Obamacare's Cost Control Failures

Posted: Jan 07, 2014 1:00 PM

Now that a supposedly "fixed" website has failed to turn public opinion in favor of Obamacare, Democrats are desperate to identify any positive news about President Obama's signature domestic accomplishment. Thus the recent White House effort claiming that Obamacare is responsible for the recent decline in the rate of health care spending growth (a decline that began in 2006, when Obama was still a senator, but when has the left ever cared about facts).

New York Magazine's Jonathan Chait has been a particularly enthusiastic water carrier for this White House talking point, gushing in the September 2013 issue about how all of Obamacare's wonderful reforms have already unleashed "an entrepreneurial wave" that have "added up to a revolution in modern medical economics." "Among health-care wonks," Chait assured his leftist readers, "this is no longer a controversial assertion: The evidence thus far suggests Obamacare's cost reforms are a staggering success."

Unfortunately, someone forgot to tell the rest of the "health-care wonk" community. Just two months before Chait published his piece, the the Centers for Medicare & Medicaid Services selectively leaked preliminary data on their Innovation Center's signature cost-saving initiative, the Pioneer Accountable Care Organization program. The news wasn't good. Just 13 of 32 participating ACOs were able to cut costs and nine organizations dropped out entirely.

At Health Affairs, University of Virginia Associate Professor of Public Health Sciences Jeff Goldsmith, detailed some of the programs problems:

What was irritating about the Pioneer spin is it treated the ACO as if it were a brand new idea with growing pains. This studiously ignores a burned out Conestoga wagon pushed to the side of the trail: the Physician Group Practice demonstration CMS conducted from 2005-2010. The PGP demo tested essentially the same idea — provider bonuses for meeting spending reduction and quality improvement targets for attributed Medicare patients. The pattern of arrow holes and burn marks on the PGP wagon closely resemble those from the Pioneer’s first year, strongly suggesting more troubles ahead for the hardy, surviving Pioneers.


Adverse selection combined with an inadequate risk adjustment methodology may have hurt these managed-care savvy Pioneers. Organizations with great reputations for helping high-risk Medicare patients will differentially attract them. One of the unfortunate learnings of the PGP was the vital importance of aggressive coding of patient acuity to offset selection effects.

And because they cannot proactively identify patients, particularly physician-centric Pioneer organizations will have trouble diverting them from hospitalization, or reducing the use of expensive out-of-network services. It’s really tough to practice managed care without the patient’s knowledge or consent, or sharing some of savings with them — the fundamental flaw in ACO program design.

If the policymakers who decided to make the ACO the main event in payment reform had looked honestly at PGP’s results, they would have chosen differently.

Indeed, when the Congressional Budget Office looked at the history of similar top-down government mandated cost controls (including PGPs) in 2012, they also found a resounding record of failure:

The evaluations show that most programs have not reduced Medicare spending: In nearly every program involving disease management and care coordination, spending was either unchanged or increased relative to the spending that would have occurred in the absence of the program, when the fees paid to the participating organizations were considered.

Further complicating Chait's religious faith in the power of Obamacare's cost controls, CMS issued a report yesterday, dismissing White House claims that Obamacare was responsible for driving health care costs down.

Anne B. Martin, an economist in the Office of the Actuary at CMS, told Health Affairs, "The low rates of national health spending growth and relative stability since 2009 primarily reflect the lagged impacts of the recent severe economic recession. Additionally, 2012 was impacted by the mostly one-time effects of a large number of blockbuster prescription drugs losing patent protection and a Medicare payment reduction to skilled nursing facilities."

Asked specifically to respond to White House spin pushing Obamacare as the cause of the spending slow down, Martin told NBC News that health spending was actually .1 percent higher between 2010 and 2012 thanks to the ACA.

And looking ahead, CMS predicts that Obamacare's Medicaid and insurance subsidies are set to spike health spending by 6.1 percent in 2014.

Not all liberals are still clinging to the fiction that Obamacare will bend the cost curve down. Faced with a new study showing that, contra Obama, expanding Medicaid access actually increases emergency room usage, Obamacare architect Jonathan Gruber admitted to The Washington Post, "I would view it as part of a broader set of evidence that covering people with health insurance doesn't save money... That was sometimes a misleading motivator for the Affordable Care Act. The law isn't designed to save money. It's designed to improve health, and that's going to cost money."

If only Gruber had been more honest in 2010.

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