Ethics & Public Policy Center

The Other Stealthy Obamacare Menace

Published in Wall Street Journal on April 24, 2014



The Affordable Care Act’s Independent Payment Advisory Board has been so heavily criticized for being an unaccountable body with the power to effectively ration Medicare services that many congressional Democrats no longer support it. IPAB’s bureaucratic cousin—the Center for Medicare and Medicaid Innovation—deserves the same treatment.

Both institutions are in place to preserve rather than reform Medicare’s traditional, and broken, fee-for-service Medicare program. They both also embrace the ObamaCare technocratic mind-set.

IPAB’s 15 supposed experts (yet to be nominated by the Obama administration) are charged with governing a program with more than 50 million enrollees. The unstated yet clear agenda is to impose stricter price controls within Medicare. The long, sad history of price regulation—in Medicare and elsewhere around the world—reveals that these controls cut costs only by lowering quality and inducing non-price rationing (e.g., queues).

The Center for Medicare and Medicaid Innovation has flown below the political radar. That’s due to its seemingly innocuous mission: promoting new and more efficient “payment systems” and “models of care.” But this agency is just as dangerous as IPAB. It is a bureaucracy within the massive Department of Health and Human Services superstructure and therefore run by the president’s political appointees. But unlike most of the federal bureaucracy, the agency never has to go back to Congress to get an appropriation. ObamaCare provided it with $10 billion, upfront, to cover its costs for a full 10 years.

At the end of that first decade, and every decade thereafter, the agency will get another $10 billion appropriation. This massive infusion of funding has allowed the Center for Medicare and Medicaid Innovation to grow from 68 employees in 2012 to a planned 440 full-time workers in 2015. About 10% of the agency’s funding is going to personnel and administrative expenses.

Permanent, recurring appropriations are sometimes provided to federal agencies fighting fraud and abuse. But Congress generally requires other agencies to request a new appropriation every year. It’s one important check against bureaucratic abuse of power. And it’s a check that this agency will never have to go through.

The statute also gives the Center wide-ranging authority to alter the Medicare and Medicaid programs without further congressional action. It is supposed to be testing new ways to pay providers of medical services. Changes that are found through pilot programs to reduce costs without harming quality, or found to be budget neutral while improving quality, can be implemented nationwide through regulatory fiat.

The agency’s broad mandate reveals the mind-set of ObamaCare’s authors. The premise is that the federal government is best positioned to lead an effort in innovation in medical delivery, despite all evidence to the contrary. The history of Medicare’s payment systems over four decades is one of politicized decision-making by regulators, protection of incumbent providers, and roadblocks to new medical technologies and new ways of doing business, such as using information technology to consult with patients, or employing non-physician clinics for routine patient care. It’s the opposite of an environment conducive to innovation. Consequently, inefficiency is rampant in Medicare’s traditional fee-for-service program.

Ironically, the Center for Medicare and Medicaid Innovation is now trying to promote initiatives, such as accountable-care organizations and bundled payments, that are the same tools already in use in Medicare’s private-plan option, called Medicare Advantage. Medicare Advantage plans have the flexibility to test new payment methods and models of care, and have been doing so since the Medicare HMO program (Medicare Advantage’s predecessor) began in 1982. These plans pioneered benefits like clinical care management, necessary to properly care for the sickest Medicare enrollees. Medicare Advantage plans also routinely cut costs by using clinical and claims data to screen out the most costly and lowest-quality providers of services in a community.

According to the Medicare Payment Advisory Commission, Medicare Advantage’s HMOs provided patients with covered services for 92% of the cost of the traditional fee-for-service program in 2013. Nearly 30% of Medicare beneficiaries are now enrolled in Medicare Advantage plans, and new entrants are enrolling at an even higher rate.

Rather than build on this progress, ObamaCare cuts payments to Medicare Advantage plans by more than $150 billion over a decade—and relies instead on the Center for Medicare and Medicaid Innovation to prop-up the more costly fee-for-service program with government-led innovation. What’s likely to transpire isn’t innovation but price controls on medical procedures to give fee-for-service a chance to compete against more efficient Medicare Advantage plans. The agency’s authority is broad enough to allow across-the-board cuts in payments to hospitals and physicians, and lower reimbursements for pharmaceuticals and related products as well, all in the name of innovation.

The Congressional Budget Office certainly expects this to happen. It says that legislation to repeal the agency’s $10 billion in funding would increase the deficit because its cost-cutting agenda is expected to produce more than $10 billion in savings from reimbursement cuts. It’s one more indicator that budgetary scorekeeping in health care is hopelessly biased in favor of irrational governmental controls.

Innovation in health-care delivery is necessary and can happen with reforms promoting deregulation and more intensive competition. What we don’t need is more bureaucratic micromanagement cloaked under the mantle of innovation. Which is why Congress should do away not just with the Independent Payment Advisory Board, but with the Center for Medicare and Medicaid Innovation as well.

Mr. Chen is a research fellow at the Hoover Institution, lecturer in public policy at Stanford University, and served as policy director on the Romney-Ryan presidential campaign. Mr. Capretta is a senior fellow at the Ethics and Public Policy Center and a visiting fellow at the American Enterprise Institute.

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