A Dime Spent Is a Penny Saved

This is the kind of math that requires three Harvard degrees to understand. Donald Berwick, head of the Centers for Medicare and Medicaid Services, is going to spend $10 billion on “Medicare innovation” over the next ten years…to save $1.3 billion. From the Boston Globe (h/t InsureBlog):

Berwick is using a tool that Congress included in the new health care law: an innovation center with $10 billion to spend over the next decade in a quest for the best ways of improving care and reducing costs.

The launch of the test sites by the end of 2011 is just a first step in changing the fundamental ways the government pays physicians and hospitals. Over 10 years, the innovation center’s work is expected to save $1.3 billion on the $500 billion annual budget of the Centers for Medicare and Medicaid Services, the sprawling federal insurance bureaucracy Berwick now leads. Health care policy advocates had sought far more aggressive cost-control measures.

Berwick’s defenders argue that this $1.3 billion estimate is pessimistic, and/or that it is merely the short-term savings that Berwick will engineer, and that his ideas will save tens, if not hundreds, of billions of dollars in  ensuing decades. There is little if no reason to believe this will be so. The history of Medicare is full of attempts to control costs by dancing around the periphery of the program, and none of these attempts has worked.

The core problem of Medicare is that retirees have no incentive to think about cost or value when they obtain medical services. Nothing in Obamacare, and nothing that Berwick envisions, will do anything to change that.

Avik Roy is an equity research analyst at Monness, Crespi, Hardt & Co., and blogs on health-care policy at The Apothecary.

Avik Roy — Avik Roy is the President of the Foundation for Research on Equal Opportunity (FREOPP.org), a non-partisan, non-profit think tank.

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