanimity" is just that -- an assertion. Brooks leverages it -- without relaying Flier's substantive argument in any detail -- into "the general view among independent health care economists."

No such "general view" exists. I don't know of any WSJ-style survey of health care economists and experts. But there's good reason to believe that consensus is closer to the opposite view, as Ronald Brownstein suggests in a widely-cited article about expert response to Reid's bill. Here's a centerpiece of the feedback Brownstein reports "from the center to the left":

In their November 17 letter to Obama, the group of economists led by Dr. Alan Garber of Stanford University, identified four pillars of fiscally-responsible health care reform. They maintained that the bill needed to include a tax on high-end "Cadillac" insurance plans; to pursue "aggressive" tests of payment reforms that will "provide incentives for physicians and hospitals to focus on quality" and provide "care that is better coordinated"; and establish an independent Medicare commission that can continuously develop and implement "new efforts to improve quality and contain costs." Finally, they said the Congressional Budget Office "must project the bill to be at least deficit neutral over the 10-year budget window and deficit reducing thereafter."

As OMB Director Peter Orszag noted in an interview, the Reid bill met all those tests.

The Garber letter is signed by 23 leading economists, including two Nobel laureates, Kenneth Arrow of Stanford and Daniel McFadden of Berkeley. A third Nobel Laureate, William F. Sharpe, asked for his name to be added to the list of signers, according to the Harvard Crimson.

Brooks does not bother with the substance of Dr. Flier's argument. That argument boils down to three points: 1) the pending health reform bills are structurally similar to the Massachusetts quasi-universal coverage bill passed in 2006; 2) the Massachusetts bill has not slowed health care inflation, and 3) Massachusetts is just now turning its attention to serious means of controlling costs. Here's where the argument gets curious:

A "Special Commission on the Health Care Payment System" recently declared that the Massachusetts health-care payment system must be changed over the next five years, most likely to one involving "capitated" payments instead of the traditional fee-for-service system. Capitation means that newly created organizations of physicians and other health-care providers will be given limited dollars per patient for all of their care, allowing for shared savings if spending is below the targets. Unfortunately, the details of this massive change—necessitated by skyrocketing costs and a desire to improve quality—are completely unspecified by the commission, although a new Massachusetts state bureaucracy clearly will be required.

Yet it's entirely unclear how such unspecified changes would impact physician practices and compensation, hospital organizations and their capacity to invest, and the ability of patients to receive the kind and quality of care they desire. Similar challenges would eventually confront the entire country on a more explosive scale if the current legislation becomes law.

Selling an uncertain and potentially unwelcome outcome such as this to the public would be a challenging task. It is easier to assert, confidently but disingenuously, that decreased costs and enhanced quality would result from the current legislation.

So: Massachusetts has not yet worked out the details of serious structural reform. Those details -- and on this point there is something approaching a consensus, which appears to include Dr. Flier -- must be worked out incrementally, by trial and error. That is precisely what the Senate bill -- in contrast to the Massachusetts bill -- aims to do from the outset. Brownstein again, on the bill's measures to seed structural reform:

The other set of Baucus proposals were intended to promote more coordination among providers. These have survived almost verbatim into the final bill. The bill encourages groups of providers to establish doctor-led "accountable care organizations" to more comprehensively manage patients' care by allowing them to share in any savings for Medicare they produce. It also establishes a voluntary national pilot of "bundled" payments that would encourage hospitals, doctors and other providers to work more closely together. Another pilot program would test coordinated home-based care for chronically ill seniors.

Dr. Flier plainly does not think much of these measures. He asserts, without any detailed enumeration or assessment of them:

Likewise, nearly all agree that the legislation would do little or nothing to improve quality or change health-care's dysfunctional delivery system. The system we have now promotes fragmented care and makes it more difficult than it should be to assess outcomes and patient satisfaction.

Nor does Dr. Flier assess the likely effects of an empowered Medicare commission or of the excise tax on expensive plans. He may have excellent reasons, based on practice experience and discussion with colleagues, to believe that the package of cost control measures won't work. But he's content to merely assert them.

Brownstein relays what appears to me a more balanced, if hardly rapturous assessment:

Former CBO director Robert Reischauer, who signed the November 17 letter, says that's not surprising. "CBO is there to score savings for which we have a high degree of confidence that they will materialize," says Reischauer, now president of the Urban Institute. "There are many promising approaches [in these reform ideas] but you...can't deposit them in the bank." In the long run, Reischauer says, it's likely "that maybe half of them, or a third of them, will prove to be successful. But that would be very important."

And from Mark McClellan, Bush's director of the Center for Medicare and Medicaid Services:

McClellan, the former Bush official and current director of the Engleberg Center for Health Care Reform at the Brookings Institution, was one of the economists who signed the November letter. McClellan has some very practical ideas for improving the Reid bill (more on those below), but generally he echoes Orszag's assessment of it. "It has got all four of those elements in it," McClellan said in an interview. "They kept a lot of the key elements of the Finance bill that I like. It would be good if more could be done, but this is the right direction to go."

Brownstein's article was published three days before Brooks' and has circulated widely. But Brooks does not engage it -- or any other of the formidable health care experts who are voicing support for the Reid bill's cost control measures. Instead, he reverts to the tiredest and most circular of Republican talking points against those measures:

Moreover, the current estimates almost certainly understate the share of the nation’s wealth that will have to be shifted. In these bills, the present Congress pledges that future Congresses will impose painful measures to cut Medicare payments and impose efficiencies. Future Congresses rarely live up to these pledges. Somebody screams “Rationing!” and there is a bipartisan rush to kill even the most tepid cost-saving measure. After all, if the current Congress, with pride of authorship, couldn’t reduce costs, why should we expect that future Congresses will?

Ezra Klein has dealt nicely (and repeatedly) with the embedded logic of such critiques:

More broadly, I'm confused by the budget hawks who that take the line: "This bill needs to cut the deficit, and I don't believe Democrats will cut the deficit, but since the actual provisions of the bill unambiguously cut the deficit, then I guess Congress won't stick to it."

People who want to cut the deficit should support this bill, and support its implementation. The alternative is no bill that cuts the deficit, and thus no hope of cutting the deficit.

Klein has internalized the argument of Harvard's Jonathan Gruber - another signatory of the Garber letter -- who put it this way when he spoke to Klein:

We know we will be closer to bending the curve with this bill than without it. But we can't promise this bill alone will bend the curve. This bill moves us towards that. First is the Cadillac tax. Then comes more research on comparative effectiveness. We need to be able to stop paying for things that don't work. This bill doesn't do that, but it sets us up to have the information to do that. Then there's MedPAC on steroids. You need someone with the political ability to set rates to controls costs. Finally, this bill has pilot programs for a lot of things that we think will control costs, but that haven't been proven. Things like accountable care organizations, bundling and all the rest. We're at the stage where we know in theory what to do. But we don't quite know how to set it up, so we're collecting that evidence.

I think this is as much as you can do politically. It's as much as you can do without sinking the whole bill, which is what happened to every other health-care reform.

Finally, one more advocate of this kind of incremental approach to change is worth listening to:

At this point, I am confident that both the House and the Senate bills will contain what we've been calling MedPAC on steroids, the idea that you continually present new ideas to change incentives, change the delivery system, understanding that because this is such a complex system we're not always going to get it exactly right the first time, and that there have to be a series of modifications over the course of a series of years, and we have to take that out of politics and make sure that an independent board of medical experts and health economists are providing packages that are continually improving the system. So I think there's general consensus that that is one of two very powerful levers to bend the cost curve.

That's a certain Barack Hussein Obama, speaking to Fred Hiatt on July 26. A man whose M.O. is always to move the battleship by a few degrees.

Obama's healthcare priorities

Ezra Klein brings into sharp focus an aspect of Obama's approach to healthcare reform that he has repeatedly noted in its component parts:

This is one thing that the Obama administration doesn't get enough praise or criticism for. The only ideas they've introduced into the debate, and the only ideas they've really stood and fought for against serious opposition, are cost-control ideas. Namely, the excise tax, the Medicare Commission, the insistence on deficit neutrality and the $900 billion price tag, none of which have a natural majority on the Hill, and all of which the Obama administration has kept in the game through direct advocacy.

I see this focus as an instance of Obama's propensity for "the long game."  The Administration probably calculates that Congress will inevitably expand coverage and subsidies as the inadequacies of the initial allotments become obvious -- whereas the architecture for beginning to bend the cost curve has to be in place from the start or the whole package will swiftly become unaffordable. Atul Gawande's vision -- of a potpourri of cost control measures, pilots and demonstration projects out of which at least a few will have a dramatic impact -- is also Obama's.  Here is how Obama described the process to Fred Hiatt, focusing on one potential meta-enabler of such methods, the MedPAC commission:

At this point, I am confident that both the House and the Senate bills will contain what we've been calling MedPAC on steroids, the idea that you continually present new ideas to change incentives, change the delivery system, understanding that because this is such a complex system we're not always going to get it exactly right the first time, and that there have to be a series of modifications over the course of a series of years, and we have to take that out of politics and make sure that an independent board of medical experts and health economists are providing packages that are continually improving the system. So I think there's general consensus that that is one of two very powerful levers to bend the cost curve.

I can see two strong objections either to Obama's strategy or my understanding of it.