#268: Bureaucracy! The Cause Of and Solution To All Our Problems

Published April 18, 2011

In response to House Budget Chairman Paul Ryan’s proposed Path to Prosperity, President Barack Obama delivered a hastily constructed address to the country last week stressing that he, too, has an approach to deficit-cutting. But on closer inspection, his approach is based on doubling down on two methods to cutting deficits that history shows don’t work: empowering unelected bureaucrats and raising taxes.

Obama’s position is that cutting back is impossible without empowering unelected bureaucrats to make the tough decisions for us. He’s been consistent on this point, telling The New York Times in 2009, referring to the possibility of denying his grandmother a costly hip replacement, “It is very difficult to imagine the country making those decisions just through the normal political channels.”

So where Ryan would apply the lessons of the cost-saving prescription drug benefit to reform Medicare by empowering citizens, giving them more choices and a greater stake in what care they receive, Obama prefers a top-down approach: the denial of services by a bureaucratic board, protected from the whims of constituents and Congress. Indeed, this is the only area where we really know the details of Obama’s plan – as Katie Pickert pointed out at Time: “How exactly would the Medicaid and prescriptions drug proposals work? He didn’t say.”

The Independent Payment Advisory Board (IPAB) was roundly denounced as a “death panel” approach when it was introduced, based in part on the experience of its spiritual predecessor in the United Kingdom, NICE. Perhaps the least popular element of Obama’s health care law – which is itself at its lowest popularity according to a recent Associated Press poll, with support of only 35 percent of Americans – IPAB was viewed with skepticism even by Obama’s own staff. As one former Obama administration official told Kaiser Health News in the wake of the speech, “I thought IPAB would be out of favor after awhile, and now it’s back with a vengeance.” Democrats who supported Obama’s health care law, like Rep. Pete Stark (D-CA), have called IPAB a “dangerous provision” that “sets [Medicare] up for unsustainable cuts.” Rep. Allyson Schwartz (D-PA), vice-chair of the New Democrat Coalition, this week wrote to her colleagues calling on them to support repealing IPAB entirely.

The staffers were right to be skeptical. Past experience with prior boards, even those with more limited purview, shows that care-restricting recommendation power lasts about as long as it takes to release an unpopular finding. Experiences with the Medicare Payment Advisory Commission (MedPAC) and the Agency for Healthcare Research and Quality (AHRQ) show what happens when reports demanding cutbacks are actually put forward: Congress responds by heeding the calls of their constituents, and smacking down the bureaucrats. When the AHRQ decided that surgery to relieve back pain was unnecessary, Congress promptly stripped its guidelines ability of any power.

Ignoring this history, Obama now favors investing vast new powers in IPAB to crack down on seniors starting in 2014 – oddly, still exempting hospitals from IPAB control until 2020. (Surely it’s just coincidental that these same large hospitals overwhelmingly supported his namesake health care legislation?) And he attempted to insulate the bureaucrats from those pesky citizens – under Obama’s plan, Congress would have to pass legislation containing equal cost reductions with overwhelming majorities in order to overrule IPAB, and there would be no avenue for patients or their legal advocates to challenge any IPAB decisions.

The idea of an unelected board invested with so much power is unnerving. Yet Obama remains confident that bureaucrats will do what politicians can’t, a belief in conflict with logic and history as well as any lessons learned from the free market. As F.A. Hayek wrote, “Liberty is essential in order to leave room for the unforeseeable.” Free markets recognize that individuals themselves – not elites or bureaucrats – ought to make decisions about their own livelihoods. The same is true of health care spending.

There are two ways to lower costs in health care – by empowering consumers to make choices and foster competition in a transparent marketplace, or by cracking down with the clumsy, brutal hand of bureaucracy. In his remarks, Obama reiterated his choice of the latter. For his sake, let’s hope he doesn’t need a hip replacement any time soon.

— Benjamin Domenech



John Goodman does yeoman’s work of detailing “the five most important things you need to know about Paul Ryan, Barack Obama and Medicare,” based on taking the White House, the CBO, and OMB at their word as to their projections on Obamacare’s effect on Medicare spending. It makes for an entertaining read:

1. Seniors Take It on the Shin. Without any help from Paul Ryan – and without a single Republican vote – the Affordable Care Act is going to reduce spending on Medicare by $523 billion over the next 10 years, relative to what it would have been. This reduced spending – which will mainly consist of lower fees for doctors and hospitals – will continue into the future and will be enforced by an independent commission. Although the Congressional Budget Office (CBO) and the Centers for Medicare & Medicaid Services (CMS) have different projections, Obama administration representatives have officially signed off on the CMS report, which projects that Medicare will grow no faster than the rate of growth of gross domestic product (GDP) …

To give you some idea of how radical this change is, on the day Barack Obama signed the Affordable Care Act legislation, he cut Medicare’s long-term, unfunded liability in half!

It’s lovely what happens when you take ridiculous projections at their word.

SOURCE: National Center for Policy Analysis


An extremely useful piece from Michael Cannon on the best element of Ryan’s plan, and the one that would have the most immediate impact on state budgetary situations: Medicaid block grants. Unfortunately, 17 governors have written a letter in opposition to the deficit-cutting solution. Cannon responds:

The governors write that block grants “would shift costs and risk to states.” In reality, the matching-grant system these governors seek to preserve is a massive cost-shifting scheme. Block grants would reduce this phenomenon.

For every additional dollar a high-income state spends on its Medicaid program, the federal government sends the state one matching dollar. Low-income states get as much as $4 from Washington for each additional dollar they spend.

Therefore, every time a governor expands his or her state’s Medicaid program, the federal government’s system of matching grants effectively shifts 50 to 80 percent of the expansion’s price tag to taxpayers in other states.

The same is true in reverse. If governors tolerate waste, fraud and abuse, the matching-grant system shifts 50 to 80 percent of the cost to taxpayers in other states.

Today’s system even shifts costs across generations. Matching grants are such a cash cow that states hatch all manner of schemes to “pull down” as much federal money as possible. (One common practice is for states to secure federal dollars by pretending to increase their Medicaid outlays, but then recapturing those outlays by taxing providers.) But each time they do so, states add to the federal deficit, which shifts the cost of current consumption to future taxpayers.

What’s really upsetting these governors is that block grants would reduce their ability to shift the cost of their Medicaid programs to other states.

SOURCE: Kaiser Health News


Writing in the New England Journal of Medicine, John Iglehart notes the “surprisingly modest” expectations for ACOs embedded within the recent document dump.

Outlining the proposed regulations in a Perspective article in the Journal, Dr. Donald Berwick, CMS administrator, asked, “What can we reasonably expect of the coming wave of ACOs?” Berwick acknowledges that the model on which ACOs are built – Medicare’s PGP demonstration – fell well short of expectations. Although the 10 participating multispecialty group practices met at least 29 of the 32 quality goals, only 5 of them produced savings in their fourth and latest year of reported findings. Nevertheless, Berwick said, “important lessons were learned,” including how crucial the role of “dedicated physician leadership” is and how central health information technology is for receiving feedback at the point of care and avoiding medication errors. One of the chief complaints of the 10 PGP participants was that CMS failed to provide timely feedback on utilization patterns and other data important for monitoring the use of resources.

Although Berwick anticipates a “wave” of ACOs, CMS’s projection of the number of such organizations that will be formed in early years is surprisingly modest. The proposed rule estimates that only 75 to 150 ACOs will be created, serving 1.5 million to 4 million of the 35 million beneficiaries currently receiving care through Medicare’s traditional fee-for-service programs. The government estimates that ACOs will, in total, earn bonuses of $800 million over 3 years but will also incur substantial expenses associated with building greater support for primary care, adopting electronic health record systems, and winning accreditation.

SOURCE: The New England Journal of Medicine


The president signed into law last week the lifting of the 1099 reporting requirement, certainly a popular decision among the small business set. Of course, the real question all along was how to pay for the shift away from the dreadfully unpopular policy – and on that, MedScape has the background:

The Republican-controlled House voted March 3 to repeal the 1099 provision, but included an entirely different pay-for. In the House’s version, lost revenue would be offset by increasing the amount that the government could collect from individuals who receive more in tax credits for purchasing health insurance under the ACA than they are entitled to.

The repeal measure approved by the Senate today stipulates the same tax-credit “clawback” found in the House bill. The new formula for collecting excessive tax credits is complicated, and the complexity is compounded by a bill that Congress passed in December 2010 to delay a 25% reduction in Medicare rates for physicians from January 1, 2011, to January 1, 2012. To offset the roughly $19 billion cost of this “doc fix,” Congress turned to the fine print in the ACA on collecting overpayments from those receiving health insurance subsidies. That pay-for also allows the government to collect more than the law originally specified, but not as much as the latest 1099 repeal does.

Since the income from the 1099 provision was all theoretical anyway – based on the assumption that small businesses are failing to report millions of dollars in taxes each year – this is just more games with moving money around.

SOURCE: The Hill


This came too late for last week’s Romneycare anniversary Consumer Power Report, but Philip Klein’s piece on the Five Failed Defenses of the program explains very thoroughly why the Massachusetts health care challenge is likely to dog Mitt Romney throughout the 2012 election cycle.

SOURCE: The Examiner


An FYI to CPR readers: This upcoming conference looks to be worthy of your attention.

The Galen Institute’s upcoming May 5 conference, “Health Care 2011: Advancing Health Care by Facilitating Innovation,” is the third in a series of forums designed to explore the value of innovation in the health sector. At this event, leaders in the business and policy communities will describe innovative solutions to health care delivery and new technologies that enable better health care, and they will explore the policy issues surrounding these transformative innovations. Conference attendees will look at the progress that continues in medical discovery and in the development of new treatments and technologies, and industry leaders and elected officials will look ahead to see what is and what should be done to support continued progress.

SOURCE: Galen Institute