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.

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.

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)

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?

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.