The Hsiao-Gruber Health Care Mega-System

Published July 22, 2011


Professor William Hsiao of the Harvard School of Public Health recently unveiled his recommendations for this year’s version of health care reform in Vermont. The 2010 legislature defined and paid for Dr. Hsiao’s work to support the final all-out push to make Vermont the first American state ever to install a taxpayer-financed single payer system.

Before plunging into the Hsiao report itself, it’s useful to look at the track record of the report’s principal authors, to understand how they approach health care reform issues.

One Gave Us Doc Fix . . .

Hsiao rose to fame for devising the Resource-Based Relative Value Scale (RBRVS) to control Medicare payments to physicians, adopted by Congress in 1991.

Pacific Research Institute health policy expert John R. Graham wrote, “[Hsiao] put together a large team that interviewed thousands of physicians from almost two dozen specialties. They analyzed what was involved in everything from 45 minutes of psychotherapy for a patient with panic attacks to a hysterectomy for a woman with cervical cancer.… Eventually, Hsiao and his team arrived at a relative value for every single thing doctors do.”

“Today,” Graham continued, these payment rules “are so flawed that the Congress that consistently champions this price-setting process is annually engaged in a routine effort to change, modify, or even stop the progress of its own pricing machinery before it inflicts damage on the public and the medical profession”—an annual exercise known as “the doc fix.”

Dr. Michael Bond, a nationally known health economist at Cleveland State University, says RBRVS “was a essentially a point system based on ‘effort’ to determine what various procedures were ‘worth’. These guys at the Harvard School of Public Health have done more damage in medicine than you can shake a stick at. They are smart people who have no clue about economic principles.”

. . . The Other Masterminded Romneycare

The other high-profile author of the Hsaio report is Jonathan Gruber, a nationally known health economist at MIT. His speakers’ bureau bio touts him as “instrumental in establishing the current health care reform program in Massachusetts, one of the most ambitious and successful in American history.”

The Massachusetts reforms, adopted in 2006, were undoubtedly ambitious—but successful is another matter. The combination of an individual mandate with subsidized premiums, making it possible for the uninsured to avoid paying the fine, has caused Massachusetts’ costs to balloon far beyond projections. The “solution” proposed by its administrators is to raise new taxes, increase fines on employers, and impose price controls on insurance premiums, which would force the insurers to further cut their reimbursements to hospitals and doctors.

According to the Massachusetts Medical Society, the flood of new patients and the government’s deepening underpayment for treating them has produced a “critical shortage of primary care physicians.” Patients who can’t wait weeks to see their doctors head for the emergency rooms, and as costs have risen as a consequence, Gov. Deval Patrick (D) has had to turn to more stringent government-mandated price controls.

‘Independent Board’ to Control All

The central concept in the Hsiao report’s preferred option is the urgent need for a comprehensive, unified, enforceable, inescapable, tax-financed system to control every component of Vermont health care that a state government can realistically control.

Who will do the controlling? The Hsiao report declares an “Independent Board,” not the government, will define the benefit packages and provider payments and thus set the budget that will in turn determine the payroll tax rates.

This all-powerful board will include “all the major payers.” And how do these “stakeholders” gain their seats on the board that will control the system that will control everyone’s health care? Hsiao and Gruber don’t say, but it surely won’t be through a lottery.

Imposing an all-powerful and all-embracing system to regulate the lives and behavior of a free people never produces happy results. Any Hsiao-Gruber-type health care mega-system will inevitably lead to coercive mandates, ballooning costs, increasing taxes, bureaucratic outrages, shabby facilities, disgruntled providers, long waiting lines, lower-quality care, special-interest nest-feathering, and destructive wage and price controls. Wait and see.

John McClaughry is vice president of the Ethan Allen Institute (