TCS Daily

Orszag's Broken Cost-Cutting Promises

By David Gratzer - June 25, 2010 1:53 PM

President Barack Obama and OMB director Peter ...

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"Researchers have estimated that nearly 30 percent of Medicare's costs could be saved without negatively affecting health outcomes if spending in high- and medium-cost areas could be reduced to the level in low-cost areas--and those estimates could probably be extrapolated to the health care system as a whole. With health care spending currently representing 16 percent of GDP, that estimate would suggest that nearly 5 percent of GDP--or roughly $700 billion each year--goes to health care spending that cannot be shown to improve health outcomes."

For the most part, Congressional hearings are a sleepy affair, nothing like the dramatic television portrayal with hard questions from flashy politicians and gillions of reporters hanging on every word. Most witnesses tend to be noncontroversial, sticking to pre-written talking points.

When I was asked to testify on a hot summer's day in 2008, the topic hardly seemed controversial: Getting better value in health care.

But the first witness - invited by the Democratic majority - was bombastic and made striking comments. Indeed, the above quotation was one of his opening comments.

Strip away the rhetoric ("researchers", "extrapolate", and "high- and medium- cost area") and the idea is sweeping. No - radical. The witness argued that fully 3 in 10 dollars of American health care is wasted away without any result. The implication is also clear: with successful reforms, it would be possible to dramatically trim cost without affecting quality.

Those words weren't uttered by a provocative member of a Washington think tank. Rather, they came from the CBO director. More importantly: with candidate Obama ahead in the polls, he seemed likely to land a significant job in the White House.

He did. Peter Orszag became the youngest Cabinet member and the budget director.

And in that post, he continued to advocate for health reforms to tame future health costs. "If we fail to do more to move toward a high-value, low-cost health care system," he said in a New York address last July, "we will be on an unsustainable fiscal path, no matter what else we do."

As I noted last August, "If you're starting to wonder why the President doesn't sound like the Barack Obama you remember, it's because he's starting to sound almost exactly like Mr. Orszag, the President's budget director."  Indeed, health reform is deficit reduction became something of a mantra at the White House. "Bending the curve" - Orszag's most famous phrase - became a staple of the President's speeches on health reform.

And Orszag's fingerprints are all over the Affordable Care Act. Yes, the legislation includes initiatives for electronic medical records, fraud and abuse reduction, and administrative simplification. But it also contains a more radical pill: looking at the wide variation of spending across the country, and drawing on the controversial Dartmouth data, the administration concluded that the way to get better value for money was through a government committee. Medicare pays for services; under Orszag-turned-Obama's vision, Medicare payments would be guided by a committee of learned experts, empowered by Congress but arms-length, to pay for quality service. The committee went through different forms in the different Senate and House bill, but the Independent Payment Advisory Board (IPAB) was included in the final legislation.

Writing in this week's New England Journal of Medicine, Orszag and OMB advisor Dr. Ezekiel Emanuel explain:

"The most important institutional change in the ACA... is likely to be the establishment of the Independent Payment Advisory Board (IPAB), an independent panel of medical experts tasked with devising changes to Medicare's payment system. Beginning in January 2014, each year that Medicare's per capita costs exceed a certain threshold, the IPAB will develop and propose policies for reducing this inflation. The secretary of HHS must institute the policies unless Congress enacts alternative policies leading to equivalent savings. The threshold is a bit complex; initially, it is a combination of general and medical inflation, but in 2018 and thereafter, the cap is set at general inflation plus 1%."

IPAB draws its inspiration from Britain's NICE, similarly charged with getting better value for money in health care across the pond. As I've noted here before, NICE is a policy flop - sparking controversy and lawsuits, and ultimately failing to reign in health expenses (British health inflation has bested 7% at points over the past decade).

But as Peter Orszag packs his boxes, David Cameron's government prepares to dismantle NICE as we know it.

Of course, Orszag is right in the diagnosis. Health costs are unsustainable. He's wrong in the treatment, seeing a robust role for government as payer, guardian, and manager of all things health care.

In medicine, the equivalent mistake is known as malpractice. In Washington, it's known as Obamacare.

This article first appeared on Frum Forum.


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