America’s Bitter Pill: CBO was Right. The White House and Steven Brill Were Wrong.

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.

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19 replies »

  1. Kip’s kinda-sorta mostly self-serving whine about Brill accurately highlights Brill’s flaws while failing to defend Kip’s own preference for letting clinicians charge whatever they want, because myopic, transactional fee for service was apparently a brilliant financial arrangement for helping keep people as healthy as they’re able – how could we have missed that?

    Of course any compromise that said, “ok then, let’s let nurses, for example, have more discretion over treating the routinely ill/injured/unhealthy without some kind of obligatory physician oversight, and we’ll obsess less over what you charge, doc” would be met with howls of protest, so the matter is never surfaced in Kip’s prescription.

    Rogue’s right – we’re all more or less hypocrites

  2. Peter, I understand your point now. Force people to work at your terms, your choice of payment and your instructions. Sort of like indentured servants. That is one way of potentially lowering prices.

    Medicare sets fees they are willing to pay and the physician must accept that fee unless the patient pays out of pocket. Have you seen Medicare costs falling?

    Where is the incentive to save money? There is none under your method of choice unless you call denial of treatment a way of saving money. That is the problem. We have to figure out ways of reducing the costs of healthcare while providing quality. Why should any physician or provider break his butt trying to reduce costs when he doesn’t benefit from it?

  3. “the White House saw to it that every conceivable managed care fad got written into the ACA”
    “because it endorses virtually every over-hyped managed care proposal that Congress and the White House had ever heard of.”

    …and the result: “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.”

    It astounds me that so many extremely smart, well educated people go bonkers when they get the chance to put in place health policy ideas and seek to transform the entire system on the basis of no pilot studies or experiments or evidence that their ideas will work.
    Kip, an excellent synopsis! Thank you!

  4. For single-pay to work (lower costs) providers would have to accept negotiated less reimbursement. Single-pay is not worth it if we just keep paying the same for services.

    If a provider can get higher pay in another state they’ll just drive to another location. That’s one reason the single state solution Vermont was attempting failed – or would have. This has to be a national solution – with state management.

    Canada’s doctors have drooled over U.S. compensation (disregarding higher mal/med insurance) but going across country borders is harder than driving across state borders.

  5. Peter, two points:

    1) The US has not had a free market healthcare system since WW2. Third party payer and other things are not free market ideas.

    2) Medicare is the closest thing to single payer. It is virtually the only significant payer for the entire group over age 65.

  6. Peter, You made a very clear statement: “providers could have bolted” That requires an explanation. You don’t have to provide it, but you could have declined to provide it more civilly.

  7. Yes Rogue I realize the differences in single-pay across countries (I’ll take the German or French, or British, or Canada), the Swiss system being closest to a private system but also the most expensive cost in all the single-pay systems. The closer to totally “free” enterprise a system gets, the higher the costs, with the U.S. the highest in the world (x2).

    All single-pay systems have flaws, all democratic systems have flaws, life has flaws. But until the U.S. realizes that more government control of prices/costs is the only way to keep us solvent in health care we will have to put up with the expensive dysfunctional going-off-the-cliff system we have. Single-pay is not just who pays the medical bills, like Medicare, but who controls the entire system. Single-pay is negotiation with independent providers, and price setting, and cost control of the entire system. Medicare is just another insurance company, it’s not single-pay.

    Yes, I understand the hurdles of single-pay in this country and why Vermont’s try failed:

    Change is hard for people and of course everyone wants a no pain take a pill quick solution to a complex problem, that’s why nothing is getting done in this country, not just health care. That’s why Trump is doing well in the polls – “He can quick fix things that won’t cost me anything”. But it’s a fantasy.

    But all this doesn’t mean single-pay is a bad idea to control the cost problem, because that’s what we have, a cost problem.

  8. Peter, there is no pure single payer model. Even Britain’s NHS is a two-tiered system. Every system has flaws – these flaws may not necessarily disappear if the the system becomes purer.

    Single payer will be more restrictive for many. It will be less restrictive for some. The reason why single payer was not voted in Vermont was because many liberals, while supportive of single payer in theory, did not want their care compromised, or have to pay a higher tab.

    Similarly, while Harvard liberal arts professors supported the idea of Obamacare and financial redistribution, they were not happy when a similar ledger was imposed upon them.

    This is human nature, Peter, and it is better to be bemused by it than to begrudge it.

    We’re all flaming hypocrites – to lesser or greater degrees.

  9. Allan, I refuse to debate with you as you run your arguments in circles. It is a fools exercise to proceed.

  10. Peter, time after time we hear the excuse that X “was in a difficult situation”. It was in a perfect situation. Small population and apparently a willing public. A small population makes it easier, not harder.

    Why would providers have bolted? Explain yourself.

  11. Rogue, you don’t grasp the workable solution that single-pay produces. It regulates market prices. Regulation can’t occur when there is an opt out. The bitter truth about health care cost reduction.

    Vermont was in a difficult situation, small population and no other state adopted the single-pay model, in that scenario providers could have bolted.

  12. Allan, how many Canadians “hop” across the border for U.S. care at Canadian prices? The only person with an illusion is you.

  13. Peter is applying the “there’s no true Scotsman” argument, which people resort to when their pet policy prescription doesn’t produce the results that they thought it should.

    On another note, I don’t think liberals like single payer in practice as much as they like it in theory. Case in point: Vermont.

  14. By that logic Canada would not be single pay since most Canadians live near the US border and can hop to the US for care.

    The idea of a single payer system as a solution is an illusion.

  15. I agree. Brill did a much better job with the original piece in Time. The book version became a long-winded – and tedious review of Obamacare. His thoughts around solutions are juvenile and naive – as if Obamacare is the only solution available – and the only one we’ll ever get.

    What Obamacare represents is simply our first – somewhat tentative – step out of the healthcare wilderness we’ve been wandering around in for decades.

  16. Thanks Kip for another excellent article.
    At this point, the for-profit insurance industry would probably be glad to turn over the ACA to a Medicare public option. The for-profit companies cannot make money on the older, sicker pool of the ACA plus guaranteed issue.

    One sentence in the article stood out to me, which was the comment that Obama was impressed by projected savings of $300 billion over 10 years due to EMR and other reforms. This is a constant flaw of these 10 year projections that Congress is addicted to.
    Hardly anyone notices that $30 billion a year is absolute peanuts in overall health spending. Dean Baker at the blog Beat the Press is a rare pundit who constantly points this out.

  17. Irving, Medicare may have been competition to the insurance industry but it would not have lowered costs and maintained access unless providers were willing to accept Medicare rates and Medicare was allowed to bargain down drug prices.

    How would you have stopped providers from opting out of Medicare?

    Medicare cannot be considered single-pay, now or in the future, as long as this country maintains an opt-out option for providers.

  18. In my estimation, the primary tool for controlling costs in the Affordable Care Act would have been the inclusion of the public option. This would have provided a nonprofit option to the for-profit health plans that eventually made it into the competitive scene of the ACA. The competitive marketplace would have allowed the government to actually see if a single-payer option would have drawn enough subscribers to actually drive down the costs while providing comparable quality of care. Under intense lobbying pressure by the insurance industry, that option was not allowed into the arena, to mix the metaphor. The tools (or armaments) Mr. Sullivan derides were not provided to right warrior.