Cheerleaders and Analysts

On Tuesday (September 25, 2012) I picked up my Wall Street Journal and like I always do, turned to the Opinion page.  One of the headlines caught my eye, “The Democrats’ Market-Friendly Health-Care Alternative.”   I thought it curious.  The Democrats have a new approach; something other than the Affordable Care Act?   Before I read the article though, I saw the author, Ezekiel J. Emanuel.  For those not familiar with Dr. Emanuel, let me give you some background.  He’s the brother of the mayor of Chicago and former White House Chief of Staff for President Obama, Rahm Emanuel.  He’s a medical doctor and author of dozens of academic journal articles, including an interesting one that introduced the “complete lives system” to the world (Govind Persad et al., “Principles for allocation of scarce medical interventions,” Lancet, 2009). 

The NFL’s recent woes with its replacement referees had me thinking about all things football; not what happens on the field, but on the sidelines and in the broadcast booth.  After reading Emanuel’s piece, it became clear to me that some people are analysts and some people are cheerleaders.  And it’s not that I disagree with Emanuel (though I do), it’s my disappointment that some people are so quick to shed all vestiges of analytical objectivity to push an agenda. 

Take for example, Colin Cowherd, ESPN analyst and sports analyst.  Cowherd is a pretty opinionated guy and pushes his perspective hard; to the point where everybody else is wrong and he’s right.  He’s not a cheerleader though, he’s an analyst.  He uses fact and logic.  He listens to other perspectives.  He may agree or disagree, but he doesn’t come off like a cheerleader.  He leaves his analyst’s hat on and doesn’t trade it for pompoms to join the pep squad. 

I am convinced that Emanuel is behaving more like a cheerleader than an analyst.  Let me give you a few examples from the article to make my point.  In the first paragraph he claims that the ACA encourages “providers to be more efficient, innovative and focused on keeping patients healthy.”  He references a Medicare program, the Acute Care Episode (ACE) Demonstration that is being piloted in 5 hospitals.  In San Antonio’s Baptist Hospital the gain-sharing incentives helped reduce short term costs by more than $2,000 per case for designated episodes.  In addition to the early success in San Antonio, clinically integrated programs such as Geisinger Health Systems have had similar success.  Right now it will be difficult to expand ACE beyond orthopedic and cardiac care because there are no standards for constructing “episodes.” 

There is no also reason that such an integrated program cannot be created outside the ACA.  In fact, Geisinger and Kaiser-Permanente have been providing care in integrated systems for a long time without the help of the ACA.  On the downside, there are very few systems around the country that have the necessary market share to absorb the risk and invest in the technological infrastructure to successfully take advantage of the benefits of integration.  There is also a danger with too much integration.  Efficiency lowers price, but only in competitive markets.  Extensive integration increases concentration and reduces competition.  The results are either higher prices or more regulation to control prices.  Pilot projects are fine, but are they scalable to the larger system? 

According to Emanuel the alternative is nothing more than “shifting the financial burden to patients, businesses and states.”  This statement is an obvious reference to the Ryan premium support plan for Medicare.  Emanuel, showing no faith in market forces, then states that “there is no evidence that competition among insurance plans would do anything to address the underlying costs of health-care providers.”  But David Cutler, Harvard economist and fellow cheerleader, published a study in August 2012 New England Journal of Medicine and found that the competitive bidding process in the existing Medicare Advantage program resulted in 9 private plans that were cheaper than traditional Medicare.  His work mirrors that of Feldman, Coulam, and Down (American Enterprise Institute, “Competitive bidding can help solve Medicare’s fiscal crisis”) that shows a 9.5% savings.  Even Robert Pear writing in the New York Times (“Despite Democrats’ Warnings, Private Medicare Plans Find Success”) concludes that Medicare’s two privately-run programs, Medicare Advantage and the out-patient prescription drug program, Part D, are both quite popular and relatively successful in controlling spending.   Maybe if we say “private plans shift the financial burden” often enough, people will start to believe it. 

In the third paragraph Emanuel states that the CBO “found that administrative costs of private insurance are higher than such costs in Medicare.”  Well, the CBO (and many other cheerleaders) may have come up with such a finding, but that doesn’t make it so.  The estimated administrative costs of Medicare are between 2.8 and 3.4%; adding Medicare costs that are paid by other government agencies to support Medicare raises the estimate to 5.7 to 6.4%.  Using the same metric, the administrative expense of private insurance is estimated to be between 14 and 22%, but this includes non-administrative costs such as the cost of disease management services provided by the insurance company and premium taxes charged by some states that amount to an estimated 11.4 to 13.2%.  A more accurate accounting of private administrative costs would be between 2.6 and 8.8%.  Using a different metric, administrative costs measured on a per beneficiary basis (rather than per dollar spent) show that private insurance is actually more efficient.  Relative efficiency depends on how you measure it.  Cheerleaders always use the one that is most favorable to their side. 

Further, Emanuel argues that the Ryan approach will result in too much competition and “no single insurer would have sufficient market share to catalyze changes in the way health care is paid for and delivered.”  If the truth were known, the Obama approach will result in too much concentration with large, vertically integrated health care systems dominating the landscape.  The emphasis on accountable care organizations (ACO) has led to a flurry of merger activity with hospitals acquiring physicians’ practices at record levels.  These systems will integrate 5 levels of provision: general practitioners, specialists (and the clinics they both work in), hospitals, rehabilitation centers, and health plans.  We’ll see their geographic influence stretching for hundreds of miles covering tens of thousands of lives.  Emanuel voices concern that the Ryan plan will lead to “return to the managed care days of the 1990s.”  The Obama plan will lead to massive closed-panel HMOs with their limited access to providers and services. 

Finally, Emanuel extols the benefits of the Independent Payment Advisory Board (IPAB) with its powers to set prices, raise taxes, and do just about anything that Congress can do.  The 15-member board is accountable to no one.  Quorums are one-half of the appointed members with no minimum number.  If the Senate only confirms one person, then that person performs the duties of the board.  If no one is confirmed, then the Secretary of HHS is responsible.  Don’t put it past the president to use recess appointments to fill the positions, even if the Senate is in session.  IPAB is not required to hold hearings or accept public comment, and its decisions are not subject to judicial review.  Now that’s something to cheer about. 

I agree with Emanuel “Americans face a clear choice between two competing visions.”  I also disagree with his depiction of those competing visions.  Calling Obama’s plan a market-friendly health-care alternative doesn’t make it market friendly.  Pointing out a few beauty marks and ignoring all the warts is not analysis. 

I expect Baylor’s cheerleaders to rabidly support their team, emphasizing 9 touchdowns scored and 700 yards total offense.   But I doubt if Colin Cowherd will feel the same way.  He’ll likely point out that Baylor’s defense gave up 10 touchdowns and 800 yards total offense, resulting in a 70-63 loss.  But that’s the difference between a cheerleader and an analyst.

Fact Checking the President

In a campaign stop in Florida this weekend, the President discussed Medicare reform, or at least the Republican version of it.  Citing a new study from the progressive Center for American Progress Action Fund, tied closely to the administration, the President claimed that the Romney-Ryan reform proposal “would mean as much as $16-26 billion in new profits for insurance companies.” Continuing his criticism he said: “Your costs would rise by the thousands and the insurance companies’ profits would rise by the billions.” Just how accurate is this study cited by the President? 

First of all the authors (well at least one of them) are heavyweights in the health policy debate.  David Cutler, Harvard economist and former Obama adviser, is the lead author in this Internet hit piece.  Second, the study purports to analyze the Romney-Ryan plan using data from several reports provided by the Congressional Budget Office (CBO) examining the impact of Ryan’s 2011 budget plan as it pertains to Medicare and Medicaid (without its most recent revisions).  In other words, Cutler’s analysis does not take into consideration of recent changes in the Ryan approach. 

Cutler’s angst is primarily focused on Romney’s promise to repeal the Affordable Care Act and not the long-term sustainability of traditional Medicare.  (In all but one week since passage of the ACA, Rasmussen’s tracking poll reports that at least 50% of those surveyed favor repeal of the legislation.)  There are several obvious omissions in Cutler’s analysis.  Looking at the reference section of the report, there are two obvious omissions that stand out.  He cites several points made in a paper by Ezekiel Emanuel in the August 2012 New England Journal of Medicine (“A systemic approach to containing health care spending”) without citing the counterpoint paper in the same publication by Antos, Pauly, and Wilensky (“Bending the cost curve through market-based incentives”).  In addition he failed to cite his own paper in the August 1, 2012, Journal of the American Medical Association (“Potential consequences of reforming Medicare into a competitive bidding system”).  I guess Cutler doesn’t like alternative views, even if they are his own. 

The viability and acceptance of any premium support plan depends critically on the type of coverage available in the plans offered and the adjustments to the premium support levels.  Ryan’s most recent plan requires that a traditional Medicare option is always offered and that at least one of the plans available at the benchmark premium has traditional Medicare benefits.  The target for spending growth is set at the growth in GDP plus 0.5% and not the CPI as reported by Cutler.  In fact, if spending exceeds the target, Congress is required to act in much the same way that the Independent Payment Advisory Board does to curb spending growth.  To date I haven’t seen Cutler lashing out at the IPAB. 

The basis of the CBO report on the Ryan plan are simply too pessimistic.  Self admittedly “CBO does not have the capability at this time to estimate such effects [of a competitive bidding process] for the specified path of Medicare spending”(CBO, “The long-term budgetary impact of paths for federal revenues and spending specified by Chairman Ryan,” March 2012).

I’m currently working on a more detailed critique of the Cutler report and hope to have it available shortly.

Private Medicare that Works

I told my undergraduate health economics class today that only members of Congress read the New York Times.  Well, for the second day in a row I’m writing about a Times article.  I’m not a member of Congress so I must be wrong about the newspaper’s readership.  I’ll admit that I’m not in agreement with much of the editorial content of the New York Times, but when I do agree I should acknowledge that fact.

Robert Pear writing this past weekend (“Despite Democrats’ Warnings, Private Medicare Plans Find Success”) looks at the success of Medicare’s two privately-run programs, Medicare Advantage and its out-patient prescription drug program, Part D.  Both have proven quite popular and relatively successful in controlling spending.  Medicare Advantage provides primary insurance coverage to over 12 million enrollees, over 25% of the eligible population.  The competitive bidding process for 2013 recently concluded and for the third consecutive year premiums remained constant.  Similarly, Part D, which is exclusively private coverage, provides drug coverage for a premium that is 30% lower than predicted when the program began.

Competition and choice are powerful partners providing incentives to improve efficiency and hold down spending.  These are the same incentives that Paul Ryan believes can accomplish similar results for the rest of Medicare.

But Ryan has his doubters.  When Part D was being debated in the House 10 years ago, then Speaker Nancy Pelosi said: “Most seniors will be worse off.  This is the beginning of the end of Medicare as we know it.”

In the same vein Democrat Senator Tom Harkin said: “We hear the claim that private-sector competition will drive down costs and save Medicare.  Nonsense!”

I don’t give much credence to bloviating, partisan politicians.  I tend to agree with serious scholars like Roger Feldman, University of Minnesota health insurance professor, when he said: “Competitive bidding could save a substantial amount of money, helping solve Medicare’s fiscal crisis.”

Ryan’s premium support plan to reform Medicare is based on competitive bidding.  Instead of relying on the US taxpayer to shoulder the entire financial risk associated with the growth in Medicare spending (the case with traditional Medicare), why not let private insurers share in that risk (like in Medicare’s Advantage and Part D programs)?  Maybe Paul Ryan is on to something.

Note to self: Don’t be so hard on the New York Times.  Occasionally, they get it right.