Revisiting CONventional Wisdom on State Hospital Licensure

If there is one aspect of contemporary health care regulation that conservatives have decried, it’s “certificate of need laws.” These laws require licensure of new health facilities (and sometimes expansions of facilities) in thirty-seven states. Denounced as relics of socialist central planning, they were a prime target of the Bush-Era Dose of Competition report. But, as David Leonhardt notes, it appears that CON laws are reducing costs without impairing quality in some areas.

First, a bit of background. As health costs rose in the 1960s, many policymakers believed that a surplus of health services was to blame. Policymakers worried that health care costs were rising due to “induced demand:” the more doctors and hospitals there were, the more these actors would try to counteract the normal price-depressing effect of increased competition by finding more wrong with patients, thus “inducing” demand for their services. Although such a strategy could rarely work in a normal market, health care is a credence service—it is very hard for the average consumer to “second guess” his or her provider about the amount or nature of care needed.*

In 1974, Congress passed the National Health Planning and Resources Development Act. The Act required new health care facilities, and additions to existing facilities, to obtain a Certificate of Need (CON) from the appropriate state agency as a prerequisite to receiving federal funds via the Medicare and Medicaid programs. As a result of these laws, those opening new health care entities needed to demonstrate to state commissions that their services are actually needed by the community.

Over time, state boards started addressing concerns beyond “induced demand,” including social goals of equity and fair distribution of health resources. When I emailed a New Jersey policymaker who has worked in this area, he told me that the state would be unlikely to license specialty hospitals that concentrate on the most lucrative cases because they would threaten the ability of safety net hospitals to use revenue from such cases to cross-subsidize uncompensated care. He called such egalitarian concerns “explicit and leading factor[s] of discussion at all levels in CON proceedings.”

Leonhardt is more concerned about the classic CON goal of cost-control, and sees CON laws as a key reason for positive developments in Richmond, Virginia:

Since 1996, the Richmond area has lost more than 600 of its hospital beds, mostly because of state regulations on capacity. . . . Richmond has gotten rid of 15 percent of its hospital beds, and its health care still looks a lot like the rest of the country’s, only cheaper and a bit better. . . .

[Meanwhile, health facilities vastly expanded in South Dakota after it scrapped its CON law in 1988.] In other industries, all that new capacity might have led to a glut, in which workers and equipment sat idle. But health care is different. Doctors and patients tend to believe that more care is better, and patients often don’t pay much extra for any additional care. So new doctors, nurses and equipment generally stay busy.

Dr. John Wennberg of the Dartmouth Medical School refers to this phenomenon as supply-sensitive care. Dr. Marlon Priest, the chief medical officer of Bon Secours, puts it this way: “If you build 100 beds, they’ll get used.” . . . [But] [m]ore care is not always better care. Sometimes, in fact, it’s worse. Just consider the recent research showing that radiation from CT scans will eventually kill thousands of patients a year.

I’m not fully sold on the Dartmouth studies (here’s one critique of them), and I do worry that efforts to fight overtreatment will lead to some “meat ax” rationing that denies care to the poorest (rather than motivating those who don’t need the attention of the health care system to avoid it). But when cost saving initiatives are combined with a commitment to preserve access to necessary care for all, they may be as close to a “Pareto optimal” health policy as we can get.

*(Lawyers have their own version of this “induced demand” problem, encapsulated in the old saw: “When there was one lawyer in town, he had no business; when another moved in, he was swamped with cases.” I suppose laws against barratry offer a loose parallel to CON in the legal profession. Antitrust may stand in the way of legal and medical professionals’ own actions to avoid “induced demand.”)

X-Posted: Concurring Opinions.

The Tragic Sense of Health Insurance Reform

It looks like there are now 60 votes behind the “The Patient Protection and Affordable Care Act”, and the set of amendments to it released today. For the sake of this post, I will assume that this Senate bill will basically be the template for health insurance reform.

Given all the twists and turns of this debate, I’m sure there still will be some important changes (even though holdout Sen. Ben Nelson has been promised a “limited conference” in exchange for supporting it). But today’s announcement does strike me as a turning point in the debate. It’s time to reflect on a growing divide between “realists” in the Democratic party and more idealistic progressives.

Democratic Divisions

Ed Kilgore of The New Republic describes the divide over the Senate bill as follows:

[O]n a variety of fronts (most notably financial restructuring and health care reform, but arguably on climate change as well), the Obama administration has chosen the strategy of deploying regulated and subsidized private sector entities to achieve progressive policy results. . . . [T]his is not the same as the conservative “privatization” strategy, which simply devolves public responsibilities to private entities without much in the way of regulation.

[I]n the health care reform debate, the Obama administration pursued legislation that utilized regulated and subsidized private for-profit health insurers to achieve universal health coverage. This approach was inherently flawed to “single-payer” advocates on the left, who strongly believe that private for-profit health insurers are the main problem in the U.S. health care system. The difference was for a long time papered over by the cleverly devised “public option,” which was acceptable to many New Democrat types as a way of ensuring robust competition among private insurers, and which became crucial to single-payer advocates who viewed it as a way to gradually introduce a superior, publicly-operated form of health insurance to those not covered by existing public programs like Medicare and Medicaid.

Now that the public option compromise is apparently no longer on the table, and there’s no Medicare buy-in to offer single-payer advocates an alternative path to the kind of system they favor, it’s hardly surprising that some progressives have gone into open opposition . . . . To put it more bluntly, on a widening range of issues, Obama’s critics to the right say he’s engineering a government takeover of the private sector, while his critics to the left accuse him of promoting a corporate takeover of the public sector.

Glenn Greenwald is one of the most forceful progressive voices on the issue, offering a multifaceted indictment of dominant Democrats’ coziness with a series of corporate interests:

The health care bill is one of the most flagrant advancements of . . . corporatism yet, as it bizarrely forces millions of people to buy extremely inadequate products from the private health insurance industry — regardless of whether they want it or, worse, whether they can afford it (even with some subsidies). In other words, it uses the power of government, the force of law, to give the greatest gift imaginable to this industry — tens of millions of coerced customers, many of whom will be truly burdened by having to turn their money over to these corporations — and is thus a truly extreme advancement of this corporatist model.

One finds this in far more than just economic policy, and it’s about more than just letting corporations do what they want. It’s about affirmatively harnessing government power in order to benefit and strengthen those corporate interests and even merging government and the private sector. In the intelligence and surveillance realms, for instance, the line between government agencies and private corporations barely exists. Military policy is carried out almost as much by private contractors as by our state’s armed forces. Corporate executives and lobbyists can shuffle between the public and private sectors so seamlessly because the divisions have been so eroded. [links omitted]

If one judges the bill purely from the narrow perspective of coverage, a rational and reasonable (though by no means conclusive) case can be made in its favor. But if one finds this creeping corporatism to be a truly disturbing and nefarious trend, then the bill will seem far less benign.

Chris Hedges concurs (in his book Empire of Illusion), dismissing “proposals to require insurance companies to use more income from premiums for patient care or link payment with reported quality” as “unworkable.” He favorably cites physicians John Geyman and Steffie Woolhandler, who think health reform as it now stands is a doomed effort to keep a failing system on life support. Yet many on the left are standing behind the Senate bill, embracing it as what Sen. Harkin called a “starter home” with a good foundation for future additions.

Realism and Idealism in an Increasingly Ungovernable Nation

There has been a lot of talk about a Niebuhrian “Christian realism” in Obama’s foreign policy–a willingness to deploy force and otherwise questionable means to accomplish worthwhile ends. The health reform bill strikes me as another iteration of these endlessly complex, ethically ambiguous moments. The political opposition to the public option has been so intense that those pursuing universal coverage have been forced to bargain with (and even become identified and intertwined with) the very entities they are trying to force to act responsibly. In this topsy-turvy world, where an anti-system opposition refuses to responsibly deal with problems that most developed nations addressed decades ago, Democrats and the Obama administration must cut deals with moneyed interests (whose influence over politics grows apace as a “conservative” judiciary continues to gut campaign finance regulation).

But abstractions can only go so far in describing this bill. I just want to give a counterintuitive spin to two bits of journalism on health reform, to prefigure what I’m sure will be months and years of unintended consequences (some good, some bad) flowing from this bill.

1. Pilot programs: Atul Gawande has pointed to a hodgepodge of pilot programs in the Senate bill as one of the best reasons to support reform efforts. Like many physicians, Gawande is attracted to the organic development of “best practices” in cost control, instead of top-down imposition of a general theory:

Where we crave sweeping transformation . . . all the current bill offers is those pilot programs, a battery of small-scale experiments. . . . The bill tests, for instance, a number of ways that federal insurers could pay for care. Medicare and Medicaid currently pay clinicians the same amount regardless of results. But there is a pilot program to increase payments for doctors who deliver high-quality care at lower cost, while reducing payments for those who deliver low-quality care at higher cost. There’s a program that would pay bonuses to hospitals that improve patient results after heart failure, pneumonia, and surgery. There’s a program that would impose financial penalties on institutions with high rates of infections transmitted by health-care workers. Still another would test a system of penalties and rewards scaled to the quality of home health and rehabilitation care.

Other experiments try moving medicine away from fee-for-service payment altogether. A bundled-payment provision would pay medical teams just one thirty-day fee for all the outpatient and inpatient services related to, say, an operation. This would give clinicians an incentive to work together to smooth care and reduce complications. One pilot would go even further, encouraging clinicians to band together into “Accountable Care Organizations” that take responsibility for all their patients’ needs, including prevention—so that fewer patients need operations in the first place. These groups would be permitted to keep part of the savings they generate, as long as they meet quality and service thresholds.

The bill has ideas for changes in other parts of the system, too. Some provisions attempt to improve efficiency through administrative reforms, by, for example, requiring insurance companies to create a single standardized form for insurance reimbursement, to alleviate the clerical burden on clinicians. There are tests of various kinds of community wellness programs. The legislation also continues a stimulus-package program that funds comparative-effectiveness research—testing existing treatments for a condition against one another—because fewer treatment failures should mean lower costs.

There are hundreds of pages of these programs, almost all of which appear in the House bill as well. But the Senate reform package goes a few . . . steps further. It creates a center to generate innovations in paying for and organizing care. It creates an independent Medicare advisory commission, which would sort through all the pilot results and make recommendations that would automatically take effect unless Congress blocks them.

None of this is as satisfying as a master plan. But there can’t be a master plan. That’s a crucial lesson of our agricultural experience. And there’s another: with problems that don’t have technical solutions, the struggle never ends.

I agree with all of this, but I want to add one more dimension to the “neverending struggle”–the very interest groups that are supposed to be reined in by pilot programs are likely to do their best to alter, influence, or limit those programs over the coming years. One need only look at the sad and convoluted history of gainsharing pilot programs (merely adumbrated here) in order to get a sense of how, as the “rubber hits the road,” various lobbies will be storming veto points in order to undermine experimentalists’ efforts. This is not to say that pilot programs are a sham–I am about to publish a book chapter with the subtitle “A Plea for Pilot Programs as Information-Forcing Regulatory Design.” I just want to temper the technocratic optimism at the heart of Gawande’s worldview with a touch of the skepticism driving progressives like Greenwald and Markos Moulitsas.

2. Cuts in Medicare Home Health Care: Now here is an aspect of the bill that I at first felt offended by. Doctors, insurers, hospitals, and pharmaceutical companies all appeared to be making at most modest concessions in the final bill. But home health care, staffed by some of the most vulnerable workers, was to be slashed. If anything appeared to fit the Greenwald storyline of rapacious private interests shifting public burdens onto the unfortunate, it seemed to me, these cuts would fit the bill.

Yet once one digs in a bit to this story, more complexity emerges. According to one of the speakers on this podcast of the Diane Rehm show, over half of the “extraordinary patient” payments in the program are made in Miami-Dade County alone. It’s hard to get upset with a long overdue crackdown in the Ponzi State. Many other apparent abuses were mentioned in the podcast, as well as in this discussion on the NYT website. After sorting through all the commenters’ underlying empirical data, I may still come back to my original diagnosis of brutal, bareknuckle pluralism as the driving force behind home health care cuts. But I can’t justify that level of cynicism currently.

Concluding Thoughts on the Tragic Dimensions of Moving Forward

The personal is always political, and rarely is this more the case than in health policy. As with abortion and the draft, the law of health care financing directly impinges on the body of the citizen, determining fundamental opportunities for individuals. Despite all of my reservations and disappointments, in the end I am for this bill for a very personal reason: I cannot imagine how my family would have afforded treating my mother’s ailments over the past decade without the private and public insurance she has continually been covered by.

Earlier this year, I had hoped to be a larger part of the academic legal debate on health reform. But my mother broke her back in early September after falling off a scale in her bathroom, and I am her primary caregiver. Attending to her has taken up much of my free time since then. It’s hard to explain how much pain this incident has caused her, and how it has disrupted her life. All I can say is that I cannot imagine how stressful this incident would have been if she were one of the 46 million uninsured. Without question, her 3 weeks in the hospital, four weeks in rehabilitation, and related care, would have bankrupted her (and nearly bankrupted me). Millions of people may end up in such a situation–without coverage, battered by fate, and broke–if progressives in Congress stand on principle (or dubious constitutional arguments) and torpedo the bill.

Nevertheless, I also realize that this immediate victory, like 2009’s stabilization of the financial system, may be a Pyrrhic one for the Democratic Party. It entrenches the power of one more sector of America’s overweening FIRE industries (finance, insurance, and real estate). I’ve recognized the potential of private insurers to rationalize health care, but that potential is rarely realized. I am very worried that just as “GM hired a thousand lawyers, and Toyota hired a thousand engineers” in response to the Clean Air Act, private insurers will plow new revenues attributable to an individual mandate into endless lobbying to hollow out the terms of “minimum creditable coverage.” They will certainly devise clever tricks designed to drive away the 5% or so of the population that accounts for 49% of medical expenses. If pervasive regulatory capture occurs, the “reform” will be an albatross around the necks of Democrats for years.

“In their determination to avoid Harry and Louise, they’ve become Thelma & Louise.” That’s the verdict on the Obama Administration from a Democratic strategist tweeted by horserace reporter extraordinaire, Chris Cillizza. Although it’s a characteristically snide and smug observation from The Village, I think this bon mot has some chance of coming true. Like most of the conventional wisdom excrudescing from Beltway pundits, it’s less a reflection of reality than a narrative our entrenched political class enacts. The “politics of reform” will be endlessly refracted in DC media celebrities’ halls of mirrors, where a 24-hour news cycle is always hungry for “backlash.” The lazy conventional wisdom has already coalesced around a narrative of Obama-as-Icarus, perpetually mistaking his cautious incrementalism as a seamless web of socialism.

The real tragedy here lies in a struggle for the soul of the Democratic party–between idealists like Greenwald, Hedges, Woolhandler, and Kos, and the DLC/Brookings “realists” who’ve dominated the official Democratic response to the financial and health care crises. The sclerotic Senate’s supermajority rules have put the realists in the driver’s seat, and idealistic progressives have been left with little more than the power to refuse the bill that Reid & Co. craft. Idealists want an FDR-style rejection of what TR called the “malefactors of great wealth,” and they also want to see the millions of Americans without health care coverage given some semblance of a safety net beyond the bankruptcy courts. But we cannot have both. As Martha Nussbaum writes in The Fragility of Goodness (speaking generally about such quandaries),

We are considering [a] situation[], then, in which a person must choose to do (have) either one thing or another. Because of the way the world has arranged things, he or she cannot do (have) both. . . . He senses that no matter how he chooses he will be left with some regret that he did not do the other thing. . . .

Aristotle speaks of a captain who throws his cargo overboard in a storm in order to save his own and other lives. The man sees all too well what he must do, once he grasps the alternatives. . . .And yet he was also attached to that cargo. He will go on regretting that he threw it into the ocean–that things turned out so that he had to choose what no sane person would ordinarily choose, throw away what a sane person would ordinarily cherish.

By passing this reform bill, Democrats will jettison whatever “populist” credentials they once had, opting instead for an early-twentieth-century “progressive” vision of technocratic alliance between corporate and government experts. However many disastrous missteps the FIRE industries make, this is the only arrangement that the media will credit as responsible governance. We’ll commence an endless argument (read: notice and comment rulemaking and subsequent administrative adjudications) over what constitutes an adequate baseline of coverage, what is the fair share of revenue for middlemen like insurers, and what regulatory infrastructure can best vindicate the entitlements (and impose the burdens) specified by the bill. But the fundamental victory of reform–the national commitment that no one should have to choose between death or bankruptcy when confronted with a serious illness–will also endure. The tragic paradox is that the Democrats can only achieve this great cultural and ideological victory by becoming identified with the very interests that only they are willing to confront.

“15 Years or 7 to Pay Off Your Debt. . .”

I have been watching the Alex Gibney documentary film version of Maggie Mahar’s book Money-Driven Medicine. It’s fascinating, and I’ll definitely do a few more blog posts on it. For now, I’d like to reflect on a quote from early in the film, from a Dr. Berwick who’s been a keen observer of the US health system. He notes that physicians who are specialists do lots of compensable and specific procedures, and therefore usually earn much more than primary care doctors, leading to an artificial glut of specialists. I’d known this for some time, but Dr. Berwick makes the fact particularly compelling by comparing the concrete choices faced by med students: “15 years or 7 to pay off” their educational debts. It’s no wonder there are so many specialists.

The quote reminded me of Jesse Larner’s recent idealized “health care speech” for President Obama, which would promise a “publicly paid medical education for qualified medical students, researchers, and other health care workers so that the profession is open to all who are bright and dedicated, regardless of financial resources.” Just as our tax code pushes the average citizen toward unnaturally high levels of debt via the mortgage deduction, medical education financing currently is biasing physicians toward unsustainable debt loads that ultimately drain the public weal by fueling an entrepreneurial mindset in a profession founded in the public interest.

The US already has some limited loan forgiveness programs for physicians who work in underserved regions. It is time to expand these subsidies to cover more physicians working in primary care.

Urgency, Medicalization, and Sick Days

The US media have recently coalesced around a narrative asserting that US health care costs too much in the aggregate because citizens are demanding too much health care. But the “too much demand” narrative must be balanced by an awareness of high prices in the US, as Ezra Klein has pointed out on the provider side, and Uwe Reinhardt notes on the insurer side. Reinhardt cited a study that found that, in comparison with West Germany, “in 1990 Americans received $390 per capita less in actual health care but spent $360 more per capita on administration.”

Nevertheless, there are legitimate concerns that citizens of the developed world are demanding (or having foist upon them) “too much health care,” as Charles J. Wright argues in the Literary Review of Canada. For example, Wright observes that

The recent analysis of all the available evidence from multiple studies published in the British Medical Journal shows that if 2,000 women are screened with mammograms regularly for ten years, only one single woman’s life will be prolonged, but 500 will have at least one false positive and ten will be diagnosed with a “cancer” that would never have become a real disease if it had been left alone. . . . The diagnosis and treatment of non-disease is also popular in some areas of psychiatric practice. Among the hundreds of diagnoses listed in the Diagnostic and Statistical Manual of Mental Disorders (known as the psychiatric bible) published by the American Psychiatric Association, dozens would be considered by most people as normal variants of the human condition but for the relentless attempts by the pharmaceutical industry to have them known as common diseases treatable by drugs.

Wright examines many causes for overmedicalization, but I think he misses one very important one–health concerns as a trump card over other social needs. In the US particularly, shrinking middle class incomes, weak unions, and high unemployment make it extremely difficult for the average worker to demand much in the way of vacation time, and there is virtually no political movement to guarantee such time. But there is momentum on both the federal and the municipal level to get sick days, in part because of the public health consequences of “presenteeism“–sick workers who spread flu and other disease when economic necessity forces them to go to work. While laissez-faire business interests can smear virtually any other pro-worker law as an intolerable burden on business, it is intuitively obvious why stopping the spread of disease is in everyone’s best interest.

Whatever happens as a result of this year’s health reform debate, I believe it has done some crucial normative work. After a long campaign by advocates of “consumer-directed health care” to reframe health care as just another commodity, the reform debate has focused the nation on its uniqueness, and on the moral imperative of providing some baseline of care to all. By vigorously blocking so many other modes of achieving better work conditions, entities like the Chamber of Commerce and Club for Growth have, ironically, shifted progressives’ focus to conservatives’ bete noir, the health care system. I predict that, if other guarantees of humane working and living conditions decline, we will see ever more “medicalization” as a way of upping the urgency of demands made by an increasingly pressed middle class.

Cut money to the EPA, and the US’s toxic waterways grow, increasing the flow of carcinogens to the populace. Put workers in insecure and demoralizing environments, and don’t be surprised if there’s an upsurge in demand for anti-anxiety drugs. Decimate funds for roads and public transit, and turn a blind eye to dangerous driving, and watch the ER’s fill with accident victims. The closer we come to a “minimal state,” the more we’ll see the resulting externalities increase demand for health care. The mechanic in the old oil filter commercial speaks for the public at large: “Pay me now, or pay me later.” When we defer maintenance of the social determinants of health, we shouldn’t be surprised when demand for doctors and hospitals rises.

Why Resurrect the Public Option? The Competition Canard

Dan Balz of the WaPo asks “What brought the public option back to life?” Balz argues that while “liberal advocates of the public option . . . [see] it as the holy grail of the debate . . . [f]ew experts see it that way.” While the 39+ academics and others listed at Campaign for America’s Future Health Experts Bureau may not consider the public option akin to a chalice of eternal life, most of us are comfortable calling it a key element of reform. So while Balz focuses on the chess game of Washington politics to explain the public option’s resurgence, I detect deliberative democracy at work here.

As Congressional committees have begun to specify exactly how “competition” among insurers would lower costs, they’ve realized that we need to do a lot more than up the regulatory ante and add more insurers to the mix. Rather, just as Medicare took care of elderly persons unlikely ever to be profitably covered by private insurers, a new option is needed to address the needs of impoverished or sick citizens unlikely ever to pay profitable premiums to Aetna, Cigna, and their ilk.

Why wasn’t this apparent earlier? I think that closer scrutiny for a proposal to repeal the “antitrust exemption” for insurers has led to more serious consideration of what competition can and cannot do in the health care industry. As co-blogger Tim Greaney explains, “the Supreme Court has narrowly interpreted McCarran-Ferguson requirement that only the ‘business of insurance’ is exempt; hence insurers’ actions vis a vis providers is not exempt.” Lack of antitrust enforcement–and the market competition it’s supposed to bring–can’t fully explain insurers’ failures here. Even more alarmingly, enforcing antitrust laws aggressively against insurers, while failing to balance that effort with similar scrutiny of providers, could lead to even higher health care costs. Do we really expect piecemeal antitrust enforcement, played out in fragmented and uncoordinated courts, to manage such balance? It is often the case that both providers and insurers are concentrated, powerful, and earning supracompetitive profits–whatever “supracompetitive” means in a realm so thoroughly marbled with regulation, subsidy, and barriers to entry.

Moreover, insurers are competing in many markets–but they’re doing so in ways that are socially unproductive. As I have noted before, there are effective competitive strategies that produce no (or negative) value for society as a whole. Insurers who put hurdles in front of preventive care, or scramble to drop diabetics or CHF patients, are doing just what a competitive marketplace rewards. They also exacerbate the coverage crisis that necessitates health reform in the first place.

Genuine health reform will provide incentives for insurers to do things that actually improve individual and public health–programs such as transparent physician rating, preventive and chronic care programs, and intensive data analysis to promote evidence-based medicine. Like the V.A., a public option can be ordered to do such things. Moreover, it can be required to cover the costly or unprofitable individuals that private insurers won’t touch. The government might “require” private health insurers to do the same, but I would not count on overwhelmed regulators to enforce such laws adequately.

Sadly, even when competition is exposed as an empty vessel, our language of discussing health care tends to gravitate back to it as an ideal. Fortunately, Daniel Callahan’s recent essay on the “common good” as a justification for health reform provides a richer vocabulary of evaluation. Callahan has no illusions about transforming the current debate, but his words are worth pondering:

I have not painted a hopeful picture about the common good in American health care. That simply does not seem possible. An abiding suspicion of government, a belief in the free market as an engine of prosperity (and thus, by an illogical leap, as an engine of good health care), and the majority’s fear that they may lose the benefits they already have—all this leaves little room for an embrace of the common good. Solidarity, the value behind European health-care systems, seems to me the best basis for universal care, better than justice or rights. But the sense of solidarity required for serious health-care reform cannot be wished into existence. It was the solidarity of the British people in defense of their country during World War II that afterward helped get the National Health Service off the ground in 1946: they had all been in it together during the war, and now they needed to be together in insuring health care for all. We do not have that kind of history, and it shows.

Suffering, disease, and death are our common lot. They ought to be dealt with as our common problem. It is a shame that the kind of empathy and mutual support that Adam Smith understood to be a requirement of morality have not, in our culture, been extended to health care—extended to one another in the recognition that we all have bodies that go awry and fail. Instead we are offered a consumer model, a national Walmart of medical choice where we are all sharp-eyed purchasers getting the best possible deal for ourselves. A construal of the common good as the freedom of consumers to get what they want, indifferent to the fate of others, is a cheap substitute for the real thing.

Callahan here is too pessimistic about the viability of an appeal he’s helped craft. As Catherine Arnst has argued, a moral case for health reform–as either compassion for others or self-interest properly understood–is essential in current debates. Even the most self-centered person can imagine losing a job, a spouse, or other sources of insurance. It seems paradoxical to expect the very companies that deny such coverage to offer it under government fiat. A public option is a logical response to our market–and moral–failure to separate the experience of illness from anxiety over financial ruin. As the band Muse might put it (in the closing track of their album The Resistance) “let’s start over again” — “this time we’ll get it right.” Hope springs eternal.

More Institutional Health Economics, Please!

Today’s Nobel Prize award for institutional economists Oliver Williamson and Elinor Ostrom is a welcome step toward methodological pluralism in the profession. Both have looked outside markets to understand the organization of economic life. Ostrom is not even an economist–she is a political scientist by profession. As Bob Shiller observes:

This award is part of the merging of the social sciences. Economics has been too isolated and too stuck on the view that markets are efficient and self-regulating. It has derailed our thinking.

According to the NYT, “The Nobel judges, in their description of Mr. Williamson’s and Ms. Ostrom’s achievement, said that ‘economic science’ should extend beyond market theory and into actual behavior, and the two award winners, in their empirical work, had done this.”

There is a great need for more of this type of work in health economics. Joe White’s Markets and Medical Care: The United States, 1993–2005 is one good exemplar of needed work here; he eschews “discussions of how economic theory can be applied to medical care production and delivery” and instead “focuses on ‘the market’ in its actual, not theoretical, form, as it existed in the United States.” White describes case after case where consolidation, not medical need, drove industry structure. He leaves the reader with a clear and convincing image of a space where varying levels of provider and insurer power, not productivity, is the key to understanding changes in the profitability of services. I’ve seen few better brief explanations of rising medical costs than the following: Read more

Principles for the Homestretch

House and Senate leaders will soon have to reconcile several different versions of health reform bills. The bills are complex, but some simple principles should guide the process of integrating them into a final product. As the press reports on a whirlwind of proposed laws, we need to ask of any particular proposal: Does it . . .

1) Increase productive competition in health care? Everyone talks about “increasing competition” among insurers and providers, but there are many ways to compete. Hospitals and doctors can game the reimbursement system. Insurers may not directly discriminate against the sick, but can find other ways to keep high-risk patients out of their plans, as even the most market-oriented health policy experts realize:

[T]o avoid patients with costly, complicated medical conditions, health plans could include in their networks relatively few doctors who specialize in treating those conditions, said Mark V. Pauly, professor of health-care management at the University of Pennsylvania’s Wharton School.

Both the Netherlands and Switzerland have already experienced problems in this area, even though the Netherlands has implemented risk-adjustment methods (which attempt to deter such “cherrypicking” and “lemondropping”) far more serious than anything proposed in current bills in the US. As Karen Pollitz has repeatedly argued, we’re going to need a much greater investment in insurance regulation to make any reform bill work.

2) Make it easier for uninsured or underinsured individuals to buy coverage? Many of the proposals for allocating and awarding subsidies for coverage sound exceedingly complex. We’re hearing about serious limitations on access to exchanges, subexchanges, burdensome “free rider” provisions, etc. Any particular provision may sound good in the abstract, but taken as a whole they could become an obstacle course that makes obtaining insurance coverage a miserable and exasperating experience for those supposedly aided by reform. During the second Bush administration, hundreds of thousands of children eligible for subsidized health insurance were not enrolled because states failed to make enrollment convenient enough for time- and cash-strapped parents. As Liebman and Zeckhauser remind us, “we must design systems for mere mortals, not the people who inhabit the models of traditional economists.” What seems easy to one of DC’s privileged elite can be very hard for an overworked mom or minimum wage-earning service worker.

I believe that the main reason a solid 2/3 to 3/4 of the country supports a public option is because it is a straightforward, transparent way to provide a backstop of health insurance for everyone. If Congress both rejects a public option and makes subsidies for private insurance as complex as the tax code, health reform risks becoming a model case of government failure. Last week’s negative votes on Rockefeller’s strong and Schumer’s weak public options could easily become a “you broke it, you bought it” moment for centrist Democrats and Republicans on the Senate Finance Committee.

3) Fairly distribute the burdens of reforming the health care system? This is the tax and finance question, and it promises to generate some epic battles on Capitol Hill. However the Senate Finance proposal ultimately evolves, it will be in tension with a House of Representatives that sees progressive taxation as a foundation for financing reform. The Baucus proposal to tax “high end”/Cadillac/”gold-plated” health plans may seem progressive, but it promises to gradually engulf even normal plans. While David Leonhardt offers some good economic arguments for such a tax, policymakers should be guided by Leonhardt’s observations on the propriety of taxing those at the very top of the income scale, who have disproportionately benefited from economic trends and tax cuts of the past decade.

4) Provide incentives for long-term cost-saving and preventive medicine? Comparative effectiveness research is a crucial tool for focusing pharmaceutical research on drugs that save lives. We have a shortage of primary care doctors vis a vis specialists. Reimbursement systems are too easy to game. Insurance markets are concentrated and need more competition and transparency. Any bill that ignores these problems (or fails to empower HHS or another agency to address them) can’t lead to truly sustainable universal coverage.

The health reform fight has been bruising, disappointing, and frustrating for many who care about health policy. Many unwise assumptions are already baked into leading bills. In the Senate, ostensibly Democratic lawmakers are promoting what are essentially Republican ideas and granting enormous subsidies to industries that may well betray them at the next electoral cycle. Nevertheless, there remain many opportunities for improving the final product at the beginning of the end of the legislative process.

Parsing “Populism” in Resistance to Reform

Today the NYT leads with a story on a growing resistance to the individual mandate to purchase health insurance. The mandate is a key part of virtually all the reform bills now being discussed. A “growing group of lawmakers are pressing for state constitutional amendments that [they believe] would outlaw” the mandate in their states. Law professors have a dim view of the effort:

“States can no more nullify a federal law like this than they could nullify the civil rights laws by adopting constitutional amendments,” said Timothy Stoltzfus Jost, a health law expert at Washington & Lee University School of Law.

Mark A. Hall, a law professor at Wake Forest who has studied the constitutionality of mandates that people buy health insurance, said, “There is no way this challenge will succeed in court,” adding that the state measures seemed more “sort of an act of defiance, a form of civil disobedience if you will.”

Even Randy E. Barnett, a Georgetown Law professor who has written about what he views as legitimate constitutional questions about health insurance mandates, seemed doubtful. “While using federal power to force individuals to buy private insurance raises serious constitutional questions, I just don’t see what these state resolutions add to the constitutional objections to this expansion of federal power,” Professor Barnett said.

What I find so depressing about the new Orval Faubuses of health care is their failure to address funding mechanisms for purchasing health that would make the mandates much less onerous. As I blogged earlier this summer, the House Tri-Committee Bill tries to shift the burden of paying for health care from the already strapped lower-middle class to wealthier citizens who have disproportionately benefited from globalization and other economic trends. At that post, attorney David S. Miller commented:

A mark-to-market tax on the publicly-traded securities of the highest-income and wealthiest individuals would achieve [even more progressivity]. This proposal would also raise significantly more revenue than the [proposed House] surtax, would not require any increase in tax rates, would affect far fewer taxpayers, and would be more in line with the consensus view that the tax base must be broadened. It would also level the playing field between wage and income earners (who are currently subject to tax at ordinary income rates on all or virtually all of their economic income) and with investors (who defer tax indefinitely on appreciation and, when taxed, pay it at reduced long-term capital gains rates).

Unfortunately, the ballyhooed Baucus Bill appears to be far less redistributive than even the House Bill (which I have criticized for failing to distinguish between the merely well-off and the truly wealthy–a very important distinction in an era of fractal inequality). The new state resistance to a mandate should be seen as less a defense of the middle class than it is a sad example of classically self-defeating resistance to equitable distribution of social benefits and burdens.

Health reform financing must rely not merely on redistribution from the healthy to the sick, but also from the rich to the rest. A just society is committed to the universal destination of human goods-–especially those essential to the preservation of human life. Perhaps we will eventually reach a point at which taxation of those at the top to provide for the care of those at the bottom truly threatens the well-being of our economy. But when “the increase in incomes of the top 1 percent of Americans from 2003 to 2005 exceed[s] the total income of the poorest 20 percent of Americans,” we’re a long way from that point on the Laffer Curve.

Amusing Ourselves to Death, Health Care Edition

As health insurance reform hopes entered a downward spiral in August, a squad of Monday morning quarterbacks blamed Democrats for mismanaging the debate. Turning his attention from the finance to the insurance industry, Matt Taibbi is particularly withering:

There [are] now so many competing ideas about how to pay for the plan and what kind of mandates to include that even after the five bills are completed, Congress will not be much closer to reform than it was at the beginning. “The president has got to go in there and give it coherence,” [former Labor Secretary Robert] Reich concluded.

But Reich’s comment assumes that Obama wants to give the bill coherence. In many ways, the lily-livered method that Obama chose to push health care into being is a crystal-clear example of how the Democratic Party likes to act — showering a real problem with a blizzard of ineffectual decisions and verbose nonsense, then stepping aside at the last minute to reveal the true plan that all along was being forged off-camera in the furnace of moneyed interests and insider inertia.

There are some aspects of the Senate HELP Bill that bear out Taibbi’s cynicism, and I expect more in the Gang of Six’s handiwork. But Taibbi misses the forest of reform for the trees of venal interest group grabs that are embedded in any modern legislative process. (Can he really say that even Baucus’s bill, the worst proposed so far, is so bad that it’s worse than the status quo?)

And can we please back up a bit and consider how industry giveaways develop “off-camera?” Professor Timothy Jost, one of the most authoritative, knowledgeable, and diplomatic voices in the health reform debate, has this to say about the media coverage of health insurance this summer:

I have explained how the bill works at a number of public meetings in recent days and have uniformly met the same response, “no one has laid this out for us before”. The media has done a terrible, an abysmal, an inexcusable, an unethical job of covering reform. They have completely abdicated their job of informing the public in favor of becoming an entertainment industry. The media have attended only to the politics, the controversy, the nuts, and the absurd, and have done almost nothing to let the public know what is at stake and what the legislation does. Consequently, the American people uniformly confess to being confused.

What could bring clarity? Paul Krugman, indispensable in so many other areas of contemporary political debate, offers this frame. He proposes Obama say the following:

“We’re going to make sure that every American has access to the same insurance deals big employers get. We’re going make sure that no American can be denied coverage at a reasonable rate because of previous medical history. And for those Americans who find it hard to afford essential insurance, we’ll provide financial aid.”

“Now, there are a few things we’ll need to do to make this work. We’ll have to require that all large employers either offer coverage to their workers or pay into a fund that helps them get their own insurance. We’ll sign people up for insurance now, even if they’re healthy, because it’s not fair to others if you wait until you’re sick to join the system. And we’ll keep the insurance companies honest by offering people the choice of buying their insurance directly from a public plan.”

“Let me be honest: this won’t come free. But this plan will give Americans the fundamental security of knowing that for the rest of their lives they and their families will have the health insurance they need, insurance that they can’t lose.”

Krugman also addresses the thorny issue of the public option, arguing that it’s crucial to balance an individual mandate to have health insurance with an option to join a public plan. It should be easy for America’s “vast middle class” to see the benefits here, if Obama can break through the carnival of death panel-talk that the media has seized on this summer.

Risk, Reward, and Rationality in the Health Care Debate

I agree with Andrew Koppelman’s analysis of resistance to health insurance reform. But Red America’s implacable opposition to the plans now debated in Congress has deeper ideological roots in a love of risk. As Thomas Edsall has observed, “A problem for Democrats … is the long tradition in the US of … venerating risk … and of a deep commitment to untrammeled individualism.”

Even more frustrating for Democrats, the left’s hard-won victories to reduce risk have left many people assuming that they can’t gain much from reform. Consider four “backstops” that leave many people unworried about losing insurance:

1) Bankruptcy: Republicans worked hard to water down bankruptcy protections during the Bush years. Nevertheless, these laws still protect many consumers. As health law expert Timothy S. Jost writes, “Ultimately, the federal bankruptcy code must also be seen as our federal catastrophic health care program.”

2) Medicare: Thanks to LBJ and an overwhelming Democratic majority in the 89th Congress, the elderly already have access to federal health insurance, and are wary of any coverage expansion that could drain resources from the program. Here the GOP’s anti-spending and family values wings have formed a pincer movement that has whiplashed Democrats. First, fiscal conservatives used CBO’s dubious cost estimates to demand “real savings” to pay for reform. Dreaming of bipartisanship, Obama’s technocrats seized on the Dartmouth studies to argue that up to a third of all medical spending, including Medicare, is wasted, and that reform of the delivery system could rationalize that spending. At that point the GOP’s “family values” wing associated reform with death panels, rationing, and “pulling the plug on grandma.”

3) EMTALA: Can a relatively well off person “rationally choose” to be uninsured? As Jost notes, as of 2004, “many of the uninsured are in fact reasonably well-off—8.4% are from households that earn $75,000 or more per year.” To the extent this group is calculating the costs and benefits, it’s likely counting on the Emergency Medical Treatment and Active Labor Act of 1986 (EMTALA) to force hospitals to “screen and stabilize” those who come to their emergency rooms. Of course, once you’re stabilized, the duty to care is over, but few people think very clearly about what it is like to slowly (and stably) die of cancer while the only effective treatments are too expensive to pay for.

4) Medicaid: Finally, we come to another element of the social safety net many people think they can fall back on: Medicaid. Benefits aficionados know that only the categorically eligible can rely on it. Some reform proposals would replace the “numerous statutory and regulatory pathways for establishing eligibility” with a simple income test. But for now, those among the populace who just assume that Medicaid covers all the poor may believe they would have little to gain from reform even if they did face crippling medical bills. (They’re probably also unaware of Medicaid’s pitifully low reimbursement rates–but more on that later.)

None of these so-called backstops will help everyone, all the time. But one can imagine a risk-loving, red-blooded American wanting to roll the dice on them rather than endure the type of bureaucratic assessments and applications that will gradually poke and prod the uninsured making between 133% and 400% of the poverty level toward buying their own coverage on an exchange. Indeed, under the Senate HELP Committee’s proposal, a family making 400% of the poverty level could be responsible for paying up to 12.5% of their income in premiums, for insurance that leaves them liable for paying $11,600 in out of pocket expenses. That’s a worst case scenario of paying 26% of income for health care–better than bankruptcy, but potentially tantamount to the same thing in a country where the bottom half of the population has virtually no net worth. (And that cost-sharing estimate assumes the medical component of the CPI does not increase.)

The really appealing goal of reform–a strong public option that would be part of an exchange open to all–appears to be more of a bargaining chip than a firm commitment for the Obama Administration. Strategically, if your goal is to get “something” through Congress, this makes a great deal of sense: Republicans and some waivering Democrats think a public option smacks of socialism. But as a political matter, it is draining support for reform. People can understand a public option, and building support for it might have been as decisive to Democrats’ fortunes as FDR’s reformulation of the American social contract in the 1930s. Sadly, Obama’s technocrats appear more attracted to wonk-talk like “bending the cost curve” than the forceful moral case for collective responsibility for health. Only the President can correct that course. It takes an ideology to beat an ideology.

X-Posted: Balkinization.

Bartels’s Unequal Democracy and the Gang of Six

If there’s one thing our elite press corps loves, it’s centrism. They cling to a romantic ideal of bipartisanship–even when they’re discussing necessarily ideological endeavors like health care reform. Thus it comes as no surprise when the NYT’s Herzensohn & Pear can think of no more critical angle on the gang of six “centrist” Senators now at the center of the health reform debate than the fattening snacks that fuel their deliberations.

Those with a more skeptical constitution might note that the Gang of Six represent less than 3% of the US population — a rather slender thread of popular support for whatever solution these striving solons support. Yet they don’t even appear to be acting in their own constituents’ interests. It turns out that a majority of the gang of six–Senators Baucus, Snowe, Conrad, and Grassley–hail from states with extraordinarily concentrated health insurance markets. As Catherine Arnst of Businessweek reports, “such market concentration has become a potent argument for supporters of a public insurer,” which would especially benefit consumers in those states. Yet that’s exactly what the Gang of Six has immediately taken off the table in reform talks:

Already, the group of six has tossed aside the idea of a government-run insurance plan that would compete with private insurers, which the president supports but Republicans said was a deal-breaker. Instead, they are proposing a network of private, nonprofit cooperatives.

Those nonprofit cooperatives are not likely to have much of an effect on spiraling health care costs.

The sudden popularity of this non-solution is one more indication that Larry M. Bartels’s book Unequal Democracy: The Political Economy of the New Gilded Age is essential reading for understanding today’s politics. Bartels predicted a possible “debilitating feedback cycle linking the economic and political realms: increasing economic inequality may produce increasing inequality in political responsiveness, which in turn produces public policies that are increasingly detrimental to the interests of poor citizens, which in turn produces even greater economic inequality, and so on” (286). As the poor uninsured in states like Maine, Montana, and North Dakota see real relief slipping away, they are about as likely to become disaffected and drop out of the political process as they are to hold their senators to account. It’s hard to worry about voting and politics when you’re worried that aches and pains are endangering your job.

Small is Beautiful

I was wondering how the right would respond to repeated debunkings of the Canada-health-nightmare ads now running on television. After reading Phantoms in the Snow, what can you say?

Well, Canada does have ten times less population than the US. . . .

Politicized Prognostication at CBO

Back in 2007, wise wonks were already warning that the Congressional Budget Office could torpedo health reform. The CBO dealt Clintoncare a heavy blow by saddling it with huge cost projections — and failing to take into account the savings the program would realize for individual citizens and the private sector. Current CBO director Doug Elmendorf has been riding a wave of notoriety as an objective “referee” in an increasingly bitter reform battle. But as his office’s one-sided estimates enervate reform, it’s beginning to risk its reputation for impartiality. Consider the following observations about CBO’s work:

Bruce Vladeck: “The CBO’s track record in predicting the effects of health legislation is abysmal. Over the last two decades, the CBO has routinely overestimated the costs of expanded government health care benefits and underestimated the savings from program changes designed to reduce expenditures. Most recently, it overestimated the five-year cost of Medicare Part D — the prescription drug benefit — by more than 35%. Even more dramatically, the CBO’s estimates of the Medicare savings from the Balanced Budget Act of 1997 underestimated the impact, on average, by a full 100%. That’s right: In the BBA’s first three years, Medicare spending fell fully twice as fast as the CBO had projected.”

Timothy Stoltzfus Jost: “[A] moment’s reflection would lead one to realize that the CBO’s guess that [a reform proposal] would save [only] $2 billion is about as worthless as an estimate that a loaf of bread will cost $5.65 in 2019, or a gallon of gasoline $4.73. Indeed, the CBO admits as much, stating that it actually believed the proposal would save nothing, but “there is also a chance that substantial savings might be realized.” . . .[T]he media needs to stop reporting CBO reports as though they reflect the real costs of reform.“

Maggie Mahar: “When I read Elmendorf’s testimony suggesting that the [House] bill wouldn’t bend the trajectory of federal health spending, I couldn’t help but wonder: Did he understand how the proposals in the 1,018 page bill dove-tailed with the excellent recommendations that the Medicare Payment Advisory Commission (MedPac) has made in recent years? Has Elmendorf read the lengthy MedPac reports?”

When respected experts like Maggie Mahar are wondering if Elmendorf has understood key literature in the area, something’s gone wrong at CBO. The media’s uncritical acceptance of his figures can only last as long as it fails to report the true complexity and uncertainty involved in both substantive reform and the do-nothing option that CBO’s handiwork is unintentionally advancing.

Read more

Why the Health Reform Rush?

If you’ve been ignoring health care legislation for months, waiting for the moment of truth to arrive — well, now may be a good time to start paying attention. Ted Marmor and Jonathan Oberlander have helpfully encapsulated the current state of play in an NYRB essay. The media have started highlighting voices critical of current proposals, ranging from alarmists to prudentialists to beleaguered governors. They are curiously uninterested in the views of those representing the sizable number of Americans who want more thoroughgoing reform than is currently on the table. That bias is a major reason for a big push on reform now, rather than later this fall or winter.

If the media were up to a real health reform debate, they’d complement every story relating skepticism about reform efforts with a careful investigation of where things are headed given the status quo. For example, on Sunday’s Meet the Press, David Gregory aggressively pressed HHS Secretary Kathleen Sebelius about the possibility that reform would lead employers to drop private coverage because they could shift workers to a public plan. Gregory ignored the fact that employer-based coverage is eroding now. Similarly, media outlets persistently pair as sparring partners incrementalist academic experts with soi disant conservatives who in reality envision radical changes for tax treatment, risk pooling, and coverage determinations in health care. It’s not a fair fight, and the longer it goes on, the more misinformation is likely to be spread about reform.

Most troublingly, journalists routinely let critics of reform take opportunistically partial potshots at legislation. First the critics complain about costs. Then, if a reformer proposes a public plan designed to contain costs, the complaint morphs into worries about “socialized medicine.” When it’s explained that the public plan will be just one of many options, a “slippery slope” appears: if it’s really so cheap, won’t everyone sign up for it? Reformers then point to consumers’ risk aversion and the presumed capacity of private insurers to innovate and attract customers. Unwilling to further investigate the many countries that vindicate that claim, most journalists just balance such arguments with assertions about the “road to tyranny” that any further government intervention entails.

If the media (or the “go-slow caucus”) showed a genuine interest in the health policy issues raised by reform, I’d welcome a months-long Congressional debate on policy minutiae. Instead, we get page after page and hour after hour of political gamesmanship, relating perceptions of perceptions of who’s up and who’s down in the polls. It’s no wonder the MSM is in crisis — it “splits the difference” among viewpoints well to the right of the average American’s views.

The longer the health care debate goes on, the more we can expect “dumbo journalism” about the hard issues at stake. We can rely on the elite media to translate their own frustration at trying to understand multiple, complex bills into reportage on an imaginary public’s anger and skepticism about the same. In short, we can expect more Rush–and that’s why there’s a rush.

The Broken Health Care “Marketplace”

While Mitch McConnell goes on Meet the Press to praise free enterprise in American health care, he ignores the market concentration that gives us vastly more expensive care than comparable countries. As Blue Dogs and other Dems start to tap on the brakes of health reform efforts, they would do well to consider the work of Tim Greaney and David Balto. Both have recently delivered Congressional testimony that indicates just how far health care is from a well-functioning, competitive market.

Balto is hardly a leftist on antitrust matters; for example, he has aggressively defended some Google initiatives now under scrutiny by the DOJ. But even he is alarmed by the extraordinary trends toward concentration in health care:

Few markets are as concentrated, opaque and complex, and subject to rampant anticompetitive and deceptive conduct. As the health care debate progresses, many advocate for limited reform of the health insurance system. Their belief is that it is a fundamentally sound market and with a little dose of additional regulatory oversight, all the ills of the market will be cured. They could not be more mistaken.

As a former antitrust enforcement official, I strongly believe the mission of the Federal Trade Commission and Antitrust Division of the Department of Justice is vital to protecting consumers and competition. However, in the past administration, the priorities of those enforcement agencies were not effectively aligned with the critical priorities in the health care market, with the result that there is substantial anticompetitive and fraudulent activity that raises prices and costs for consumers and the American taxpayer, especially conduct by certain health care intermediaries—Health Insurers, Pharmacy Benefit Managers, or PBMs, and Group Purchasing Organizations, or GPOs.

The full testimony appears here. Balto argues that “the Bush administration did not bring a single case challenging anticompetitive conduct by insurance companies,” while it “spent a hugely disproportionate amount of time, money and effort prosecuting relatively small groups of doctors.” By the end of the testimony, it almost appears that Balto has made his case too well, given the limited resources of current antitrust enforcers. It is hard for me to imagine them investigating even a fraction of the schemes and situations he describes, though perhaps some high profile cases (and partnerships with state attorneys general) would have an in terrorem effect.

Tim Greaney’s testimony before the Senate Commerce Committee paints a similarly grim picture. Greaney notes that, “by 2003, ninety-three percent of the nation’s population lived in concentrated hospital markets.” He quickly identifies the core problem in an increasingly sickly health care antitrust jurisprudence: courts’ short-sighted failure to understand the unconventional economics of medicine:

Legal decisions approving mergers of competing acute care hospitals have been roundly criticized. The judicial missteps can be traced to the courts’ tendency to oversimplify antitrust analysis by adopting plain vanilla, Chicago School assumptions about markets while failing to incorporate the effects of market imperfections in their analyses. Most of these decisions found extraordinarily large geographic markets for basic acute care hospital services as they ignored the heterogeneity of demand for care and the fact that consumers exhibit different preferences for [and ability to] travel.

Other cases refused to recognize supply side heterogeneity, failing to appreciate that mergers of “must have” hospitals may give rise to anticompetitive effects. To right the ship, the FTC has brought two recent hospital merger cases and undertaken retrospective reviews of the outcomes of several hospital mergers. Unfortunately, developing legal precedent takes time and effort and mergers may be attractive to the hospital industry during a period of legal uncertainty and regulatory change. An important priority for the FTC therefore should be to undertake close scrutiny of all horizontal consolidations by hospitals– including joint ventures involving physician-controlled specialty hospitals and outpatient facilities, none of which have been challenged to date.

Greaney also notes substantial failures in antitrust enforcement against physicians, health insurers, and PBM’s.

While Balto and Greaney focus on improving competition policy, I’m left wondering: can this market be saved? Greaney argues that “the nation’s competitive infrastructure — provider and payor markets — is not well designed to produce cost savings if reform proposals simply turn over the job to the private market. . . . [and] this quandary lends strong support to the idea of having a public plan option to nudge private insurers toward more vigorous competition and to serve as a backstop where markets fail.” A highly concentrated health care marketplace has neither the means nor the motive to discipline costs–external competition has to prod it in that direction. Well-designed health insurance exchanges will be key to success here.

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