Mike LeavittAs Secretary Mike Leavitt prepares to leave office after four years at the helm of the Department of Health and Human Services, it is worth noting what he is worried about given his experience and perspective. In his column in today’s Washington Post, George Will gives us the answer: surging costs for Medicare and Medicaid.

Leavitt notes that the three most common hospital surgical procedures financed by Medicare today — hip and knee replacements and heart surgery to implant a stent — were not yet part of the medical arsenal when Medicare was established in 1965. The advances in medical care of the elderly have been impressive indeed, but the program’s structure is oriented toward ever increasing use of services over time, with weak incentives for commonsense steps toward improvements in the efficiency of how care is delivered.

Leavitt knows whereof he speaks. During his term, he tried to implement a small program to buy certain products for Medicare beneficiaries using competitive bidding based on price and service. The idea had already been tested and debated endlessly (for about a decade) and was going live when the product suppliers, especially those who were about to lose the competition, successfully lobbied Congress to stop the program. Medicare is now using an outdated price control regulation to pay for these services, with little prospect that competitive bidding will be revived by the incoming Obama administration.

It is a cautionary tale. The Obama health care vision rests on the ability of government to engineer a more productive and efficient health sector. That’s the only way they can afford to promise lavish new entitlements for coverage. But our political and regulatory processes have shown no competency to take on this immense task. If the federal government takes full control of health care resource allocation, the experience with Medicare shows the likely result would be arbitrary price controls and inefficient care arrangements, driven by the political power of incumbents who are able to manipulate payment policies to their advantage.