Is There Anything Left of the Administration’s Argument for Healthcare Reform?

Cross posted from the Enterprise Blog:

Beginning even before its inauguration, the Obama administration set forth what appeared to be a compelling rationale for healthcare reform. But, piece by piece, that rationale has fallen apart.

The administration began with an argument that rising individual health costs, not population aging, was the biggest factor pushing entitlement costs and the future budget deficit. Office of Management and Budget Director Peter Orszag called per-capita health costs the "real deficit threat." But as I and others showed, and as the Congressional Budget Office now agrees, demographics will be by far the biggest driver of entitlement costs over the next several decades. Even if you do manage to "bend the cost curve," it won't fix the problem, since so much of the cost is simply a combination of more retirees and fewer workers.

Next, the administration focused on a number of "game changers" they claimed could dramatically reduce health spending. These included preventive care, health information technology, management of chronic diseases such as diabetes, and so-called comparative effectiveness research (CER) that found the most cost-effective treatments.

But one by one, these game changers have been shown to be less than touted when it comes to cutting costs. While these steps may improve quality, it seems we can't bank on them saving significant money. Regarding preventive care, for instance, one survey article concluded that "although some preventive measures do save money, the vast majority reviewed in the health economics literature do not." Likewise, health professors Stephen B. Soumerai and Sumit R. Majumdar wrote in The Washington Post that while health IT "has popular support, there is little evidence that currently available computerized systems will improve care. In short, it's the wrong investment to make at this time." And in an analysis of the academic literature on disease management, the CBO said, "there is insufficient evidence to conclude that disease management programs can generally reduce overall health spending."

Now my inbox brings a new National Bureau of Economic Research working paper regarding comparative effectiveness research by Anirban Basu and Tomas J. Philipson of the University of Chicago. They find that when there is heterogeneity in the effectiveness of treatments—meaning, simply, that different treatments work better for different people—comparative effectiveness policies may hurt treatment quality and impose costs by imposing a "one size fits all" approach to medicine. If everyone reacts to treatments the same, then finding the most cost-effective treatment can save money and improve care. "In contrast," they say,

CER may increase spending and adversely impact health under plausible assumptions of how markets respond to quality information. This was particularly relevant when treatment effects are heterogeneous as product-specific coverage policies failed to account for patient-specific treatment effects. We illustrated these economic effects for antipsychotics that are among the largest drug classes of the US Medicaid program and for which CER has been conducted. We simulated that if subsidies were eliminated for atypical based CATIE trial, a loss of value at 8% of class spending would be observed.

The point isn't that comparative effectiveness research makes no sense, nor is it that the other reforms proposed above by the administration shouldn't be carried out. It's that there's been a vast exaggeration—partly by the administration, and more egregiously by activists and the opinion press—of how much costs would actually be cut. Many people came to believe that with these new game changers the health system would all but fix itself. It's become increasingly clear why these claims aren't true. What we're left with is a health bill that expands eligibility, increases government control over private-sector healthcare, and raises taxes to (partly) fund it, with only token attempts at real cost-cutting.