In May 2009 the New Yorker published an article about Peter Orszag, President Obama’s director of the Office of Management and Budget and his chief health policy advisor. The article said Orszag was “obsessed” with the claim by Elliot Fisher and his colleagues at Dartmouth that unnecessary medical care accounts for 30 percent of all US health care spending. Based on these claims, said the article, Orszag had come to the conclusion “that a government empowered with research on the most effective medical treatments can, using the proper incentives, persuade doctors to become more efficient …, thus saving billions of dollars.” The article then observed: “Obama is in effect betting his Presidency on Orszag’s thesis.”
If you have read the first four installments in this series on President Obama’s article in the August 2 edition of the Journal of the American Medical Association (the first installment is here you will readily understand why I begin this essay on Orszag with that quote from the New Yorker. The New Yorker got it dead right. Because the Affordable Care Act would be regarded as Obama’s main legacy, and because Obama assumed that Orszag’s diagnosis of and solution to the health care crisis was accurate, it is reasonable to say Obama “bet his Presidency on Orszag’s thesis.”
Orszag’s thesis was, and still is, what I called the “Dartmouth syllogism” in installment two. In a nutshell, that syllogism assumes:
- Regional variation in Medicare spending, and therefore total spending, is due to overuse, not underuse,
- all that overuse is caused by the fee-for-service system, and
- the solution, therefore, is to antidote the FFS system by exposing doctors to insurance risk and micromanaging them.
But as we have seen in the last two installments of this series (here and here), the overuse diagnosis was at best grossly inaccurate, which means prescriptions based on that diagnosis had to be wrong.
A compartmentalizer extraordinaire
One of the great unexplained mysteries in the history of the Affordable Care Act is how Orszag ignored research he supervised that debunked the thesis Orszag sold to Obama. The research I’m talking about is a massive CBO report released in December 2008 entitled Budget Options, Volume 1, Health Care which threw cold water on numerous unproven managed care fads, including ACOs, “medical homes,” comparative effectiveness research, and penalizing hospitals for “excess admissions.” The Budget Options report, which examined 115 health care reform “options,” said the managed care fads would at best save the federal government microscopic sums of money over the decade 2010-2019 compared to the trillions of dollars Medicare and Medicaid would spend over that decade (and that wasn’t counting the costs to insurers and providers of implementing those proposals). 
Orszag was the director of the CBO between January 2007 and November 2008 when the Budget Options report was researched and written. As the 2009 New Yorker article put it, “While at the CBO, he produced the book that Congress uses to estimate the cost of various health-care ideas….”
When Orszag accepted Obama’s offer of the OMB job in November 2008, it was with the understanding that Orszag would also be Obama’s chief advisor on health care reform. As Ron Suskind reported in Confidence Men, “Obama said he wanted Orszag to assume an expanded portfolio as OBM chief, serving as the administration’s budget czar and also as the driving force behind health care reform.” (p. 142) And yet all the evidence indicates Orszag failed to communicate to Congress and the White House that the managed care ideas that so bewitched the authors of the ACA had been scored as saving little nor no money by the staff at the CBO – while Orszag was CBO’s director!
How could Orszag be surprised by CBO’s July 2009 report?
Here’s an example of the evidence I’m talking about. In his book America’s Bitter Pill, Steven Brill reports that the White House was shocked by the CBO’s July 17, 2009 report that the House version of the ACA (HR 3200) would have almost no impact on health care costs. According to Brill, the White House staffer who interrupted a meeting of advisors to report the news called the CBO report “a bombshell.” Brill goes on to quote a forlorn remark by another White House aide that indicates how totally ignorant of the CBO’s December 2008 report the White House must have been: “Orszag … and Nancy-Ann DeParle ‘rushed up to Capitol Hill to reassure them [i.e. Congress] that it would save money, but it’s not really true,’ wrote a White House aide in a journal.” (p 139)
How did this news come as a “bombshell” to the White House, especially one advised by Orszag? How could Orszag “rush up to Capitol Hill” and tell members of Congress with a straight face that the managed care fads in HR 3200 really would cut costs when the Budget Options report had said they wouldn’t? 
It appears that Orszag, who has no training and little expertise in health policy , really did become obsessed with the Dartmouth Atlas during a brief stint at the Brookings Institution before becoming CBO director. Once bitten by the Atlas bug, facts contradicting the Dartmouth syllogism, including those in his own Budget Options report, no longer registered with Orszag. Every chance he got, he repeated the Dartmouth syllogism.  The Atlas and articles by Dartmouth group scholars were usually the only citations Orszag offered. “Obsession” is a perfectly appropriate word to describe Orszag’s attitude toward the Atlas. 
Orszag’s overnight conversion to the Dartmouth ideology epitomizes what has been so wrong with the managed care culture since the early 1970s: Smart people surrender their critical faculties to health policy entrepreneurs bearing quarter-truth diagnoses and cleverly packaged, evidence-free solutions (HMOs, ACOS, pay-for-performance). They become true believers. Evidence that contradicts the ideology is ignored.
Orszag remains in denial today
Orszag’s ability to ignore data he doesn’t like remains intact today. He continues to claim that ACOs and other Medicare managed care pilots authorized by the ACA are lowering Medicare costs despite numerous studies that say otherwise. I’ll illustrate with a comment he made on a blog in 2013 and another he made in a paper accompanying Obama’s August 2, 2016 paper on the ACA in JAMA.
In a blog comment posted on September 24, 2013, Orszag criticized a paper published the week before by CMS’s actuaries in which the actuaries projected that health care inflation would remain low in 2013 and then accelerate in 2014 due to “improving economic conditions, combined with the coverage expansions in the Affordable Care Act and the aging of the population….” This was not what Orszag wanted to hear. He didn’t want to hear that the inflation lull had been due mainly to the Great Recession, because if that was true then the lull might well end in 2014 as the CMS actuaries were predicting. No, he wanted to believe the inflation lull was due in large part to the ACO and other managed care programs written into the ACA, and therefore that the health care inflation lull would continue even as the economy recovered.
“All things considered, I don’t put too much weight on last week’s report from the Medicare actuaries,” Orszag wrote. “And I’m willing to put some pride, if not money, on the table. The actuaries project that, in 2014, Medicare will grow by more than 5 percent. I bet it will be less than that. (Anyone who wants to take the over [sic] on that projection can e-mail me at the address at the bottom of this column, and we will check back at the end of 2014.)”
The reason Orszag was focused on Medicare, as opposed to total spending or private-sector spending, was that he believed the slowdown in Medicare spending couldn’t be attributed to the Great Recession (because he erroneously believed Medicare beneficiaries are “insulated” from economic downturns), and that the managed care fads written into the ACA were already having an impact on Medicare. Thus, he was betting that inflation in Medicare spending would not rise in 2014 even if an improving economy and first-year enrollment in Obamacare drove inflation in private-sector spending up.
Orszag’s confident prediction was wrong. Medicare inflation did exceed 5 percent in 2014. “After growing 3.0 percent in 2013, Medicare spending grew 5.5 percent in 2014,” the actuaries reported in a January 2016 paper. In an August 2016 paper, the actuaries projected Medicare inflation will remain in the 5 to 7 percent range over the next decade. I have googled Orszag’s name and several phrases looking for an admission by Orszag that he lost his bet, and have found none.
You might think Orszag learned a lesson from losing his bet, but you’d be wrong. Two months ago JAMA published a paper by Orszag in which he repeated his claim that Medicare inflation has been reduced by the “reforms” in the ACA. After acknowledging that the Great Recession did have a pronounced effect on private-sector spending, Orzag declared: “For Medicare, by contrast, the evidence shows little if any business cycle effect. The Medicare trend thus provides the most suggestive structural evidence of ‘bending the cost curve.’ The combined effect of the various ACA cost initiatives, none of which were dominant in and of themselves, caused a crucial shift in thinking that fee-for-service payment was ending. That shift in perspective in turn changed behavior even before the payment reforms were fully implemented.”
That, I submit, is magical thinking. Like the lull in private-sector spending, the lull in Medicare spending came to an abrupt halt in 2014. But Orszag could not bring himself to acknowledge that fact. He not only failed to mention that fact, he stated the opposite – that some “ACA cost initiatives” (that he couldn’t identify) “caused a crucial shift in thinking” (among people he did not identify) and this in turn caused “changed behavior” (which he did not specify) which in turn “bent the Medicare cost curve.” Any questions? Orszag engages in this tortured, misleading non-explanation because he is still in denial. If you think that’s harsh, please give me a better explanation. And this man was Obama’s chief health policy advisor.
Depending on how well the ACA functions over the next few years, we may look back at Obama’s presidency and conclude the biggest mistake Obama made was to “bet on Orszag’s thesis,” as the New Yorker put it.
Final lecture in this series
I have one more lecture to deliver in this series of imaginary lectures to help President Obama understand why the ACA is inflationary, not deflationary. That lecture will focus on the bad advice Obama got from Atul Gawande. Unlike Orszag, Gawande exercised his influence over Obama through his writing. But, like Orszag, Gawande bought the Dartmouth syllogism hook, line and sinker.
 Orszag also supervised the production of a report the CBO released in May 2008 that debunked the myth that electronic medical records could cut health care costs by $80 billion a year.
 Let me give you three examples of managed care fads the CBO had warned in its December 2008 report that it would not treat as cost-cutters that members of the House nevertheless wrote into HR 3200. The CBO said it would score Medicare ACOs as saving the federal government $5.3 billion over the decade 2010-2019 (or about one-tenth of a percent of Medicare spending during that decade); it would score “medical homes” as raising costs by $5.6 billion over that decade; and it would score comparative effectiveness research as raising costs by $.8 billion over the decade. (The CBO’s discussion of ACOs, “medical homes,” and comparative effectiveness research appeared in Options 37, 39, and 45 respectively of its December 2008 Budget Options report.)
But the gullible authors of HR 3200 wrote all three of these fads into HR 3200 – ACOs in Section 1301, “homes” in Section 1302, and comparative effectiveness research in Section 1401. Obama and his advisors had no business being surprised, therefore, when the CBO stated in its July 17, 2009 “bombshell” report almost exactly what CBO had warned Congress they would say in their December 2008 report, to wit, ACOs authorized by HR 3200 would cut costs by just $2 billion over 2010-2019 while “homes” and comparative effectiveness research would raise costs by $1.8 and $1.1 billion respectively.
 This 2005 announcement of Orszag’s appointment to a committee of the National Academy of Social Insurance indicates he had expertise in several areas, but health policy was not one of them.
 To illustrate what a clone of Elliot Fisher Orszag had become by 2007, I present four statements below, one by Fisher and three by Orszag:
(1) “If all regions could safely adopt the practice patterns of the conservative regions, Medicare spending (and perhaps health care spending overall) would fall by about 30 percent.” (Fisher, “Medical care – Is more always better?” New England Journal of Medicine 2003, p. 1666)
(2) “Researchers have estimated that nearly 30 percent of Medicare’s costs could be saved without negatively affecting health outcomes if spending in high- and medium-cost areas could be reduced to the level in low-cost areas – and those estimates could probably be extrapolated to the health care system as a whole. … [T]hat estimate would suggest that … roughly $700 billion each year … goes to health care spending that cannot be shown to improve health outcomes.” (Orszag, Testimony to the House Budget Committee , July 16, 2008, p. 4).
(3) “Some researchers believe health care costs could be reduced by a stunning 30 percent – or about $700 billion a year – without harming quality if we moved as a nation toward the proven and successful practices adopted by lower-cost areas and hospitals.” (Orszag, Testimony to the Senate Finance Committee, March 10, 2009, pp. 3-4)
(4) “Estimates from Dartmouth College suggest we could reduce health care spending by $700 billion a year without harming health outcomes if we could just get the more efficient practices in some parts of the country into the less efficient rest of the country.”(Orszag, interview on Frontline, March 24, 2009)
 The reporter for the New Yorker was not the only one to describe Orszag as bewitched by the Dartmouth Atlas. In Confidence Men, Ron Suskind reported that Orszag’s discovery of the Atlas threw him into “evidentiary heaven.” “By the time Orszag became head of the CBO in January 2007,” Suskind wrote, “he was carrying the Dartmouth charts to congressional meetings and preaching to anyone who would listen about the ‘evidence-based’ cure for rising medical costs.” (p 140) And in America’s Bitter Pill, Steven Brill used similar language to describe Orszag’s belief that managed care fads could tame health care inflation and that the economy would benefit greatly when that happened. “Orszag was consumed with the idea that healthcare was the economy’s Achilles’ heel,” wrote Brill. “Some of his friends considered him a fanatic about it, even linking it to the lanky economist’s obsession with diet and exercise.” (p 64) The title of an article Orszag wrote for Foreign Affairs gives you some idea of his attitude: “How health care can save or sink America.”