The Case for a Cost Containment Commission

The big story of the health reform debate is not what the bills provide, but what they don't provide--no liability overhaul and no serious effort at cost-containment.  American healthcare may bankrupt the country unless the waste and inefficiency--an estimated 30% to 40% of total costs--is wrung out of the system.  The waste is $700 billion to $1 trillion every year.  There can be no greater domestic priority.
Building a coherent new framework, however, is almost impossible in our political system. Devising a new healthcare system through hundreds of separate negotiations, with 535 members of Congress each trying to do the bidding of different constituents, is like constructing a building without any ability to make sure the walls and other elements fit together.
Containing costs requires changing the rules for all participants. Underlying incentive structures conspire to drive doctors and hospitals to do what they will be reimbursed for, not what is needed. Providers spend their days in a bureaucratic maze, focused on compliance and avoiding legal risks. Patients have no incentive to be prudent in their demands on healthcare providers, or in their personal habits.

Studies indicate that the largest drivers of waste, with rough percentages each contributing to unnecessary costs, are these: fee-for-service incentives for unnecessary care (50%), the lack of consumer responsibility (40%; see here and here also), defensive medicine (20%; see here also), excess bureaucracy (20%), and fraud (10%).  The numbers total more than 100% because the skewed incentives overlap--a doctor orders expensive tests because it is profitable, provides a potential defense in a lawsuit, and the patient has no financial incentive to question the decision.  Fraud thrives in a dense bureaucratic thicket with no patient incentive to check the false invoice.


A Circle of Waste


A Circle of Waste -- 11.11.09.GIF

Because the skewed incentives reinforce each other, no reform is likely to be effective without overhauling the entire structure.  A new structure should be better for most participants, liberating providers and patients alike from suffocating bureaucracy and legal fears.  But the grinding gears of political deal-making in Congress make it impossible to create a coherent new structure.  Piecemeal negotiations will always fail because special interests cling to their entitlements, fearful of letting go lest they find themselves in an even worse position.
The American Medical Association, for example, recently made a pact with Democratic leadership that it would stop advocating liability reform if Congress would not reduce Medicare reimbursement rates for doctors.  The AMA then contacted other physician groups, urging them to stop agitating for malpractice reform, at least for the time being.
This political deal would have the effect of maintaining wasteful habits.  The AMA is correct that costs can't be contained by simply reducing reimbursement rates--that's like trying to fix an inefficient machine by giving it less fuel.  But retaining the current system is also not an option--we can't afford to pay doctors for unneeded services.  And trading away liability reform, as doctors know better than anyone, just guarantees wasting billions in defensive medicine.
The AMA's logic was that it was engaged in an exercise of realpolitik.  Senate leadership had informed them that there were not 60 votes for liability reform--mainly due to the influence of trial lawyers.  But that just further illustrates the dysfunction of special interest politics.  Whom do the trial lawyers represent?  Liability overhaul is supported by every legitimate constituency, including consumer and patient safety groups, as well as by an overwhelming 83% of voters, according to a recent national survey by Common Good and the Committee for Economic Development.
What usually happens in Congress is a descent to the lowest common denominator.  When special interests collide, Congress maintains the status quo.  That's what happened here--the AMA's political deal got voted down on the Senate floor.  The process then played itself again in the House--with the doctors supporting an unaffordable deal because it maintains reimbursement levels.  But that deal won't hold up in conference.
It's very hard to move, forward or backward, in a process dominated by special interest politics.  The exceptions are new programs that spend money--there's not a special interest for fiscal prudence.
This political process is incapable of creating a new comprehensive structure to contain health care costs. Congress must delegate the responsibility to a group that has neither the debilitating political pressures nor the balkanization of responsibility.
The best model is probably a "base-closing commission," in which a group recommends a plan which Congress can either vote up or vote down--but not alter.  In healthcare, such a "cost-containment commission" would be given the task of recommending overhauls that would address the core components of waste.
The bill proposed by the Senate Finance Committee has the germ of that idea in an independent "Medicare Commission," a body that would recommend changes in Medicare reimbursement.  But its mandate is limited to details of Medicare payments, not overhauling the structure of healthcare for all participants.
The components of a comprehensive reform are not a secret.  Experts have been discussing them for years, but without any authority to make the difficult balancing choices and without any mechanism to break through special interest politics.  Thus, a comprehensive plan would likely involve:

  1. New reimbursement models, with bundled payments and other ways of compensating providers based on overall effectiveness, not piecework payments; 
  2. A requirement that patients who can afford it contribute to their care, as other countries such as Switzerland do;
  3. Models to improve reliability of justice, such as special health courts that strive for consistency in applying accepted medical standards; and
  4. Radical simplification of health care bureaucracy, with common reimbursement forms and regulation based on goals and principles, not micromanagement. 

(David Leonhardt discusses some of these components in an essay about Dr. Brent James in the Nov. 8 issue of The New York Times Magazine.)

The usual objection to special commissions is distrust--everyone fears that the deck will be stacked in favor of someone else.  But the proposed independent Medicare Commission in the Senate bill provides a balanced appointment mechanism that ensures representation by experts recommended by both parties, and confirmation by the Senate.
The other objection to special commissions is that they make recommendations but nothing ever happens. Indeed, if Congress chooses to ignore the recommendations, then rising health care costs will continue to drive America towards a fiscal crisis. The pressures here work powerfully in favor of change. The one thing that we know won't work is 535 members of Congress coming up with a coherent plan. That's why America needs a special commission to do the job.

(Photo: cliff1066™/Flickr)