David Leonhardt tries to do Obama's job for him

The New York Times' David Leonhardt seems to have taken it upon himself to drive home to Americans that the nub of healthcare cost containment is removing doctors' and hospitals' incentives to prescribe unnecessary care. From today's front page article:

On Thursday, Mr. Obama will visit another example he likes to cite, the Cleveland Clinic. Its successes capture what real reform would look like. Like Mayo, the Cleveland Clinic pays its doctors a salary, rather than piecemeal, and delivers excellent results for relatively little money.

“I came here 30-some years ago,” Delos Cosgrove, a heart surgeon who is the clinic’s chief executive, told me. “And I have never received any additional pay for anything I did. It never made a difference if I did five heart operations or four — I got paid the same amount of money. So I had no incentive to do any extra tests or anything.”

This is the crux of the issue, economists say: the current fee-for-service system needs to be remade.

In shining the spotlight on pay structures, Leonhardt seems to be trying to do the work he thinks Obama should be doing. He frames Obama's core task as teaching Americans that we're all overpaying in hiddden ways for healthcare to the tune of $6,500 per year per family, if you compare U.S. healthcare costs to those of typical wealthy countries. He complains that Obama has so far failed to invest his political capital, either to educate Americans or to fight for cost containment provisions with teeth:

Mr. Obama says many of the right things. Yet the White House has not yet shown that it’s willing to fight the necessary fights. Remember: the $6,500 tax benefits someone. And that someone has a lobbyist. The lobbyist even has an argument about how he is acting in your interest.

These lobbyists, who include big names like Dick Armey and Richard Gephardt, have succeeded in persuading Congress to write bills with a rather clever feature. They include some of the ideas that would cut costs — but defang them.

Interestingly, Leonhardt then dismisses one element of proposed House leglislation that would address the incentives problem as thus "defanged":

One proposal would pay doctors based on the quality of care, rather than quantity, but it’s a pilot project. Doctors who already provide good care may well opt in; doctors providing wasteful but lucrative care surely will not.

Perhaps. But to change the incentive structure for doctors, hospitals and other caregivers is to move an enormous battleship. The radical, unanimous proposal of a blue-ribbon helathcare commission in Massachusetts to replace fee-for-service with global payment systems proposes a five-year phase-in, noting the complexities: ""global payment rates will include adjustments for clinical risk, socio-economic status, geography (if appropriate), core access and quality incentive measures, and other factors." Perhaps a pilot program is not a bad place to start on the Federal level, in concert with other cost containment measures like a Medicare oversight commission to set rates and determine reimbursable procedures.

See also:
Massachusetts Commission cuts the Gordian Knot on healthcare costs
Leonhardt seconds Gawande: put doctors on salary
Orzag hones in on doctors' incentives

Did Obama read Atul Gawande?

It looks like Barack Obama read Atul Gawande last week.

Gawande's article in last week's New Yorker examining why healthcare is so expensive in the U.S. drew eurekas from hosts of readers. The main culprit, Gawande's exhaustive look at one of the country's most expensive healthcare markets suggests, is paying doctors by the procedure and thus creating financial incentives for prescribing expensive treatments. Gawande's Exhibit A is McAllen, Texas, where Medicare spends twice as much per capita as it does down the road apiece in El Paso. The reason seems to be that doctors in McAllen infected one another with an "entrepreneurial spirit":

One afternoon in McAllen, I rode down McColl Road with Lester Dyke, the cardiac surgeon, and we passed a series of office plazas that seemed to be nothing but home-health agencies, imaging centers, and medical-equipment stores.

“Medicine has become a pig trough here,” he muttered.

Dyke is among the few vocal critics of what’s happened in McAllen. “We took a wrong turn when doctors stopped being doctors and became businessmen,” he said.

Gawande's Exhibit B is the Mayo Clinic, where those incentives have been neutralized:

The core tenet of the Mayo Clinic is “The needs of the patient come first”—not the convenience of the doctors, not their revenues. The doctors and nurses, and even the janitors, sat in meetings almost weekly, working on ideas to make the service and the care better, not to get more money out of patients. I asked Cortese how the Mayo Clinic made this possible.

“It’s not easy,” he said. But decades ago Mayo recognized that the first thing it needed to do was eliminate the financial barriers. It pooled all the money the doctors and the hospital system received and began paying everyone a salary, so that the doctors’ goal in patient care couldn’t be increasing their income. Mayo promoted leaders who focussed first on what was best for patients, and then on how to make this financially possible.

No one there actually intends to do fewer expensive scans and procedures than is done elsewhere in the country. The aim is to raise quality and to help doctors and other staff members work as a team. But, almost by happenstance, the result has been lower costs.

Now listen to Obama, addressing Senate Democrats working on healthcare reform (as excerpted by Jonathan Cohn):

I want to just make mention of something that I've talked to many of you privately about. I want to say this publicly. As we move forward on health care reform, it is not sufficient for us simply to add more people to Medicare or Medicaid to increase the rolls, to increase coverage in the absence of cost controls and reform. And let me repeat this principle: If we don't get control over costs, then it is going to be very difficult for us to expand coverage. These two things have to go hand in hand. Another way of putting it is we can't simply put more people into a broken system that doesn't work.

So we've got to reform the underlying system. And this means promoting best practices, not just the most expensive practices. And one of the things I'm going to be discussing with the health and the finance committees is how can we change incentive structures so that, for example, places like Mayo Clinic in Minnesota are able to provide some of the best health care services in the country at half or sometimes even less of the costs than some other areas where the quality is not as good. What we should be--and by the way, that's not just unique to Mayo. The Cleveland Clinic in Ohio, same thing: top-notch quality, lower costs.

Now, the Mayo Clinic's success is not exactly a secret, and Peter Orzag, Obama's budget director, is one of the country's foremost experts on healthcare costs. So maybe this exhortation didn't come straight out of Gawande. But it's hard to shake the impression that the article was in Obama's mind.

UPDATE: Peter Orzag, Obama's healthcare brain, has been all over the Gawande article.