Reinhardt: Repeal Health Care, Make GOP Cut Costs

Go ahead. Repeal health care reform.

That’s what President Obama should tell Congressional Republicans, according to Princeton economist and health care expert Uwe E. Reinhardt. His logic: That way the GOP would have to come up with its own solutions to the health care cost crisis, many of which, he wagers, would look much like parts of the current law. “I think it would be a healthy thing,” he says.

A native of Germany who emigrated to Canada before moving to the United States, Reinhardt has served on many U.S. government commissions and advisory panels. Among them: the Physician Payment Review Commission, a congressionally established body that provides advice on Medicare matters, where Reinhardt served from 1986 to 1995.

In a freewheeling interview with The Fiscal Times, he critiques the new health care reform law – including its lack of cost containment – and recent proposals from the president’s deficit-cutting panel. Never one to mince words, Reinhardt also discusses what he sees as the real culprit behind soaring health care costs, why he doubts a single payer health care system could work in the United States – and where he believes the country’s founding fathers went wrong.

The Fiscal Times (TFT): How do you see the health care battle playing out next year, with Republicans in control of the House of Representatives?

Uwe Reinhardt (UR): The House probably will repeal the bill for cosmetic reasons so they can tell their constituency, “We repealed it.” If the Senate went along and repealed it, I think it would be good. Why? Because then you have a clean slate. You could say, “Okay guys, now the show is yours. Tell us what you’re going to do. Here’s a waitress, she’s got kids, she can’t afford insurance. What are you going to do about her?” And I think it would be a healthy thing to see happen.

TFT: But President Obama would surely veto any repeal of health care reform.

UR: If I were him I wouldn’t. I would say, “All right guys, you have the show. We tried, you do it.” He might or might not do that.

TFT: What if Republicans simply defund health care reform?

UR: Whether that’s smart or not remains to be seen. Their hope is that they can throw sand in the oil of this engine and it grinds to a halt, and then say, “See, we told you this bill wouldn’t work.” But what if for some reason it could happen that the Democrats actually learn how to communicate? And suppose they could persuade people that these are the benefits that you would have had, but [the Republicans] killed it and now let them come up with something else. And what Republicans would come up with would actually be fairly similar – that’s the irony of it. Most of this bill is actually Republican. You can trace back in history and find those proposals made by Republicans.

TFT: Where is the cost-containment in the massive health care reform act that Congress passed this year?

UR: There actually isn’t much to speak of. There’s hope and prayer in the bill. There’s a provision for comparative effectiveness analysis of different therapeutic approaches, including different drugs and so on. But I think that’s a fringe thing.

They’re talking about bundled payments instead of fee for service. That could potentially save a lot of money, but I’m not convinced that it actually will because once you specify the bundles then you have to negotiate who will deliver them and it could cost as much. Then they’re distributing some $20 billion for information technology, and that might help. But by and large that is it.

TFT: Why wouldn’t negotiations drive down prices?

UR: The private sector is not very effective in negotiating prices. The public sector can just put a lid on it and say, “That’s all we’re paying.” The private sector is the inflationary component of health care, not Medicare or Medicaid. Medicare and Medicaid haven’t grown faster, even though they deal with the older population. It’s the private sector that doesn’t know how to control costs.

TFT: Why are Medicare and Medicaid better at controlling costs than the private sector?

UR: Medicare and Medicaid are what we economists call monopsony buyers. They are big gorillas. Medicare effectively sets what it takes, take it or leave it. Medicaid does that too. But in the private sector every insurer negotiates with every hospital and every doctor. And it turns out that the hospital sector in particular is far more consolidated than the insurance industry. So it is quite possible in the highly splintered buying side that a provider with a big hospital system can just tell insurers to take a walk. So having more insurers doesn’t mean lower premiums, it means higher premiums. And there’s empirical evidence of that.

TFT: What do you see as the strengths and weaknesses of the health care reform act?

UR: Well, you should understand that the bulk of this bill is simply to extend health insurance to millions of Americans who cannot afford it, either because they are poor or have pre-existing conditions, and that will require $1 trillion of additional federal spending over the period 2014 to 2019. In fact, I think that the president would have been well advised just to leave it at that and not put all this other stuff in.

TFT: What kinds of other stuff?

UR: I think there is probably more regulation in this bill than was needed. They tried to fix too many things at once. In retrospect, one could have said just do the coverage expansion.

TFT: You have written that the reforms contain steps for getting better value per health care dollar. What did you have in mind?

UR: The most potent tool was this Independent Payment Advisory Board – a commission of stakeholders that would sit and make concrete cost-control proposals for Medicare and maybe Medicaid too. And if Congress rejected the recommendations it would have to come up with similar cost savings in another way.

If that commission worked it would have the power to contain Medicaid spending, which would help the deficit. The problem is that the Republicans, without killing the authorization for this body, could kill it by just not funding it, and they would get some Democrats to go along with this because a lot of Congressmen don’t like some outside body to tie its hands. My own feeling is that this commission that would be powerful is not going to survive.

TFT: Turning to the president’s commission on reducing the federal deficit, how would you evaluate the chairmen’s proposal to hold the growth of federal health care spending to GDP plus 1 percent after 2020?

UR: This, of course, is what everyone is dreaming of. All American health spending had traditionally run two-and-a-half percentage points faster than GDP, and everyone has always said that is not sustainable, because if that happens, by 2030 we’ll have less GDP for everything else. The problem is that if you make federal health spending – which is V.A., Tricare [for military families], Medicare and Medicaid – grow only 1 percent more than GDP, and the private sector continues to grow 2 percent more than GDP, then eventually what you get is that the fees in the public sector are so low that a lot of doctors won’t take Medicare patients, won’t take Medicaid patients, won’t take Tricare patients.

Ultimately, if you went to GDP plus 1 percent you would have to control prices, and you would get a two-tiered system. Medicare prices would be only half of what the private sector pays and you would have a huge access problem.

TFT: What about the commission chairmen’s recommendation to offset the “Doc Fix,” which reverses a pay cut for physicians whose fees exceeded the budget for treating Medicare patients, by asking health providers and others to slow the growth of health care costs? The chairmen’s recommendations include expanding cost-sharing for Medicaid and adopting comprehensive tort reform.

UR: These are all hope and prayer things. Seems to me you should say, “You want your doctors paid properly? We’re going to raise taxes. Put it on the payroll tax.”

TFT: What would a high-performing national health care system look like?

UR: I think the Germans, the Swiss, the Dutch have a perfectly fine approach. It’s not a single-payer system. While I’m a Canadian I am not for [single payer] in the U.S. because we do not have a political system that can handle it responsibly. Canada has a parliamentary system that insulates considerably the public program from lobbying.

TFT: What do you like about the other countries that you mentioned?

UR: The German system is a payroll-based, private system with 200 nonprofit sickness funds that compete for patients through an exchange with risk adjustment and tight government regulation. The Swiss and the Dutch operate that way. So it’s private but under tight government regulation. And I think these systems function very well. They’re cheaper than ours.

TFT: You have studied hospital pricing systems around the world. What lessons do they offer for restraining prices?

UR: What is needed in hospitals is a management information system, and it’s actually doable – these systems exist. Tracing every order entry of every doctor for every patient by every input, so that you can create files of costliness of treating patients by doctor. The other innovation we need is not so much in the hospital. We should have an all-payer system where every payer – Blue Cross, Medicare, Medicaid, you name it – pays the same fee for every service. But to do that you really have to have universal coverage.

TFT: So you favor universal coverage but not a single payer system?

UR: For other countries I do [favor single payer] but we can’t run it. You need a responsible system of governance. Whatever you can say about U.S. governance, you cannot call it responsible. You really couldn’t. I think the founding fathers gave us an impotent government that acts quite irresponsibly. I don’t think parliamentary systems are that bad.