No "Preventive" Health Savings?
by John Goodman
Issue 125 - February 4, 2009

The Congressional Budget Office (CBO) recently lowered the boom on a set of health reform ideas by confirming what everyone should already have known anyway: You can't change the practice of medicine with demand-side reforms.

This is devastating. At least it's devastating if you're a member of the Obama health team. During the election, Obama's health advisors said they could save the average American household $2,500 a year through such reforms as coordinated care, preventive care, evidenced-based care, pay-for-performance care, electronic medical records and a slew of similar ideas. The CBO response? These reforms will save about 1% of what the Obama team projects, and maybe nothing at all. They may even increase costs!

Before you lament the fact that the CBO waited until after the election to tell us this bad news, know that John McCain endorsed the same reforms - as did almost every presidential candidate (without the ridiculous claims about monetary savings). They also have been endorsed by what I call the "new consensus" folks: left and right, business and academic, government and nongovernment, public and private sectors - including employer groups and third-party payers of all sorts. (I'll withhold the names out of respect for the families.)

The CBO report will come as no surprise to wonks who know that Centers for Medicare/Medicaid Services (CMS) has already been trying out all these ideas through pilot projects. As reported previously, these experiments have been hugely disappointing. No money is being saved. Contractors are pulling out. And CMS is considering cancelling some projects in mid-course.

So why did anybody ever think these ideas would work? Because they already are working in isolated spots, within the third-party payer system and with systematic regularity outside the system. But where they work, they are invariably supply-side, not demand-side, innovations.

So why do people cling to an approach to reform that doesn't work? Because it's impossible for them to do otherwise. Basically, there are two ways to think about health care: the technical (engineering) approach and the economic approach. People in the first group invariably want to tell doctors how to practice medicine. To them, doctors are the problem. The solution is to induce, incentivize, cajole, bully, intimidate, coerce, command, etc. doctors into practicing medicine in predetermined ways.

People in the second group understand that no one person, agency, etc. knows the best way to produce medical care. Instead, the best ideas come from the interaction of 800,000 doctors and 300 million patients. To allow those ideas to emerge, we need to liberate doctors, not impose more controls on them.

John Goodman is President of the National Center for Policy Analysis. For the CBO reports see, http://www.cbo.gov/ftpdocs/99xx/doc9925/12-18-HealthOptions.pdf and http://www.cbo.gov/ftpdocs/99xx/doc9924/12-18-KeyIssues.pdf