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Audiology of Hope 360: Special Topics in Health Care Finance

Hounds and FOXes come running in from right field when Obama’s bandwagon cranks up its 120dB dog whistle Wurlitzer. His policy point man is an ivory tower free marketeer (and DLC’s Senior Economist). His Social Security wingman is an avid privatizer.

The third horse in BO’s domestic policy troika is health care maven David Cutler — a technology optimist, of American Exceptionalist bent.

Do other countries do health care better? Irrelevant — we’re different. Expensive? We ought to spend a lot more. Patients Bill of Rights? Dead issue. Single payer? Dissed and dismissed in a single paragraph of his book. Insure the uninsured? Sure, but don’t let that distract us from the real issues. Negotiate drug prices? Careful, you’ll kill the Golden Goose!

Our review of Cutler’s eccentric frame for health care reform not only decrypts Obama’s call to the Right – it unearths the audacious belief system that animates our New Politickers’ across-the-board hope of finessing every clash of interest, and “turning the page” on every hard choice.

As NYT Magazine profiled Cutler back in March 2005:

[Cutler:] “The real reason health-care reform has not succeeded is that it is rooted in a misconception of what health-care reform should accomplish.” … He envisions a system in which everyone could get insurance while free-market incentives would motivate health-care providers to be more effective as well as more efficient. Instead of suppressing the market by rationing care, restraining prices or regulating doctors, he wants to liberate it. … Vouchers are a leap for a Democrat, but the idea is popular with conservatives. … Stuart Butler of the Heritage Foundation prefers Cutler’s universal model. … Cutler’s idea is to preserve the diversity of America’s system while subsidizing people’s access to it — to let the G.E.’s and the HealthPartners of the world, and also the Mercks, continue to innovate.

The major tenet of progressive health care reform is that we can benefit by benchmarking our system against those of other developed nations — whose citizens enjoy universal coverage, favorable comparative outcomes, and lower cost. (This holds whether we benchmark “cost” in absolute purchasing power parity, or share of GDP, or even tax-derived share of GDP). Cutler rejects this notion.

In his American Exceptionalist view, “leftist” European models don’t apply here, and he’s not shy about tarring them with the C-word (“Canadian” — an automatic “in” with the Fraternal Order Of Talk Radio). Americans are more tolerant of income disparities (meaning high-priced specialists). We’re intolerant of overt rationing (while income-based rationing easily passes muster). Our sticky patchwork of legacy systems is an argument against sweeping reform, not for it. And America is the world’s indispensable overspender, without which our torrent of biomedical innovation would slow to a trickle. QED, there’s no point whining that the grass is greener across the pond.

As to single payer, he thinks full public financing would stifle Yankee ingenuity, tax our institutional capacity to transform legacy systems, motivate free riders to unreasonably extend their expensive lives, and … well, it’s just not the American Way.

Cutler’s economic yardstick emphasizes value received, not opportunity cost. Health care is fairly priced so long as those who can pay are willing to pay.

  • Never mind the alternative systems deliver more for less.
  • Never mind that we pay development cost plus marketing cost plus initial production cost plus intellectual property pseudo-rent plus profit margin, while others pay only marginal production cost plus profit for the same treatments.
  • Never mind that identifiably nonproductive gatekeepers devour large fractions of the US health care dollar.
  • Never mind that the excess burden on GDP makes US products less competitive in world markets.
  • Never mind that US per capita amenable mortality matches the civilian death rate in wartime Iraq.

Chalk it up to “what the market will bear”.

To better understand where Cutler is coming from, let’s see where he came from. He was a young staffer for Hillary’s failed health care task force. [Post-mortem explanations of this failure are a rich and varied literature.] This moved him to inquire deeply into the complexities of health care reform.

He went on to do pioneering work on the economic valuation of medical interventions. His research on emerging therapies led him to emphasize measurable payoff (longevity, in the case of heart attack treatments).

[His research partner was Mark McClellan, who went on to controversial service on Bush’s Council of Economic Advisers and as head of the Food and Drug Administration and Centers for Medicare and Medicaid Services.]

For many interventions, the dollar-denominated outcomes easily outweigh the resources absorbed. Other popular services generate indifferent or negative returns. This formative experience shaped the lens through which Cutler views the whole system: there’s a lot of “good stuff” in the technology pipeline; we can measure inputs and outcomes; if we tweak the system to favor the right stuff, we end up with a much better collective bargain.

Cutler’s approach is to health accounting parallels [Harvard colleague] John Graham‘s “Statistical Murder” approach to risk accounting. Through this lens, every risk avoidance measure (in particular, every health and safety regulation) must earn back its cost of administration, compliance, inconvenience and market impact by demonstrating quantifiable savings in dollar-denominated human lives – otherwise it “murders” the people whose lives would have been saved by the same dollars spent more effectively elsewhere.

Objections to this framework would fill a book, and Graham’s professional peers note that his findings (in academia and later as Administrator of Bush’s Office of Information and Regulatory Affairs) exhibit a remarkable congruency with the interests of regulated industries. Likewise, Cutler’s recommendations — and their underlying arguments — tend to fit squarely in the comfort zones of corporate medicine, big pharma and insurance industries.

What then of Reform? Through Cutler’s lens, traditional “problems” aren’t even on our radar. Ask the right questions, and the economic payoff should be enormous. We can apply some of this surplus to the problems we used to worry about (like access and distribution), and enjoy better, longer lives … even if it means spending 20-25% of GDP on health care. What’s wrong with this?

  • It’s a pet idea — a hobbyhorse — conceivably a fertile one, but it’s not an idea that has a manifesto, i.e., a plan of action by which it would be made real.
  • It’s not an idea that seeks a mandate — a charter from the electorate to empower its successful proponents. Nobody is taking it to the voters saying “elect me, and this is what I’ll do”. It’s being snuck in the back door, camouflaged.
  • It’s not an idea that has an organized constituency.
  • It’s not an idea that addresses any of the Big Problems.
  • It’s not an idea that accommodates proven solutions to these deprecated Big Problems.
  • It’s not an idea that can yet boast proof of efficacy in its own domain of applicability.

What else doesn’t it have? Right-wing opposition, of course! And why should it? It’s not about socializing anything. It’s not about regulating anything. It channels GDP to growth industries, relying on market mechanisms, pushing public dollars into private enterprise.

Did I mention that Cutler’s new idea is not a NEW new idea. It’s a version of the same new idea that starts to look good to anybody after too many hard days and nights on the trail of health care finance reform. “Great plan, dude … how ya gonna pay for it?” “Why, efficiencies, of course! Information technology. Evidence-based medicine. Quality management.” “Yeah, right.”

Did I mention that medical institutions have track records many decades long as refractory cases where these and similar efficiencies are concerned? [“Refractory” — that’s med-speak for “stubbornly resistant to ordinary treatment“.] So long as doctors run hospitals, they’ll lag decades behind the efficient frontiers of institutional discipline.

And I should note that efficiency windfalls don’t ordinarily solve distributional problems anyway, nor will this one remove underwriters’ incentives to avoid high-cost subscribers or claims.

A similar idea, c. 1970, gave birth to the expansion of Health Maintenance Organizations. An HMO (it was thought) had a long-term investment in the lives of its prepaid subscribers — a built-in market-based incentive to apply the most appropriate care in the most appropriate way. What a brilliant idea … hence the Health Maintenance Organization Act of 1973! How did that all work out, anyway?

Cutler elaborates on these “what’s worth doing?” issues in his (recommended) book, Your Money or Your Life. He has hard-won insights into this issue cluster, and he’s eager to apply them on grand scale. Hearing hoofbeats and thinking “zebras!”, this abiding interest leaves him deaf to contraindications and blind to the obvious. A cure in search of a disease? Not exactly … but it may not be appropriate therapy for our acute concerns.

Cutler thinks he can visualize a breakthrough, using public incentives to private actors, calibrated by his valuation scheme — a grand finesse that will obsolete yesterday’s questions and yesterday’s answers, and leave so many cookies on the table that nobody wants to fight over them … a clever detour around the seemingly intractable problems everybody else wrestles with … a Northwest Passage to universal health care.

Obama is not only ready to give Cutler the commission and let him sail with it – he’s willing to make it the centerpiece of his domestic program … guarantee first-term results … and bet his Administration on it.

Here’s the Audacity, and here’s the Hope: Obama believes he can manage ALL the big issues, foreign and domestic, by finding equivalent breakthroughs in overlooked corners of policy-space. He’ll execute these finesses — and allocate their resulting subject-specific surpluses — to “turn the page” on everything, and all without waking the dragons of right-wing reaction or progressive perfectionism.

These breakthroughs will naturally follow the leanings of his policy crew — relying on market forces and minimally-invasive institution-building, and creating opportunities for private enterprise on the public dime. They’ll deliver progressive desirables using conservative tools (the flip side of Dick Morris’s triangulation scheme).

[Pundits have wondered why Obama doesn’t simply cave and accept an insurance mandate, since he keeps losing that argument. The answer, my friend, is blowin’ in the dog whistle. Mandates are anathema to market fundamentalists. “No mandate” is sweet music to the particular ears Obama’s pitch is tuned for, and his adamant refusal in the face of adversity only serves to validate the clubhouse keycode.]

If, on the other hand, such breakthroughs don’t grow on trees, or he can’t find them as required, or slide them into practice … the New Politics becomes a fairy tale with a terribly sad ending.

6 Responses

  1. Ronk: Alright! Another stellar post. Thank you, thank you, thank you. I’m going to have a drink.

  2. Go. Read. Reco. This is a GREAT diary!

    http://www.mydd.com/story/2008/2/20/21383/5055

  3. […] Obama’s advisor David Cutler Published February 21, 2008 2008 , class warfare , economy , health care More interested in market theories than people. […]

  4. But Obama says in People magazine that he wants to provide all Americans with health care!!!

    http://hillary1000.wordpress.com/2008/02/21/oh-no-he-didnt/

    ?????

    😉

  5. I got here via Corrente and Lambert. Thank goodness for a rational Democrat–and a blog which is actually working to analyze the Obama proposals and advisers.

    Thank you so much. I’ve been going crazy–so many places are trying to avoid being flamed and thus don’t really analyze much of anything which might be construed as criticism of Obama. Links to Krugman have dwindled! Sheesh.

    So, thanks. An oasis and refuge.

    Plus, good info.

  6. I took the liberty of putting this up at Digg. Yeah, it’s lame social networking blah blah blah, but maybe if enough people click on it, it will get more attention. All three of these are excellent and deserve to be spread far and wide.

    http://digg.com/2008_us_elections/Audiology_of_Hope_360_Special_Topics_in_Health_Care_Finance

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