‘Shoot Me Last’ Is Not a Viable Health-Care Business Strategy

Earlier this week I interviewed Rep. Paul Ryan on Obamacare’s impact on health-care innovation, and he explained how Washington’s addiction to health-care price controls breeds Stockholm syndrome among the myriad hospitals, physicians, and drug companies who pay millions to D.C. lobbyists to try and stave off execution via reimbursement formula one more day (or, in this case, one more budget cycle):

For providers in an [Independent Payment Advisory Board] price-controlled system, they’re really just trying to pay their hostage takers to shoot them last, and that simply won’t work. Providers are beginning to realize this. They’re beginning to realize that hard-core price controls don’t pay them based on quality. Even if they innovate, even if they work hard, even if they increase productivity, they’re paid the same as anybody else who doesn’t do that. They’re not being rewarded in the way the market would reward them for [innovation].

If Obamacare has improved the prospects for true market-based health-care reforms, it is only because it has made it starkly clear that the status quo is unsustainable. Innovative companies and physicians know that if we go forward, they will find themselves squabbling over an ever shrinking pool of reimbursements, with no ability to appeal to the market (i.e., consumers) for the rewards commensurate with their investment in health-improving innovations. 

Lobbying Congress to shift cuts to your competitors is no longer a viable option when IPAB will cap Medicare spending at GDP+1 (or, in the case of President Obama’s latest proposal, GDP+.5), and the cuts have to fall annually. Providers’ only solution is to stop seeing Medicare patients entirely, or to treat them as widgets and pump them into and out of the system as fast as you can — hardly a recipe for quality health care. The only real alternative is to embrace something like Chairman Ryan’s proposal for a defined-contribution structure for Medicare, and for the health-care sector as a whole (via tax reform).

And then there’s the “size” problem. In an age when the Internet, electronic health records, and personalized medicine should enable more individualized care, Obamacare ratchets up the costs for small physicians’ groups and insurers and then drowns them in red tape. The end result is a monopsonist federal government negotiating with handful of oligopolies, as Walter Russell Meade writes in a recent blog post:

Health care reform needs to encourage innovation and flexibility. The rise of enormous, super-empowered HMOs closely tied to government regulations suggests we are headed further in the direction of building a corporatist, medico-industrial complex whose powerful lobbies will fight reforms, abuse monopoly powers and further congeal the American health care system into an unmanageable and unaffordable form that will undermine living standards while providing ever-less-satisfactory care.

This leaves us with Yuval Levin’s observation that “the core case against Obamacare must be a sustained political case made on policy grounds,” not the outcome of any Supreme Court case.  Whether or not the nation’s health care policies change course — no matter what SCOTUS rules in June — will largely depend on the articulation and defense of a superior vision for health-care reform that captures the hearts and minds of voters who’ve been told that they can’t trust markets to provide quality health care.

Paul Ryan has articulated much of that vision. Whether it will be adequately defended will not be known until next November.

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