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The Corner

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Not Reform, and Not Change Either



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The Obama administration began the year promising fundamental reforms in health-care to “bend the cost-curve” with painless “delivery-system reform.” Peter Orszag, the Obama administration’s budget director, went so far as to claim the administration would institute reforms in Medicare and Medicaid that would literally alter the way medicine is practiced in America.

But it’s not working out that way. Indeed, there’s nothing more business-as-usual than the cuts in Medicare and Medicaid the administration and their congressional allies are planning to partially pay for their government takeover of American health-care.

Take the much-touted “deal” with the nation’s leading hospital trade associations — which, by the way, is apparently not a done deal. The specifics of what was agreed to remain somewhat vague, but it is clear enough that what is being planned is nothing more than across-the-board payment rate cuts. Hospitals would get a smaller inflation update, and, beginning in 2015, smaller “disproportionate share” payments for taking care of lower-income and sometimes uninsured patients. All that talk about “rewarding quality” and “purchasing value” and “changing the delivery system” was apparently just talk. These cuts will hit all hospitals — the best and the worst — with basically the same percentage cut in their Medicare and Medicaid revenue. Low-cost, high-quality facilities will get cut just as much as low-quality, high-cost institutions. There’s no effort to steer patients based on hospital performance, or really even to tie payments to what happens in the facilities. It’s budget cutting, and that’s all that it is.

It’s also not surprising, and not new. This is always the way government runs health-insurance plans. Health-care policy types often talk of making health-care more efficient with innovative reforms, written and implemented by government bureaucracies. But the only thing the government ever really does to slow cost growth is pay providers less for the services they render. And it’s been done many times before (see, for instance, here and here).

Of course, nothing of lasting value ever comes from such arbitrary price-cutting. Hospitals shift costs to private premium payers, and perhaps tighten their belts for a while until the payments rise again. But they don’t fundamentally change how they operate, or organize their relationships with physicians any differently. There’s never been any bending of the cost-curve with these kinds of price controls, and there won’t be this time either.



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