The health-care law of 2010 is, as Vice President Biden put it, a “big [expletive] deal.” It sets us on the road to universal health insurance. It is a favorite target for Republicans gunning to take over Congress. Lawmakers who supported it could lose their jobs. And it will remain a central focus after the midterms, as Democrats defend it against legal and political challenges through 2014, when it takes full effect. Easy To Insure ME
But the Democrats’ effort to sell the law to the public may be undermined by what even some ardent supporters consider its biggest shortfall. The overhaul left virtually untouched one big element of our health-care dilemma: the price problem. Simply put, Americans pay much more for each bit of care — tests, procedures, hospital stays, drugs, devices — than people in other rich nations.
Health-care providers in the United States have tremendous power to set prices. There is no government “single payer” on the other side of the table, and consolidation by hospitals and doctors has left insurers and employers in weak negotiating positions.
“We spend fewer per capita days in the hospital compared with other advanced countries, we see the doctor less frequently, and we swallow fewer pills,” said Jon Kingsdale, who oversaw the implementation of Massachusetts’s 2006 health-care law. “We just pay a lot more for each of those units than other countries.”
The 2010 law does little to address this. Its many cost-control provisions are geared toward reducing the amount of care we consume, not the price we pay. The law encourages doctors and hospitals to join “accountable care organizations” that have financial incentives to limit unnecessary care; it beefs up “comparative effectiveness research” to weed out inefficient treatments; and it will eventually tax the most expensive insurance plans to restrain consumers’ superfluous use of health care.
Such measures could reduce redundant tests, emergency room visits and hospital readmissions, which would help control the costs of Medicare, where the government sets rates. But they are less likely to lower prices outside Medicare and stem the growth of private insurance rates.
The main reason for this is politics. Remember how drawn-out the health-care battle was? It started in the spring of 2009 and was waged for a full year. The bill’s proponents in the White House and in Congress had some inkling of how tough the fight with the insurance companies would be. Taking on hospitals, doctors, and drug and device manufacturers as well — the people you’d face in a showdown over prices — might have been fatal.
So there was no price fight. The law will go on to face a likely post-midterm Republican onslaught — and dismantling it may be easier if Americans think it does little to restrain costs. It is one of those fine political ironies: The law derided as socialism may have had an easier time winning favor from a skeptical public if it was, well, a little more socialist.
It’s pretty far from socialist as it stands. The administration decided not to seek lower drug rates for Medicare, and it didn’t press for a “public option,” a government-run insurance plan that people under 65 could buy into. While supporters of the public option sold it as a way to compete with insurers, the real target was hospitals and doctors. A public option would have created a nationwide purchaser of health care that could have exerted leverage on providers to cut prices. This would have lowered the law’s costs by reducing the subsidies needed to make insurance affordable.
To avoid the wrath of hospitals and doctors, proponents of the bill rarely emphasized this cost-control argument. Nonetheless, when conservative “Blue Dog” Democrats weakened the public option in committee, they cited opposition from providers. And when the bill’s supporters floated a close alternative to the public option — letting people over 55 buy into Medicare — the reaction from Sen. Olympia Snowe, the moderate Maine Republican, said it all: “I am talking to a lot of my providers . . . and I know they are mighty unhappy.” Snowe exposed where the lobbying strength lay: No senator ever spoke of listening to “my insurers.”
“The public hates the insurance industry and trusts doctors and hospitals,” said Richard Kirsch, head of the liberal coalition Health Care for America Now. “But what killed the public option was the hospitals, not the insurance industry.”
Politicians wanted to avoid a confrontation over providers’ prices. So a different policy argument took hold: The real reason everything cost so much was the overuse of health care, not the actual prices of treatment.
This argument came primarily from Dartmouth College researchers who had amassed data showing wide disparities in Medicare spending among different regions. Hospitals in the lower-spending areas, mostly in the Upper Midwest and the Northwest, seized on the study to argue that the key to controlling costs was to reward providers like them. The case was popularized by Atul Gawande’s widely read New Yorker article in June 2009 focusing on McAllen, Tex., one of the highest spenders in the Dartmouth rankings. If health-care delivery in places such as McAllen could be brought in line with lower-spending places such as the Mayo Clinic’s home town, Rochester, Minn. — through the formation of integrated networks of salaried doctors — costs could be reined in.
The theory caught fire at the White House. It gave President Obama and his then-budget guru Peter Orszag a way to talk about costs without taking on doctors and hospitals; instead, the White House could simply differentiate between providers that offer “value” and those that don’t.
But the Dartmouth rankings, and the concept they supported, did a “disservice” to the debate, said Robert Berenson of the Urban Institute. For one thing, he and others say, the figures overstate regional differences in Medicare spending, which shrink when socioeconomic factors are taken into account. Second, rates of Medicare spending are not necessarily representative of health-care spending for people under 65. Some of the places that do well in the Dartmouth rankings charge high prices for non-Medicare patients — and were, not surprisingly, among those pushing hardest against a public option.
More broadly, the skeptics argue that merely providing care in smaller quantities will not sufficiently lower costs. They note that Americans already have shorter hospital stays and fewer doctors’ visits than people in other advanced countries. What sets us apart is our high prices for these health-care “units” — a finding trumpeted in a landmark 2003 paper by Princeton’s Uwe Reinhardt and others titled “It’s the Prices, Stupid.” The price problem is only getting worse, researchers and antitrust investigators have found, because of consolidation among providers, and it could be exacerbated by goading them to form even bigger networks.
But the notion that we pay more, despite using health care less, never caught on during the long march to reform. The main culprits driving our health-care costs were deemed to be inefficient doctors in a few corners of the country and demanding consumers — say, people seeking unnecessary surgery or patients with unhealthy habits and chronic conditions.
The camp that believes volume is the main problem disputes the idea that bigger networks of hospitals and doctors would make the price problem worse. “The more we’re able to encourage integrated systems of care, the better,” the new Medicare director, Donald Berwick, a Dartmouth data champion, told me before his nomination by Obama.
Berwick and his allies say they never meant for overuse of care to become the sole focus. Elliott Fisher, the lead Dartmouth researcher, said he did not intend for his data to be “interpreted as letting off the hook” those providers that kept overuse in check but charged high prices. “We clearly need to do both” prices and volume, he said.
But we didn’t do both in the health-care law, which raises the question of what will happen once the overhaul proves inadequate to the price problem. Perhaps the public option will be reconsidered, as many liberals hope. Perhaps there will be a new push for lower drug prices. Or maybe there will be a return to the rate-setting that prevailed decades ago, when hospitals, insurers and state officials worked together to agree on prices. Maryland is the only state that still does this, and data suggests that it has kept its cost growth lower than average. Massachusetts is considering a similar approach.
Would such measures have a chance? Perhaps. For one thing, as skeptical as insurers are of government intervention, they are glad to discuss reform that aggressively goes after providers. “We have a major cost problem, and we have to get on with the job of attacking it — with every stakeholder who is responsible for that,” said Karen Ignagni, the insurance industry’s chief lobbyist.
And the public? The Brookings Institution’s Henry Aaron predicts that there may be support for tougher action on high prices once the principle of universal health coverage is established, since taxpayers will be on the hook for more of the cost of insurance. “If we attacked costs right at the front end, [the legislation] would have died,” he said. “Now, we’ll have a mechanism that will force us to address it. There are only so many fronts you can fight a war on at the same time.”
That’s assuming, of course, that the law survives long enough to enjoy any embellishment.