Over at Politico, Ben Smith has written an interesting and revealing profile of the new Office of Management and Budget (OMB) Director, Peter Orszag. Among other things, Smith’s piece confirms what I had previously speculated, which is that Orszag and OMB are calling the health-care shots in the administration right now—and they may play a dominant role throughout Obama’s current term.

The piece also provides a fascinating look at Orszag’s thinking on health-care matters. Orszag lets it be known that the administration is readying an aggressive plan, to be at least partially unveiled in next week’s budget, which will leverage the purchasing and regulatory power of Medicare and Medicaid to—as he said—“change the practice of medicine.”

Let’s start with where many people would find agreement with Orszag. It is certainly true that much of today’s health-care dysfunction stems directly from the flawed financial incentives embedded in current Medicare and Medicaid payment rules. Far too often, care is delivered to patients in highly inefficient arrangements. Medicare and Medicaid’s reimbursement models have effectively underwritten the status quo.

So it is comforting to know that someone at the highest levels of the Obama administration realizes this is the problem, and that the first order of business in health-care policy should be reform of existing public programs, not a takeover of the private sector.

But, having said that, Orszag’s faith in the ability of federal government to competently manage the health sector and drive it to become more efficient is unnerving to say the least. We have four decades of experience with running payment systems in Medicare and Medicaid. If we have learned anything during that time, it should be that allowing Congress and HHS’s bureaucracy to micro-manage payment to health-care providers is a recipe for political manipulation, protection of incumbents from effective competition, and rapidly rising costs.

Orszag is right that we need to reform how Medicare and Medicaid purchase care. But the upshot of his policy prescription is to ask Congress and HHS to get better at what they have failed miserably at in the past. There is simply no evidence that the outcome will be any different this time.

What’s needed is more organized consumer choice, with government oversight, like the design of Medicare’s drug benefit. That’s the way to make health-care arrangements more efficient and patient-focused.

[Cross-posted at the Corner]


February 20, 2009