By KIP SULLIVAN

Steven Brill’s latest book, America’s Bitter Pill, is a frustrating mix of excellent history and muddled health policy analysis. The book is a very good addition to the literature on the history of the Affordable Care Act and by far the best reporting I’ve read on the bungled implementation of the federal health insurance exchange. But Brill’s analysis of why the ACA cannot reduce health care costs is naïve and confusing. Brill claims a few smart men on the White House “economic team,” including Peter Orszag and Ezekiel Emanuel, fought hard to push “game-changing” cost-containment into the ACA but were defeated by others who were less interested in cost containment.

That explanation is wrong on two counts:

(1)There was little evidence in 2009, and little today, to support the claims by Orszag et al. that the methods they promoted would cut costs;

(2) The ACA in fact contains most of what Orszag et al. fought for.

What Brill unquestionably gets right is his conclusion that the ACA cannot cut costs. He makes his conclusion clear at the end of the book. He quotes this astonishing statement by Obama – “Frankly what we’ve seen in progress on costs has surpassed almost anybody’s most optimistic expectations” – and then unceremoniously rejects it. “But there is actually little evidence of that,” he writes. (p. 416)

But two paragraphs later Brill offers this explanation for why the ACA won’t lower costs: “The battles and closed-door deals of 2009 and 2010 emasculated the efforts by the White House economic team to use reform to ‘bend the cost curve.’ Like its Romneycare predecessor, Obamacare was the product of a choice … to increase coverage first and deal with costs later, if ever.” (p. 416)

That explanation is wrong.

Early in the book, Brill identifies the “White House economic team” as Orszag (head of the Office of Management and Budget), Emanuel (“on loan” from the National Institutes of Health to OMB), Larry Summers (head of the National Economic Council) and Bob Kocher (a member of Summers’ staff). These men were passionate about Managed Care 2.0 – the version of managed care that emerged in the wake of the HMO backlash of the late 1990s. The most important elements of Managed Care 2.0 are, in the order in which they achieved the status of conventional wisdom:

• Universal adoption of electronic medical records;
• shifting insurance risk to providers with payments for “bundled services” and “accountable care organizations” (ACOs) so that providers would have an incentive to offer fewer services; and
• various pay-for-performance schemes (such as punishing hospitals for “excessive” readmissions).

Orszag and his colleagues were passionate about these ideas. Other “reforms” they promoted included altering malpractice law and financing “comparative effectiveness research” (research which compares the relative effectiveness of different treatments for the same condition).

There was no reliable evidence in the early 2000s that these proposals could cut costs, and there is none now. In fact, the research available today suggests electronic medical records (EMRs), ACOs, and pay-for-performance (P4P) are all raising health care spending when the cost of implementing these ideas is taken into account. Although Brill is a prodigious researcher, he obviously did no research to determine whether EMRs, ACOs, and P4P were all they were cracked up to be.

Brill provides plenty of evidence that the Four Horsemen on the “economic team” were true believers in orthodox health policy. They believed that overuse of medical services (not high prices and administrative waste) was the primary cause of high health care costs; that the fee-for-service method of paying doctors and hospitals was the cause of all the alleged overuse (in fact, underuse is far more common than overuse); and that Managed Care 2.0 could reverse the fee-for-service incentive without harming patients or driving up administrative costs.[1]

If Brill had simply reported the unsubstantiated claims for EMRs, bundled payments etc. made by the “economic team,” we might excuse him for not noticing how flimsy those claims were. But Brill did more than just ignore the research: He bashed the Congressional Budget Office for reporting the truth – that there was no evidence to support the claims Emanuel et al. were making.

The CBO threw cold water repeatedly on the over-hyped nostrums promoted by the “economic team” and the entire managed care movement during the drafting of the ACA, beginning with a voluminous review of the evidence on 115 health policy “options” released in December 2008. In the December 2008 report, for example, the CBO concluded that authorizing CMS to punish hospitals for excessive readmissions, set up ACOs, and punish doctors and hospitals that didn’t buy EMRs, notions the “economic team” fought hard for, would save virtually no money (see Options 31, 37 and 47 in the December 2008 report).

Reporters and pundits universally reported that the CBO’s analyses of the Senate and House drafts of the ACA “shocked” the bill writers and the entire health policy establishment. For example, the New York Times reported, “Senators were shocked when the Congressional Budget Office said an earlier version of the legislation would cost $1.6 trillion over 10 years.” Brill reports that “one of Obama’s healthcare aides” interrupted a meeting at the White House on July 17 to report what the aide called “a bombshell”: “The CBO had just scored the House bill and declared that it would not result in any significant long-term health care savings.” (p. 139)

Obama and “a chorus of frustrated congressional Democrats” (as ABC News put it) heaped abuse on the CBO for refusing to knuckle under to the conventional wisdom the Democrats had come to believe in. Managed care advocates outside Congress, including the Commonwealth Fund and the Campaign for America’s Future, joined in the CBO-bashing.

But the CBO’s assessment of the so-called cost-containment provisions written into the ACA was far more accurate than the hype promoted by Obama, Nancy Pelosi, Orszag, Emanuel and the Commonwealth Fund. Consider the CBO’s estimate of Medicare ACOs, the central plank of the ACA’s cost-containment platform. In its December 2008 report, the CBO projected Medicare ACOs would cut Medicare spending by $5 billion over the decade 2010-2019 (see Option 37 p. 32). In its July 17, 2009 report on the House version of the ACA the CBO projected $2 billion in savings over the same decade (see page 5 of table at the end of the letter).

And now, six years later, what does the latest evidence show? According to a Kaiser Health News report, the two Medicare ACO programs (Pioneer and Medicare Shared Savings) combined raised Medicare spending in 2013 by $3 million. Note that all these sums – $5 billion, $2 billion,$3 million – are vanishingly small compared with the $5 trillion Medicare was projected to spend over the 2010-2019 decade, or even the $3 trillion the entire country spent on health care in 2013 alone.

Brill should have respected the CBO’s opinion. Instead, he enthusiastically joined Democrats in heaping abuse on the CBO. He called CBO staff “bean counters.” He characterized the CBO’s “process” as “unreal.” (p. 169) He claimed the CBO refused to “do its job the way people in the real world did.” (p. 157)[2]

In short, Brill’s argument that Orszag et al. promoted “game-changing” reforms is not accurate. He compounds this error by claiming that these “reforms” either didn’t make it into the ACA, or did so in an “emasculated” form.

But as everyone but Brill seems to know, Baucus and the White House saw to it that every conceivable managed care fad got written into the ACA. Orszag and Emanuel were the first to tell us so. In an article they wrote for the New England Journal of Medicine shortly after Obama signed the ACA into law, they stated, “[T]he bill will significantly reduce costs.” It will do so, they said, because it endorses virtually every over-hyped managed care proposal that Congress and the White House had ever heard of. Here is how they put it: “Indeed, one of the essential aspects of the legislation is that unlike previous efforts, it does not rely on just one policy for effective cost control. Instead, it puts into place virtually every cost-control reform proposed by physicians, economists, and health policy experts and includes the means for these reforms to be assessed quickly and scaled up if they’re successful.”

Brill got the most important fact right: The ACA contains no reforms that will cut costs. But his explanation for why that happened is wrong. The ACA’s inability to cut costs was not caused by the watering down of tough, evidence-based proposals by Obama’s “economic team.” It was due, rather, to the ineffectiveness of the nostrums proposed by the “economic team.”

[1] Brill reports, for example, that Orszag was “obsessed” with the fee-for-service system, and that he thought “the best ways to cut costs would be to use information technology to judge and act on the comparative effectiveness of drugs, medical devices, and other treatments.” (p. 58) We learn that Emanuel and Kocher had developed a “spreadsheet” even before Obama’s inauguration which “projected savings [of] more than $300 billion over ten years [from] reforms ranging from requiring doctors to use electronic medical records … to penalizing hospitals that had high rates of patients who were discharged and then readmitted within 30 days.” (p. 84) Brill reports that Emanuel and Kocher thought that consolidating hospitals and doctors into entities that could accept “bundled payments” (i.e., ACOs) would be a “game changer.” (pp. 113-114)

[2] Oddly, Brill never inquired about a mystery that baffles me to this day. Peter Orszag was the director of the CBO in 2008 when it did the research that it relied on to score the ACA legislation in 2009. Orszag’s signature is on the December 2008 CBO report. Did Orszag not read that report? How could Orszag sign a report in December 2008 saying “comparative effectiveness research” would actually increase federal spending (see Option 45) when, as Brill reports, Orszag had announced at a health policy summit convened by Senators Baucus and Grassley on June 16, 2008 that “comparative effectiveness research” was one of the most effective methods of cutting health care costs? Orszag also signed a May 2008 report by the CBO that tore apart the influential 2005 RAND report claiming EMRs could save $81 billion annually.

Kip Sullivan, J.D., is a member of the board of Minnesota Physicians for a National Health Program. His articles have appeared in The New York Times, The Nation, The New England Journal of Medicine, Health Affairs, the Journal of Health Politics, Policy and Law, and the Los Angeles Times.