Washington Stuck Fighting Wrong Health-Care Battle

April 18 (Bloomberg) -- While Washington wonks continue to bicker over health policy, positive change is occurring outside the Beltway.

Last week, the Altarum Institute, a research organization based in Ann Arbor, Michigan, reported that the moderation in the growth of health-care costs we have seen over the past few years is continuing: Total health spending rose by less than 4 percent from February 2011 to February 2012. And it’s encouraging to see the progress that doctors, hospitals and other providers are making to improve the value of care -- by cutting back on unnecessary procedures, for example, expanding their use of information technology, and switching from fee-for-service to compensation schemes aimed at maximizing the quality of treatment.

Instead of examining these changes and finding ways to encourage them, the Washington policy discussion continues to demonstrate its ability to, well, it’s not clear exactly what it does. The most senseless bloviating recently came from Charles Blahous, a senior research fellow at George Mason University, in Arlington, Virginia, and a former official in the George W. Bush White House. He claims to have shown that the 2010 health-care reform act will substantially increase the budget deficit, despite official estimates to the contrary. The Washington Post decided this warranted prominent coverage.

What Blahous actually did was play a trick. His analysis begins with the observation that Medicare Part A, which covers hospital inpatient care, is prohibited from making benefit payments in excess of incoming revenue once its trust fund is exhausted. He therefore argues that the health reform act is best compared to a world in which any benefit costs above incoming revenue are simply cut off after the trust-fund exhaustion date. Then, he argues that since the health-care reform act extends the life of the trust fund, it allows more Medicare benefits to be paid in the future. Presto, the law increases the deficit by raising Medicare benefits.

Double Standard

Yet Blahous only partially adopts his own novel approach. When discussing the nation’s fiscal outlook, he writes of the “federal government’s untenable long-term fiscal outlook under current law.” But the long-term deficit projections are so dire primarily because we assume that benefits will continue to be paid in full even after the Medicare and Social Security trust funds are exhausted. If no benefits beyond incoming revenue can be paid after the trust funds are exhausted, then the fiscal outlook really isn’t untenable.

You can’t adopt one perspective to argue we have a massive long-term deficit and then another to argue that the health bill expands the deficit.

While we’re at it, since Blahous is enthralled with basing his deficit projections on such a strict interpretation of the law, he is being far too modest. The government is not legally allowed to issue any debt above the statutory limit, so Blahous should have assumed the deficit would disappear when we reach that limit at or around the beginning of next year.

(In case there’s any doubt about his disingenuousness, Blahous subsequently defended his article by claiming that it was subject to a “double-blind peer review process, which means that I did not know who was reviewing the paper, and the reviewers did not know who had written it.” Yet the text of the paper itself, at footnote 26, states that the author is one of the public Medicare trustees. There are only two, and as any competent reviewer would have known, the probability that the other trustee, Robert Reischauer, would have written it is effectively zero.)

Another study receiving some recent attention is a much more serious one -- which is why it didn’t get a whole lot of attention. Joseph Doyle, a professor of economics at the Massachusetts Institute of Technology, and his co-authors examined whether high-cost hospitals in New York deliver better care than low-cost ones do. The design of their study is clever, and the authors conclude that the higher-cost hospitals have lower mortality rates. This challenges an array of evidence, most associated with researchers at Dartmouth College, suggesting that higher costs don’t mean higher quality.

The Doyle study, though, included emergency patients only, and not all of them. As a result, it examined only about 5 percent of the admissions (who account for less than 10 percent of total costs) at the relevant hospitals. Furthermore, as the authors note, even for that 5 percent of admissions, there appeared to be no additional benefit to higher spending at the hospitals whose costs were in the top 15 percent of all hospitals in their sample. The conclusion from the Doyle study is thus not, as some in Washington have argued, that there are no opportunities for lowering costs without impairing quality. It’s only that for certain types of emergency care, higher-cost hospitals seem to deliver better results -- and only up to a point.

This brings us back to the progress being made beyond the Beltway toward a better combination of cost and quality in health care. Consistent with other evidence that points to a deceleration in cost pressures is a Congressional Budget Office report earlier this month showing that Medicare spending has risen less than 3 percent over the past year.

In a future column, I will explore the debate over whether this slowdown is purely temporary. On the one hand, the Great Recession has restrained health-care spending. On the other, many changes in health-care delivery -- for instance, the recent decision by nine physician groups to eliminate 45 unnecessary tests and procedures -- suggests the slowdown is at least partly structural. The question then becomes how to continue it. That’s what Washington should be debating.

(Peter Orszag is vice chairman of global banking at Citigroup Inc. and a former director of the Office of Management and Budget in the Obama administration. The opinions expressed are his own.)

Read more opinion online from Bloomberg View.

Today’s highlights: the View editors on simplifying your taxes and Obama’s oil-speculation plan; Margaret Carlson on Ann Romney’s choices; Clive Crook on economic fairness; William Pesek on China’s power shift; Roger Lowenstein on dodging Dodd-Frank; Ana Palacio on Spain’s outdated labor laws.

To contact the writer of this article: Peter Orszag at

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