The Right Prescription

Murder by Bureaucracy

Obama concedes his is a health-care rationing plan.

By 6.10.09

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Wise guy liberal talk show hosts and writers of impassioned letters to the editor have been lecturing me with the argument that Obama and his Democrats are not remotely planning any sort of government health-care rationing in their socialized medicine plan, which is going to save so much money that they are now scrounging around for the biggest tax increase in U.S. history to pay for it. But Obama has now made fools out of all of them with the release last week of his White House report, "The Economic Case for Health Care Reform" (.pdf), produced by his Council of Economic Advisors (CEA).

Read the document, and you will see that it envisions a complete government takeover of America's health care in great detail. Wise, all-knowing, government bureaucrats in Washington will identify exactly what health care in each locality in the entire country is waste, and eliminate it. They will determine whether the treatments and health care your doctor has prescribed for you are right, and the best of the alternatives, and they will control his practice through their payment policies and regulations, forcing him to follow what they in their all-knowing wisdom think is best. Worst of all, they will decide whether the health care your doctor thinks you need is "cost-effective," meaning they will decide whether the cost of your health care is worth it, to them.

Listen to Obama, and you will hear him say almost every day that his health reforms are going to save America and its economy by reducing health costs. The CEA report explains exactly how and why he is going to do that. They don't use the word, of course, but nevertheless it is all overwhelming, government, health-care rationing, meaning you and your doctor lose control and choice over your health care, and centralized, government bureaucrats in Washington decide what health care you get and when. Think about it, and you will realize that in the government-run system Obama envisions, there is no other way to achieve the cost reductions he is talking about than through extensive government health-care rationing, meaning denying you the health care you want.

Indeed, the CEA report says 30% of American health care is waste, which government bureaucracy is now going to eliminate. That is a lot of health care to deny you. Doctors and hospitals who don't think this downsizing is going to affect them, and their freedom to control and run their own practices, are whistling past the graveyard. Wake up, and you will realize that in Obama's Brave New World, you are going to be the targets, just like the bank executives are today.

The Government Doesn't, Can't, and Won't Know

The economists who wrote the CEA report on health-care reform start by assuming first that the government is omniscient. They don't say that, but that assumption jumps out of every line.

For example, the report says the government is going to sharply reduce health costs by

Looking systematically at what works and what doesn't in order to provide more high value care and less care that is of low value. For many types of medical conditions, a patient may have a choice of several methods or treatments, each having different benefits or risks. Systematic examinations of the merits of different treatments and dissemination of the results of these examinations to patients and providers is one mechanism for promoting high value health care.

You will notice in reading Obamaspeak on health policy a distinct lack of nouns. Just who is going to look systematically at what works and what doesn't? And just who is going to conduct those "systematic examinations of the merits of different treatments?" And will whoever that is really know what works and what doesn't for 300 million patients across America, and "the merits of different treatments"? The answer to the first two questions is a centralized government health-care bureaucracy in Washington. Intelligent readers might think the answer to the last question is "No," or maybe "Hell, no!" But the answer is really, "Of course not, wake up and smell the coffee before it is too late."

The CEA report says at the beginning that "up to 30 percent of health-care costs (or about 5 percent of GDP) could be saved without compromising health outcomes." Achieving that result to slash the federal deficit, increase GDP ultimately by 8%, and reduce unemployment is going to require a lot more than "dissemination of the results [of the above] examinations to patients and providers [as] one mechanism for promoting high value health care."

No, a more promising mechanism for enforcing what the government decides works and what doesn't is found in another policy for controlling costs in the CEA report:

Reorienting the financial incentives of providers toward value rather than volume. Payment systems….should reward providers who deliver care that adheres to evidence based guidelines and should not pay for preventable medical errors.

This is supposed to solve a problem identified earlier in the report:

Provider Incentives. Most provider payment systems are fee-for-service, which creates financial incentives for doctors and hospitals to focus on the volume of services that they deliver rather than the quality, cost, or efficiency of care delivery. In general, payment systems do not reward higher quality and value. In some cases, they reward poor quality of care by paying for the costs associated with additional medical care necessary to fix errors that could have been prevented.

In other words, the government will enforce its decisions as to what works to provide high quality care and what doesn't through the payment system for doctors and hospitals. Those who follow the government's decisions get paid well, and those that don't don't. They will be lucky to get paid at all.

The CEA here also displays more faith in the omniscience of government, which is supposed to develop the prices for all health-care services that will perfectly reward high quality care that works rather than low quality care that doesn't, providing the perfect incentives that will perfectly wring out 30% of total health costs as unnecessary waste. The only problem is that a remote, centralized, government bureaucracy in Washington doesn't, can't, and won't know, out of all the health-care services in the economy, what works and what doesn't, what are the right prices for each that will provide exactly the right incentives to eliminate precisely only the 30% of health-care spending that is waste, and what exactly is waste, rather than the health-care services you want. And this is before politics gets involved, and the bureaucrats answer the phone calls from Congressmen who want an explanation as to the pitiful payments the government is providing to such and such doctors and hospitals in their districts.

Nevertheless, despite the government's severe lack of knowledge as to what it is doing, those doctors and hospitals that do not follow the government's decisions as to what is quality care will get formally labeled as "lower quality," losing out to the good doobies who win high quality provider labels by slavishly following the health-care diktats of the remote government bureaucrats who don't even know their patients. This is found in another CEA cost control measure:

Expanding performance measurement and provider feedbacks. Performance measurements include collecting and summarizing information about clinical quality, consumer satisfaction, and resource use of provider practices….One potential way to increase efficiency is to facilitate the development of a set of performance measures that all providers would adopt and report….Additionally, new efforts could be made to generate risk-adjusted provider performance profiles to encourage quality improvement and to inform consumer decision-making around quality." [Emphasis added.]

The omniscient, central, government, health-care bureaucracy, of course, will know exactly how to measure the performance of every doctor and every hospital in the country for every health-care service. And there won't be any politics in this either.

America's New Waiting Lines

But the CEA has still more bright cost control ideas:

Rewarding high-value technology creation that reduces morbidity, mortality, and total spending over the lifetime. In most fields, technological progress is generally cost-reducing as individuals discover more effective ways of accomplishing things that were already being done. In medicine, however, technological progress in recent decades has been almost exclusively cost-increasing, without generating a commensurate increase in value. Undoubtedly, provider incentives, which largely reward finding an expensive way of treating a previously untreated condition rather than finding a less costly alternative to an existing treatment, contribute to this trend.

This is meant to address a problem earlier identified in the paper:

Providers also have strong financial incentives to compete on the basis of technology adoption rather than price, leading to an excess supply of high technology equipment and services (for example, MRI machines and minimally invasive vascular diagnostic and procedure suites) and accelerated replacement of hospital beds in local markets. In turn, this can lead to higher rates of utilization and costs.

But is the government going to know exactly which technological innovation will reduce morbidity, mortality, and overall spending, and which will simply involve "an excess supply of high technology equipment and services"? Is the government going to know exactly how much to reward technological innovators to provide the incentives to gain exactly the right technological innovation, but none of the wrong, excess technology? Or is the government going to use this power to delay implementation of new technological innovations, discourage investment in new technology development, leave patients floundering with long waiting times for the latest high tech diagnostics and treatment, and thereby reduce costs, as in all those foreign countries the CEA admires in its report? What do you think?

Obama OMB Director Peter Orszag was more clear and direct in explaining the policy recently, saying, "Future increases in spending could be moderated if costly new medical services were adopted more selectively in the future than they have been in the past, and if the diffusion of existing costly services was slowed." Told ya'.

Can you see yet how the Obama socialized medicine plan will involve the government taking over and running health care in great detail? Can you see how under that plan, remote government bureaucrats in Washington will be deciding what health care you get and when, rather than you and your doctor? Can you see how the Obama socialized medicine plan involves pervasive and detailed central economic planning, which all experience teaches us will not work? Can you see now how these Obama cost controls involve government rationing of your health care, just like in every other country that has adopted socialized medicine?

CEA's Blind Spots

While Obama's CEA explains exactly how the Obama health reforms will impose severe government health-care rationing to reduce costs, it is totally blind as to how those reforms will increase costs, and bankrupt the nation. Obama's socialized medicine plan will increase health costs by increasing demand, not primarily through increased demand from the currently uninsured, but because of the incentives for all patients under the new system. With the government paying the bill, the incentive is to consume health care until the net benefit from it is equal to zero, rather than equal to costs as in an efficient market.

Even worse are the incentives for health-care providers, which greatly reinforce the rationing. Obama's socialized medicine plan will increase health costs by reducing supply. The government already has a long history of failing to pay adequately for health services under Medicaid, and increasingly for Medicare. With a complete government takeover of health care, these payment policies will soon cover the entire health-care system. That and the loss of freedom of choice and control over their own practices and services due to vastly increased government control will cause doctors and other health professionals to leave the industry, and talented young people to choose other professions.

Still more damaging is that investors will flee health care, taking with them the capital that is needed for new, expanded, updated, modernized, and maintained hospitals and clinics. Gone will be the capital for buying new, modern, advanced, high technology, as the government cannot be expected to pay adequately for such technology, and even wants to discourage it. And who will pay for the research and development of new medical advances and technology, for the new miracle drugs, for the new biotech and genetic breakthroughs that our modern science makes possible? With the government as the new monopoly buyer of all health care, investors will turn to other industries.

Then there is the huge, added cost burden for the government of taking on a new, massive health-care entitlement for everyone, even when we cannot hope to pay for all the current entitlement promises. That will involve huge increases in taxes, deficits and government borrowing, which will introduce enormous new inefficiencies.

All of this means a deep decline in America's standard of living. Today we enjoy the freest, most advanced health care in the world. All that freedom and rapid innovation does involve some waste and inefficiency. That can be addressed by market reforms to improve incentives. But some waste and inefficiency is well worth the health-care freedom and quality we have today, and will enjoy all the more with advancing science over time. Moreover, government is not the place to turn for reducing waste and inefficiency. Obama's government takeover of health care will make everything worse, and ultimately trash our entire health-care sector.

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About the Author
Peter Ferrara is Director of Entitlement and Budget Policy at the Heartland Institute, General Counsel of the American Civil Rights Union, Senior Fellow at the National Center for Policy Analysis, and Senior Policy Advisor on Entitlements and Budget Policy at the National Tax Limitation Foundation. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.