Ryancare hits the workplace

The voucherization of American health insurance may already be upon us.

No, Paul Ryan has not gotten his proposed "premium support" system for Medicare enacted.  But increasing numbers of employers are adopting or considering a shift from "defined benefit" to "defined contribution" insurance plans -- a shift that mirrors the transformation of pension benefits over the past twenty years (as Peter Orzag pointed out in a Dec. 2011 column).

Under a defined contribution model, as described in a recent Booz & Co. report, "instead of designing and offering defined health benefits, companies make cash contributions to savings accounts that employees use to purchase insurance products of their choice. This model allows the company to cap its healthcare cost at a desired threshold" (p. 4).

To meet the nascent and anticipated demand for this model, health insurers and benefits consultants are rolling out private healthcare exchanges enabling employers to outsource the benefits management. these exchanges provide a menu of health insurance options to the employees of companies that buy in. Such exchanges have been a feature of health plans for retirees for some time; companies are now beginning to offer them to current employees.

Adoption of this system may be accelerated by the coverage mandates the ACA imposes on employers that provide health insurance -- e.g., the ban on annual and lifetime benefit caps, the requirement to offer coverage to employees' children up to age 26, the free provision of preventive care, and other mandates.

Question: given the ACA requirement that employer plans cover a minimum 60% of participants' average medical costs, and cap participants' annual out-of-pocket expenses at $6250 per individual/$12500 per family, and meet the minimum essential benefit requirements that govern the ACA exchanges or potentially pay a penalty,* how can an employer control its costs by capping its "defined contribution"?

Boehner's whining is finding an audience

John Boehner, with an assist from Bob Woodward, is doing a nice job spinning the interpersonal side of his failed negotiations with Obama. While it's natural for right-wing media to take up his narrative, his spin is trickling into the mainstream, too.

On the right, the new image of Obama the Negotiator is oddly flattering, at least to the ears of a liberal accustomed to fretting about the president's accommodating style.. The personalized corollary of the right's current view of Obama as a legislative juggernaut is Obama as an imperious, arrogant, my-way-or-the-highway stonewaller. Here's Peggy Noonan:

He didn't deepen any relationships or begin any potential alliances with Republicans, who still, actually, hold the House. The old animosity was aggravated. Some Republicans were mildly hopeful a second term might moderate those presidential attitudes that didn't quite work the first time, such as holding himself aloof from the position and predicaments of those who oppose him, while betraying an air of disdain for their arguments. He is not quick to assume good faith. Some thought his election victory might liberate him, make his approach more expansive. That didn't happen.

Promise and peril for the Affordable Care Act

In December 2009, Atul Gawande expressed hope that a "hodgepodge" of cost control measures stuffed into the Senate healthcare reform bill, most of which later made it into the Affordable Care Act, might have a transformative effective over time:

Where we crave sweeping transformation, however, all the current bill offers is those pilot programs, a battery of small-scale experiments. The strategy seems hopelessly inadequate to solve a problem of this magnitude. And yet—here’s the interesting thing—history suggests otherwise.

Gawande goes on to review the history of Federal government intervention in the agriculture sector in the early 20th century gradually but radically transofrmed farming methods andled to massive increases in productivity.  For healthcare too, he argues, there is no master switch. Trial and error, orchestrated by carrot and stick, is the model:

Why the Obama Administration won't cut defense spending

Today's Times has front-page article reporting the first whispers in U.S. government that defense cuts may have to be part of any long-term deficit-reduction plan. The end note brings the assumptions precluding those cuts into into sharp relief.

First, the terms of debate. Defense Secretary Robert Gates, who has long spoken, written and acted on the need to reform Pentagon priorities and procurement practices and eliminate nonessential weapons programs, has called for real growth of 1% per year in the Pentagon budget. Gates does not envision any force reduction, and personnel costs account for two thirds of the Pentagon budget. Some budget planners are beginning to talk about reductions in "end strength" (total personnel) once Obama begins reducing troops in Afghanistan.

Why not? The U.S. significantly reduced military spending during the Clinton years. Outgoing budget director Peter Orzag responds:

“During the end of the cold war, one could imagine a significant downsizing of the American military,” Mr. Orszag said. “That is a fundamentally different proposition than the situation we find ourselves in today.”

Why is our situation "fundamentally different" today?  Gates himself has stressed that we will not face any significant major-power competition in the foreseeable future. He wants the money for the kinds of war we are in -- without apparent end. Here's what he told the Heritage Foundation about major-power competition in May 2008:

Department of mixed metaphors

The Obama administration is proposing legislation empowering the President to propose cuts to each budget passed by Congress, which Congress would have to vote up or down as a package. Somehow I doubt that Peter Orzag soothed Congressional fears of executive encroachment in his presentation to reporters:

White House Office of Management and Budget Director Peter Orszag said that while the new presidential power would not be a panacea for the government's spending excesses, it would "add to the arsenal of tools" available to reduce spending.

Arsenal of tools?  Does Orzag want to shave a few rough edges off Congressional budgets or blow pieces off them?

A second White House Seder? Larry Summers sings Dayenu to Martin Wolf over health care reform

100-odd years ago, early in 2009, Obama and Peter Orzag were heavy on the mantra that "healthcare reform is entitlement reform"-- i.e. that "bending the cost curve"on healthcare would be the single most important step to erasing the country's structural deficit.  Here's how Peter Orzag put it in Obama's fiscal summit on Feb. 23, 2009:

Health care is the key to our fiscal future.

So to my fellow budget hawks in this room and in the rest of the country, let me be very clear: health care reform is entitlement reform.

The path of fiscal responsibility must run directly through health care.

We also must recognize that reforms to Medicare and Medicaid will only succeed in the context of slowing the spiraling growth of overall health care costs.

In an interview published in the online Financial Times today, Larry Summers, asked by Martin Wolf how other nations could have confidence that the U.S. will put its long-term fiscal house in order,  suggested that the Administration has already laid the most important cornerstone  -- again, that healthcare reform is entitlement reform, and that the cost controls in the Patient Protection Act have teeth.

Perhaps Summers was fresh from a Seder: his litany of the virtues of the Medicare Individual Payments Advisory Board (boldfaced below) swings with the repetitive glee of the Passover song  "Dayenu," which marvels at the extent of God's mercies in making the Exodus happen:

Writhing in the budget strait jacket

I have always worried that David Brooks had a point here, back in April '08:

He made a sweeping read-my-lips pledge never to raise taxes on anybody making less than $200,000 to $250,000 a year. That will make it impossible to address entitlement reform any time in an Obama presidency. It will also make it much harder to afford the vast array of middle-class tax breaks, health-care reforms and energy policy Manhattan Projects that he promises to deliver.

Clive Crook, long an advocate for a U.S. VAT,  made a similar point in Feb. '09:

In this "new era of responsibility", as the budget document is called, it would have been better for Obama to signal that huge and desirable initiatives like universal health care will impose at least some costs on all Americans. It is literally impossible to make the rich pay for everything, and telling 95% of voters that they can have all these things at no cost is not good leadership. It has even less to do with shared responsibility.

The Times points another arrow at fee-for-service medicine

Fee-for-service, fee-for-service, fee-for-service. Gradually the healthcare debate is centering on this major driver of runaway healthcare inflation. Atul Gawande and David Leonhardt have helped shine the spotlight on doctors' incentives to provide unnecessary care; Peter Orzag and Barack Obama (see "p.s." at link) have seized on their examples and language.

Today, the New York Times is front-paging a new poster child for putting doctors on salary. Gardener Harris profiles Bassett Healthcare, "a modest hospital of 180 beds" in Cooperstown, NY, to demonstrate that you don't have to be the Mayo Clinic to improve outcomes by realigning incentives, a.k.a. putting doctors on salary:

Bassett — like the Cleveland Clinic and a small number of other health systems in this country — pays salaries to all of its doctors. No matter how many tests or procedures are performed, they take home the same amount of money. Medical costs at Bassett are lower than those at 90 percent of the hospitals in New York, while the quality of care ranks among the top 10 percent in the nation, surveys show.

As at the Mayo Clinic and other treatment centers that have eschewed fee-for-service, the payment structure goes hand-in-hand with coordinated, integrated patient care:

Michelle Griffiths, 41, of Edmeston found a lump on her breast six years ago. During cancer care at Bassett, Ms. Griffiths’s appointments to see her oncologist and primary care doctor are often scheduled on the same day. One doctor will sometimes accompany her during a procedure performed by another, and each has her complete medical history.

“The communication amongst all of my doctors is impressive,” said Ms. Griffiths, who works as a database administrator for the insurance company New York Central Mutual. “They always call each other or shoot each other e-mails.”

Such coordinated care is a hallmark of integrated health systems with salaried doctors, like Kaiser Permanente, the Mayo Clinic, the Veterans Administration and the Cleveland Clinic.

Harris also highlights the political conundrum: everyone seriously engaged in healthcare reform knows that fee-for-service is a major inflation culprit. But as in the Aesop's fable in which a group of mice agree that they should hang a bell around the cat that's been gobbling them up, no one knows how to "bell the cat":

“Everyone knows that the Bassett model is the right model,” said Senator Charles E. Schumer, a New York Democrat involved in negotiations over health care legislation. “The question is, How do you get from here to there?"

In response, I wonder why the unanamious recommendations of the Massachusetts Special Commission on the Health Care Payment System are not getting more attetention. The Commission's central proposal takes direct aim at fee-for-service, proposing a five-year transition to "global payment systems" that pay doctors and hospitals per patient, with performance incentives, and adjustments for region, income, clinical risk and other factors. The recommendations appear to have broad, if cautious and equivocal support. The Times' Kevin Sack reports:

Top state legislators said that they recognized the political challenge in enacting such a plan but that Massachusetts’ circumstances demanded it. Senator Richard T. Moore, co-chairman of a joint legislative committee on health care financing, said he expected to hold hearings on the recommendations this fall. The committee’s other leader, Representative Harriett L. Stanley, said, “It’s going to be a very long haul, but it’s a trip worth taking.” [snip]

Interest groups with heavy stakes embraced the proposal, but warily.

“Hospitals want to be part of this historic endeavor,” said Lynn B. Nicholas, president of the Massachusetts Hospital Association. But Ms. Nicholas added that “the success of moving to a global payment system is not a foregone conclusion” and expressed concerns about how risks would be adjusted and how start-up costs would be covered.

The president of the state medical society, Dr. Mario E. Motta, also urged caution. “A big transition like this has never been done on such a broad scale,” Dr. Motta said, “so it must be done very carefully, deliberately and
thoughtfully.”

In Massachusetts, turning the battleship toward global payment systems appears to be recognized as a necessity if the 2006 reform plan that's already achieved near-universal coverage is not to bankrupt the state, as it's beginning to do. (Of course, the state has only taken a baby step toward reforming the payment system.) Will federal legislation have to follow the same road - extend coverage first, deal with the resulting financial emergency as it takes hold?

Massachusetts Commission cuts the Gordian Knot on healthcare costs

I wanted to post notice of a key development on the healthcare cost containment front reported in the WSJ on Friday, but didn't get around to it (settling for a tweet) -- and now I see that Ezra Klein has beaten me to it. Here's the WSJ:

A Massachusetts panel proposed that the state scrap traditional payments to doctors and hospitals for each office visit or procedure, and instead adopt a system where they receive a monthly or annual fee per patient.

The proposal is an effort to control the state's health-care costs, which are among the highest in the nation.

Under the new system, doctors and hospitals would be organized into groups responsible for all of a patient's health-care needs. The groups would receive a "global payment" per patient, which could be adjusted with performance incentives based on the quality of care provided.

The proposed system -- a radical departure from the way patients and insurers now pay -- would require legislative action and waivers from Medicaid and Medicare rules.

The panel, created by state law, voted unanimously to adopt the recommendations. The commission included key state legislators, the state's leading doctor and hospital associations and insurers.

As Klein says:

That's a huge reform. Much bigger than anything we're considering nationally. It's a direct attempt to change the behavior of politically powerful providers to preserve the coverage that the reforms gave to individuals. It will be difficult. The doctors' lobby is already giving angry quotes to the press.

Atul Gawande, in his landmark article focusing the healthcare debate on the problem of health care providers' incentives (mainly payment per treatment), stressed the complexities of realigning those incentives:

Instead, 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.

Massachusetts' Special Commission on the Healthcare Payment System (full report here) is proposing to cut the Gordian knot - to end payment per treatment in one fell swoop. In fact, though, there is nothing simple about the proposal, other than recommending unequivocally that the core transition to "global payment" be mandated. The Commission proposes a phase-in period of five years., and makes it clear that developing the global payment system will be a complex undertaking -- "global payment rates will include adjustments for clinical risk, socio-economic status, geography (if appropriate), core access and quality incentive measures, and other factors." The Commission recommends all the reforms outlined by Gawande and then some - development of "accountable care organizations," development of uniform standards of outcome assessment, implementing pay for performance incentives, building consumer incentives for preventive care.

The lobbying machinery is cranking up to crush the panel's initiative. Can Massachusetts legislators, under cover of a unanimous blue-ribbon commission, withstand the pressure? Can Massachusetts, which led the way in extending near-universal coverage, now lead the way in containing costs? Or will this fundamental reform fade away. to be replaced by nibblings around the edges of health care cost control?

BTW, will Peter Orzag weigh in on this potential game-changer?

Matt Miller clarifies healthcare reform

Matt Miller, a former Clinton budget official, provides rare clarity on the broad outlines of emerging U.S. healthcare reform and concludes:

Of course, just because Obama is on a path to give America the Romney health plan with McCain-style financing does not mean the Republicans will embrace it, if it seems politically more attractive to scream “socialist”. But the rest of us do not have to listen to them. Mr Obama can fairly claim to have championed a bipartisan health policy, even with few Republican votes.

Within that broader irony Miller captures a narrower one: Massachusetts healthcare reform, repudiated by the slogan-spewing former governor who signed it into law, is working:

The central mechanism through which Mr Obama seeks to extend coverage and restrain costs is via new “exchanges”, insurance clearing-houses, modelled on the plan Mr Romney enacted in Massachusetts. The idea is to let individuals access group coverage from private insurers, with subsidies for low earners.

The approach is so sensible that Ted Kennedy urged Massachusetts Democrats to support then-Governor Romney in passing it in 2006. The results have been impressive. The ranks of the uninsured have been slashed; just 2.7 per cent of residents now lack coverage, the lowest of any state – against 15 per cent nationally. Costs, which overran as the programme was brought in more quickly than planned, are now on budget.

The exchange, according to Miller - not the public plan, which he's assuming Democrats will sacrifice -- is the core of reform:

A federal version of this exchange (or federal sponsorship of state versions) would for the first time give non-elderly, non-poor Americans whose employers don’t offer coverage, or offer it at premiums they can’t afford, access to group insurance rates. It’s difficult to overstate the breakthrough this would represent. The inability of millions of Americans to access group coverage outside the employment setting is one of the most damning features of US healthcare. It means individuals with pre-existing health conditions are often uninsurable, which in turn explains why medical bills are, shamefully, a leading cause of bankruptcy. It locks budding entrepreneurs into jobs they loathe because their families need the coverage. Structuring these exchanges so health plans have incentives to compete on value is exactly the role government should play.

Miller also offers a broad perspective on cost, and an argument that ending or capping the employer tax exemption for healthcare is the logical way to pay for it:

Start with cost. It’s easy for foes to feign shock at Obamacare’s $1,000bn 10-year price tag, but a trillion dollars ain’t what it used to be. That is just over 0.5 per cent of gross domestic product over the same period, and barely 3 per cent of the roughly $35,000bn total healthcare spending during that time. If Mr Obama’s approach is otherwise sensible, the idea that America can’t afford it is preposterous...

When it comes to financing expanded coverage there’s no way to get there without revisiting the current scheme, under which employees escape taxes on employer-provided health benefits. This subsidy is so massive, at $250bn a year, and regressive – reserving its biggest bounty for those with the most generous plans – that a phalanx of health economists from both political parties recently begged Congress to trim it.

Miller's breezy assumptions that unions will cave on the employer tax exemption, and Obama and the Dems on the public plan, will be challenged by many who are deeply committed on both issues. He also does not address the crucial issue of how the emerging bill will tackle runaway healthcare inflation, which, as Peter Orzag never tires of reminding us, is the central front in the war on future deficits. But his 30,000-foot view does bring into focus the likely outlines of reform, the core issue of expanding coverage, and the absurdity of the current terms of U.S. political debate.

Leonhardt seconds Gawande: put doctors on salary

David Leonhardt has joined Atul Gawande in pointing toward what should be the central front in the war on health care costs:

put doctors on salary.

Leonhardt prices four ways of treating prostate cancer: watchful waiting ("a few thousand dollars"), prostate removal ($23,000), I.M.R.T. radiation ($50,000), and the latest, proton radiation (often over $100,000).

Which one works best? “No therapy has been shown superior to another,” an analysis by the RAND Corporation found. Which treatments are growing fastest? "Use of I.M.R.T. rose tenfold from 2002 to 2006, according to unpublished RAND data." Proton radiation is newer, but treatment centers, which require "a proton accelerator that can be as big as a football field," are springing up left and right.

Why do the most expensive treatments always gain traction, whether or not there's any evidence that they're effective, or more effective than cheaper treatments? Insurers -- all insurers, including Medicare -- pay per procedure. At the center of the skewed incentive system, as Gawande showed, are doctors -- who are not only paid by the procedure, but in too many cases own all or part of the treatment facilities such as medical imaging centers.

OMB Director Peter Orzag, in his drive to shape health care reform, has tried on a couple of mantras since taking office. The first was "healthcare reform is entitlement reform" -- because problems with the social security trust fund are miniscule compared with the problem of runaway health care costs. Another was "the Mayos, not the McAllens" -- framing Gawande's contrast of a county where the doctors have "gone entrepreneurial" with the Mayo Clinic, where doctors are on salary. And when ticking off the administration's proposed reforms, Orzag generally tucks in "changes in provider incentives."

The nub of incentive reform is pretty simple: put doctors on salary. Good salaries. High salaries. Sweeten the pill with tort reform, reducing the defensive medicine imperative. But remove the incentive for prescribing the most expensive care.

"Healthcare reform is entitlement reform," cont.

Re the Obama budget team's mantra,"healthcare reform is entitlement reform": one soundbyte strategy for getting this across is to portray the projected 75-year social security shortfall as a bite on the ass of projected Medicare deficits.

In today's Times Jackie Calmes channels one such comparison from the Obamites:

Adding to the pressure, Republicans are back to attacking Democrats as tax-and-spenders. Yet they have not proposed how to pay for their own, more modest health care proposals. Nor did they offset the cost of creating the Medicare prescription drug benefit six years ago when they controlled Congress and held the White House. Its projected deficits exceed the shortfall for all of Social Security over the next 75 years, according to the program’s 2009 trustees report.

Among the trustees issuing that report: Geithner, Sebelius, Solis.

Compare Peter Orzag in last week's FT:

Our fiscal future is so dominated by healthcare that if the US can slow the rate of cost growth by just 15 basis points a year (0.15 percentage points), the savings for Medicare and Medicaid would equal the impact from eliminating Social Security’s entire 75-year shortfall.

Imagine...a rhetorical strategy based on fact.

Orzag hones in on doctors' incentives

Peter Orzag has a new sound-byte (or stat-byte) to counter those who want to lump social security together with Medicare/Medicaid under the aegis of "entitlement reform."

For some time, Orzag's mantra has been "healthcare reform is entitlement reform." In today's FT, he distills why that is:

Our fiscal future is so dominated by healthcare that if the US can slow the rate of cost growth by just 15 basis points a year (0.15 percentage points), the savings for Medicare and Medicaid would equal the impact from eliminating Social Security’s entire 75-year shortfall.

Having framed the imperative to cut healthcare costs, Orzag continues in the FT piece to channel Atul Gawande, as he has at least three times on his blog. Whether or not Gawande has helped to focus Orzag's thinking, there's no question that his tale of two healthcare markets has helped Orzag focus his rhetoric on changing doctors' incentives to prescribe unnecessary care:

We must also address the forces making the healthcare system unaffordable and inefficient. The system creates incentives for doctors and hospitals to provide more care, not the best care. A lack of information on what works leads to huge variations in the quality of care and its cost. As Atul Gawande has described in the New Yorker, there are cities such as McAllen, Texas, that spend close to twice the national average on healthcare and do not get better results than lower cost, high-quality cities even in their own state or region.

The US must move towards a higher-quality, lower-cost system in which best practices are universal – rather than concentrated only in some parts of the country. The administration has therefore put forward initiatives such as health IT, research into what works, prevention and wellness, and changes in provider incentives (my emphasis).

The focus on eliminating unnecessary care is in turn helping Orzag -- and Obama -- to draw together two parts of their healthcare pitch: reduce costs, extend coverage. Two weeks ago, Jonathan Cohn noted that Obama seems to find it politically helpful to focus rhetoric on the cost-reduction side of the equation. As Orzag makes clear, however, it's runaway costs that have swelled the ranks of the insured and underinsured -- and runaway costs will make universal coverage impossible if they're not reined in.

What Gawande has handed Orzag is a demonstration that unnecessary procedures are a prime driver of healthcare inflation. That makes it possible for Orzag and Obama to suggest that costs can be effectively reduced without compromising quality of care -- thus defanging the bogey of "healthcare rationing."

As the administration trains its sights on removing financial incentives to prescribe unnecessary treatment, it's interesting that Obama has floated tort reform as a counterweight. Easing the constant threat of litigation hanging over doctors would be powerful compensation for reducing the financial incentives that bias some doctors toward prescribing operations, tests etc. that may not be necessary.

See also:
Did Obama read Atul Gawande? I, II, III.

Did Obama read Atul Gawande? - part 3

UPDATE: Orzag hones in on doctors' incentives

First Peter Orzag, then Obama, and now the New York Times editorial board are making a manifesto of Atul Gawande's powerful demonstration that a major driver of healthcare inflation is doctors' financial incentive to prescribe unnecessary procedures (and often invest in the providers, such as medical imaging centers).

Adopting Gawande's tale of two healthcare markets, Orzag wrote in his blog on June 8, We need to reform the health care system so that it rewards the right kind of innovation – the Mayos, not the McAllens. Yesterday the Times picked up the thread

A glaring example of profligate physician behavior was described by Atul Gawande in the June 1 issue of The New Yorker. (His article has become must reading at the White House.) Dr. Gawande, a Harvard-affiliated surgeon and author, traveled to McAllen, Texas, to find out why Medicare spends more per beneficiary there than in any other city except Miami.

None of the usual rationalizations put forth by doctors held up. The population, though poor, is not sicker than average; the quality of care people get is not superior. Malpractice suits have practically disappeared due to a tough state malpractice law, leaving no rationale for defensive medicine. The reason for McAllen’s soaring costs, some doctors finally admitted, is over-treatment. Doctors perform extra tests, surgeries and other procedures to increase their incomes.

and drew the conclusion:

There is disturbing evidence that many do a lot more than is medically useful — and often reap financial benefits from over-treating their patients. No doubt a vast majority of doctors strive to do the best for their patients. But many are influenced by fee-for-service financial incentives and some are unabashed profiteers.

To be fair, doctors are victims as well as perpatrators of our healthcare system dysfunction. They waste insane amounts of time and resources fighting with insurance companies to get paid. And they're driven by the constant hair-trigger threat of malpractice lawsuits (and malpractice insurance profiteering) to order unnecessary tests and procedures. You might say that defensive medicine, and the "entrepreneurial spirit" that Gawande found infecting some medical communities, are the yin and yang of wasteful healthcare spending in the U.S.

Gawande may be emerging as the Jacob Riis of 21st centure healthcare. And perhaps, when we're ready, of cruel and unusual punishment as well.

Did Obama read Atul Gawande? - cont.

Last week, I wondered whether Obama had read Atul Gawande's eureka-inducing article on why U.S. healthcare costs are so high, noting that Obama cited Gawande's chief example of a care center where costs are low and outcomes excellent, the Mayo Clinic, while highlighting before a Senate audience the imperative to reduce dramatic variations in costs among different communities.

Had I done my homework, I would have known that the answer was "yes" -- or more precisely, that Obama's brain on healthcare, Peter Orzag, not only read read Gawande, but went to town blogging on Gawande's conclusions and in particular on Gawande's spotlight on McAllen TX, the low income town with one of the highest per capita Medicare tabs in the country. On May 28, Orzag noted that Gawande's tale of two healthcare markets richly illustrated his own theme that some markets pay dramatically more for healthcare than counterparts, with no apparent benefits. Then, on June 4, he delved deeper into McAllen's high costs, comparing them with his own favorite poster child for low costs/good outcomes, Grand Junction, CO:

For example, at the end-of-life, nearly half of all McAllen Medicare patients see 10 or more physicians, significantly more than the national rate of 30 percent (and in Grand Junction, Colorado, it is just 11% – more than four times less than the rate in McAllen). Also, McAllen’s Medicare patients have 50 percent more cardiac surgery procedures as the national average (about 24 per 1000, versus about 16 per 1000), four times the ambulance spending during end-of-life, and eight times the home health care costs. Medicare spending per enrollee in the last two years of life also varies greatly among McAllen and other peer hospitals.

This week, Orzag was at it again, converting Gawande's core contrast into a policy mantra:

It’s certainly true that medical innovation is essential to improving treatment – and thus health outcomes – for us all. And it’s also true that we need to encourage doctors and researchers to explore and experiment in ways that lead to medical advances that save lives and improve their quality. But, today, the American health care system doesn’t always reward the best medical innovations – and one need look no further than McAllen, Texas to see that this is so.

Despite having a demographic profile similar to El Paso, Texas, and despite having had similar Medicare expenditures as El Paso as recently as 1992, McAllen’s spending grew about five times faster in the years since than in either El Paso or the United States as a whole. In return, McAllen got more medicine (more tests, more surgeries, more time in waiting rooms), but it didn’t get better health – McAllen scores lower than El Paso (and the U.S. average) in measures of health care quality. McAllen "innovated," and certain doctors and hospitals were financially rewarded, but I think we can all agree that this isn’t the kind of innovation we desire.

To get the most from innovation, we need to align incentives toward quality rather than intensity. The Mayo Clinic, synonymous the world over with cutting-edge medicine, has among the country’s lowest Medicare costs per beneficiary. Smaller medical markets, too, have managed to achieve such results: Grand Junction, Colorado is one of the lowest-cost and highest-quality places in the country to be treated. We need to reform the health care system so that it rewards the right kind of innovation – the Mayos, not the McAllens. And the Administration’s proposals aim to do precisely that through bundling of payments, incentives to reduce hospital readmission rates, and (as discussed below) a process through which MedPAC’s recommendations would enjoy fast-track protections in Congress (my emphasis).

Obama is singing from the same choir book. As in his June 2 address to senators, so in his June 2 letter to Senators Kennedy and Baucus, he highlighted the Mayo Clinic, replicating Gawande's thesis in the process:

We should ask why places like the Mayo Clinic in Minnesota, the Cleveland Clinic in Ohio, and other institutions can offer the highest quality care at costs well below the national norm. We need to learn from their success and replicate those best practices across the country (my emphasis).

Compare Gawande:

Most Americans would be delighted to have the quality of care found in places like Rochester, Minnesota, or Seattle, Washington, or Durham, North Carolina—all of which have world-class hospitals and costs that fall below the national average. If we brought the cost curve in the expensive places down to their level, Medicare’s problems (indeed, almost all the federal government’s budget problems for the next fifty years) would be solved. The difficulty is how to go about it. Physicians in places like McAllen behave differently from others. The $2.4-trillion question is why. Unless we figure it out, health reform will fail.

Among other cost-cutting measures, Obama also called for "'accountable care organizations'" to improve the quality of care for Medicare patients - apparently a bid to create the kind of outcomes-focused peer group Gawande highlighted in the Mayo Clinic.

Not to mix up cause and effect: Orzag has seized on Gawande's field research because it so precisely illustrates his own pet theses. But still it's remarkable to see that high quality piece of research and writing working its way so swiftly into the political process.

Updates:
Did Obama read Atul Gawande part 3
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.

Orzag et al: health care reform *is* entitlement reform

A full-court press is on amongst both Obama Administration officials and progressive healthcare policy wonks to get across the point that Obama's plans to establish long-term budget discipline center on getting control of health care costs.

The core point is simple - transmitted in a few paragraphs today by Paul Krugman. The fiscal problems posed by an aging population are in themselves manageable. The burdens imposed by healthcare costs that rise 2% per year faster than GDP, in contrast, are not sustainable. Social security's long-term solvency can be secured with minor tweaks. Healthcare costs are eating us alive. As OMB Director Peter Orzag put it today at Obama's fiscal summit:

Health care is the key to our fiscal future.

So to my fellow budget hawks in this room and in the rest of the country, let me be very clear: health care reform is entitlement reform.

The path of fiscal responsibility must run directly through health care.

We also must recognize that reforms to Medicare and Medicaid will only succeed in the context of slowing the spiraling growth of overall health care costs.

Ezra Klein has a terrific column today tracing how this core claim -- "health care reform is entitlement reform" -- became a consensus among a cohort of progressive analysts and policymakers who have Obama's ear. Over at TNR, meanwhile, Jonathan Cohn is hammering home the same concept day by day (linking in the last three days to all of the above) in his new blog The Treatment. Treat yourself!