• “Bedside bureaucrats”

    Nicholas Bagley’s “Bedside Bureaucrats: Why Medicare Reform Hasn’t Worked” (PDF) is a well-reasoned critique of the program and the ACA’s reform of it. The premise establishes the fundamental tension: By culture and politics, in the U.S. we, by and large, yield to physicians for clinical judgement about the necessity and benefit of care. This idea, once woven into Medicare — and, I will point out, almost every other form of health insurance, public or private — overwhelms all other management priorities, including financial control. Physicians, as Medicare’s “bedside bureaucrats,” have been granted tremendous control over the provision of care and, with it, its cost to the taxpayer and consumer.

    Moreover, Bagley argues, the ACA isn’t designed to change things much. I would counter, however, that this is, itself, by design in the following sense. The century-long struggle with how to finance health care reveals political and cultural constraints that have shaped the current system and are largely respected in the ACA. From bundled payments to accountable care organizations to the Independent Payment Advisory Board to the Center for Medicare & Medicaid Innovation, the nascent attempts at cost control within the ACA all have fundamental flaws that Bagley accurately describes.

    They are necessary flaws. Without them, there would be no ACA. As such, the law’s drafters did just about all they could have possibly done and still passed a law. And it barely passed. It also barely survived its trial before the Supreme Court, was challenged in a presidential race, and remains challenged on many fronts in many states today. The ACA is not ready to be tougher. That’s not to say it shouldn’t be. But if it were, defeat would be or would have been more certain.

    If one is generally in favor of the types of cost control structures in the ACA, and Bagley is, the best that one can hope for is that a future political climate permits Congress to build on them, to make them more effective. Bagley is correct that right now they are little more than empty shells. I’ve characterized it as a toothless mouth. If it’s going to take a bite out of programmatic spending, someday we must add teeth and then sharpen them. To have endowed it with fangs at the start would have doomed the enterprise.

    The paper is full of great quotes. Some of my highlighted ones are below. Footnotes to sources are omitted. You can search the ungated paper for them.

    • Medicare manages private-sector contracts worth more than all of the federal government’s other contracts for goods and services combined.
    • For Medicare, the absence of institutional capacity to manage the private physicians with whom it contracts reflects a deep social commitment that government should keep out of the examining room. Medicare thus exploits its institutional weakness to enhance its legitimacy. Distance between the federal government and the physicians with whom it contracts—a relative lack of accountability, transparency, and public participation in medical decisions—is itself a public value.
    • Although there has been no systematic research on national coverage determinations [NCDs], there is suggestive evidence that Medicare contractors do not reliably enforce NCDs either. For just one example, Medicare purports not to cover colonoscopies within ten years of a prior colonoscopy that revealed no abnormalities. Yet Medicare contractors deny only about two percent of claims for inappropriate, repeat colonoscopies.
    • If Medicare cannot depend on the rules and hierarchies of classic Weberian bureaucracies to manage this vast network of private physicians, then it must—as it has before—turn to private organizations to do the job for it. Medicare must, in other words, bring bureaucracy to its bureaucrats. Enlisting third-party organizations thus offers a kind of privatized Weberian solution to Medicare’s accountability and management troubles.
    • The lesson appears straightforward: if Medicare wants its agents to act as if they faced resource constraints, Medicare must constrain their resources.
    • Medicare is sufficiently generous that an average physician seeing only Medicare patients would still make roughly $240,000 in take-home pay each year.
    • With a staff about the same size as that of the Smithsonian Institution, CMS oversees distribution of a Medicare budget that exceeds the size of Argentina’s economy.
    • Congress broke CMS and now won’t fund it because it’s broken.
    • About the best that can be said about IPAB is that steadily mounting cuts to Medicare could bring providers to the negotiating table.
    • The best-case scenario for PCORI is that it could generate information that private risk-bearing organizations—managed-care plans or integrated medical groups—could use to encourage their affiliated physicians to favor cost-effective treatments. But Medicare’s programmatic structure still discourages the development of these organizations.
    • [With ACOs,] physicians remain locked into the same sort of collective-action problem that made the SGR such an ineffective cost-containment tool.

    (Emphasis added.)


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    • “Physicians, as Medicare’s “bedside bureaucrats,” have been granted tremendous control over the provision of care and, with it, its cost to the taxpayer and consumer.”

      Lawyers (court side bureaucrats) are granted tremendous control over the legal affairs of their clients. Same with plumbers, accountants, and virtually anyone that provides a skill for another. We don’t have plumbers doing legal work or accountants doing plumbing. They all charge for their services and handle the appropriate bookkeeping that is done by all businesses. .

      Maybe physicians should have tremendous control, but ever since the patient has been removed from the payment side of the equation perhaps nothing satisfactory has been found to fill that void.

    • Austin
      On the last bullet re: collective action.

      You did not write the piece, understood, but what kind of intervention do you suggest to break the collective-action problem?

      And you cite the quote due to problems at doctor, group, ACO, or regional level? Even capitation wont offer a solution if not applied properly..


    • David Goldhill received more than a little criticism in this blog (from me too, not just from Frakt) for making essentially the same (policy) case as Bagley. I went back and read Goldhill’s original article in The Atlantic from 2009, and I recommend it. He wants to replace the existing system built on “insurance” with one built on “care”, and was critical of pending HCR because it reinforced the existing system. I must admit that my disappointments during the implementation phase of ACA seem to confirm many of Goldhill’s criticisms. In particular, the steps taken during implementation (or, more accurately, the steps not taken) confirm that the primary goal for Obama was and continues to be universal coverage (i.e., universal insurance coverage). We should have known, as his opposition to the mandate during the 2008 campaign was the tell. Then came the decision to allow age discrimination in setting premiums (which has the effect of imposing much of the cost of universal insurance coverage on the nearly old), and more recently the decisions to punt on essential health benefits, to allow states to dump Medicaid expansion on private insurance exchanges, and to postpone small employer exchanges. Come 2014 and 2016, I fear that ACA will be judged, along with the Democrats, on the very health care system (i.e., insurance) that ACA reinforced rather than, as Goldhill suggests, replaced. Ironic that ACA will be judged on the very worst feature of the existing system.

      • As Austin has noted over and over, and here, a plan must be politically viable to be made into law. Lots of us could devise a plan better than the ACA, but it couldnt get through Congress. Same for Goldhill. Besides, any guy who thinks Lasik is real medicine should not be taken too seriously.


        • I don’t know how this advances the discussion, but I would like to ask what makes anything done by a physician ‘medicine’? Is it the use of machinery, the fact that it is cosmetic, repetitious, a luxury, elective, can or cannot be planned in advance, etc.? Break medicine apart and you have all those features so I don’t see why one would consider Lasik any different. Lasik represents an uncompensated medical procedure that is not reimbursed by insurance and the costs have gone down. Many non reimbursed procedures have demonstrated a similar reduction in cost. We also note that expensive MRI’s and many other things fall when the uninsured price shop so we are seeing something similar between MRI’s (etc.) and Lasik. You do realize that some Lasik treatments have problems and who do you think takes care of those problems? Personally I think Goldhill makes good sense and I base this on his Atlantic article.

          • The difference between LASIK and “healthcare” is roughly the same as the difference between any cosmetic surgery and “healthcare”, one is entirely elective while the other isn’t. The fact that both happen to be performed by medical professionals is pretty much the only commonality. At no point in my life will I ever need LASIK the same way that I may need an MRI to diagnose a condition which I will then need treatment for, or the same way that I may need chemotherapy or radiation to treat cancer.

          • What’s the difference between an MRI and Lasik? My daughter dislocated her kneecap and the doctor said she needed an MRI to see the the damage. The knee is full of ligaments, cartilage, and other stuff.

            Before we saw the doctor, I didn’t know we needed an MRI, so I couldn’t check prices. Once I knew she needed an MRI, I suppose I could have called around and found the cheapest one, and we can suppose the doctor wrote an order for the MRI that the cheaper facility accepted. However, it would take some time, so the MRI would probably be the next day. And it would probably take an additional day for the doctor to get the report. So, not only would a couple of days have passed in which my daughter and I get to contemplate the worst case scenario, but the doctor would almost certainly treat the second visit to discuss the results of the MRI as a second consultation.

            So, for all the additional stress and days of worry, I’d only save money if the initial clinic’s MRI cost was way, way out of line with the area norm and more than covered the cost of the second consultation with the doctor.

            It turned out that only one ligament was frayed and my daughter didn’t need arthroscopic surgery, so I have no idea whether the few day delay would have made a difference to her recovery.

            However, the only way a clinic can get away with having prices way out of line with the area norm is if they are treating plenty of patients that are in enough pain — or worse yet unconscious — that they aren’t able to be aware of and take steps to avoid price gouging.

            This is a rant, but illustrative.

            My daughter was on a boat and I wasn’t there. She couldn’t get up steep, narrow stairs on the boat with a dislocated knee (and no one knew if her leg was broken or not). So, someone called the ambulance before they got hold of me. Was I supposed to leave her lying at the bottom of the stairs in the boat, in pain, with a visibly deformed knee while I called around for the cheapest hospital? Or was she supposed to ask someone to pass her a phone, so between moans of pain she could price check the ambulance companies, while anyone who wanted to use the boat’s only toilet had to step over her, because she couldn’t get up?

            Yes, there are some occasions when people have the leisure to price compare, but all too often, the need for healthcare is urgent and the patient is in sick and/or in pain.

            Lasik is the exception, not the norm.

    • “Physicians, as Medicare’s “bedside bureaucrats,” have been granted tremendous control over the provision of care and, with it, its cost to the taxpayer and consumer.”

      I apologize I have not had a chance to read Mr. Bagley’s critique, yet, but I felt compelled to comment on your quote I’ve excerpted from the post.

      While I don’t disagree with your point, I think, as I have commented here before, that you handicap your analysis when you fail to distinguish between specialists and primary care physicians. No less so than if you failed to distinguish between physicians and facilities. They are totally separate actors with a distinct set of value impacts on the health care system. (In fact, specialists probably have more in common with facilities than primary care physicians in this regard.)

      It is somewhat of an oversimplification but I think it is reasonable to posit that, relative to our current state, additional increments of specialty care are at least as likely to decrease value (increase cost for the same – or potentially worse outcomes) as add value. Conversely, increased primary care tends to increase value. (Ths is not to suggest that increased primary care never leads to pernicious results – excessive screening, for example – but they tend to be less costly and less detrimental.)

      Unfortunately, if you were to try and design a system to discourage primary care, you could hardly do “better” than our current health care system.

      • Sorry, should have added that this defective health care system design is almost entirely independent of the “physician as bueaucrat” model.

    • Actually, this is the point I would bold if I were writing this:

      “If Medicare cannot depend on the rules and hierarchies of classic Weberian bureaucracies to manage this vast network of private physicians, then it must—as it has before—turn to private organizations to do the job for it. Medicare must, in other words, bring bureaucracy to its bureaucrats. Enlisting third-party organizations thus offers a kind of privatized Weberian solution to Medicare’s accountability and management troubles.”

      One big question is whether we can reduce per capita health care spending solely by implementing this sort of bureaucracy, or whether just lowering the overall rates would be sufficient. Or is it feasible to do both. At the macro level, it looks to me like it’s mainly about the rates. When you get into complex sub-populations like dual eligibles, I do honestly wonder if we could bend the cost curve by implementing more good bureaucracy. I don’t think this question will be answered definitely for some time. I would bet on commercial fusion power being invented first (it’s always been about 20 years away, btw).

    • “Medicare is sufficiently generous that an average physician seeing only Medicare patients would still make roughly $240,000 in take-home pay each year.”

      This citation is garbage. I checked the source document.

      The source calculates the average reimbursement for Medicare at a 99213 level code, which reimburses at $62.72 in the Washington DC market. It uses that 62.72 with an average patient reimbursement and extrapolates that out to 240k.

      Here’s the problem — that $62.72 is the total reimbursement TO THE ENTIRE CLINIC, not just the physician. Where do you think the money comes from to pay the biller/coder, the nurse, and the front desk person?

      Such an obvious gaffe makes the author look like he didnt do his research by citing BS references.

    • The author of the paper tries to make the case that doctors need to be reigned in to ACOs so that “real” bureaucrats who have no healthcare training can call the shots and control costs.

      But let me ask you this — since when did large consolidated ACO networks agree to take a financial hit from insurance companies? That doesnt make any sense and studies show that the opposite happens.

      When Harvard/Pilgrim Healthcare formed an ACO network, they gained immense market clout and immediately went to the major state insurers and demanded a 10% increase in reimbursements. Does that sound like the type of cost control that behemoth ACOs are supposed to get?

      Individual doctors working in small clinics have zero leverage to increase reimbursements. They have to take whatever the insurance company gives them. Large ACO networks on the other hand, have ENORMOUS leverage to dictate terms to the insurers who must pay whatever the ACO wants.

    • I have practiced both as a solo private pediatrician and now as a employee of a university affliliated physician. Initially physicians did have control with setting of fees for office visits and procedures. Now these fees are set by “powers that be” and I personally have no say. The only control physicians now have is the ordering of tests and procedures. This is the area where costs have gotten out of hand as fee for service rules the day. Ordering of unnecessary and unproven tests and procedures has to be restrained if we are ever to get a handle on the cost of medical care. This falls on the shoulders of each and every one of us to order wisely and to the benefit of our patients and not our wallet.

    • I’m becoming increasingly convinced that this whole debate about how to rearrange the financial incentives of care delivery to reduce overall system costs is completely misguided. Prices are dramatically higher in the United States for many reasons, but I submit that the incentives facing physicians and the amount of “skin” patients have in the game are secondary drivers at most. The greatest contributor towards the high nominal amounts (not the rate of growth, another matter entirely), is due to the administrative complexity of having, in fact, multiple systems of insurance which often operate at cross-purposes.

      One federal government (consisting of multiple, sometimes conflicting or duplicative, agencies), fifty state governments (each with multiple agencies), numerous private insurers (which must operate differently in each state), employers/unions/co-ops (again differing by state), and several sublayers of lawyers and other “entreprenuers” stand between and around the American physician and the American patient, each wanting their piece of the American healthcare dollar. No other country in the world has such a complicated, disorganized milieu of a system, and consequently no other country in the world spends (and wastes) so much of their national income on healthcare.

      From this perspective, only the nationwide elimination of one or more of these layers of public and private bureaucracy can meaningfully reduce total healthcare spending without screwing one or more segments of the population (typically poor and/or elderly patients and the providers that serve them). Unfortunately (or fortunately for those who benefit from the current arrangement, myself included), the only reform capable of passing congress is the reform which best preserves the incomes of established interests. Thus we get the ACA, which may slow the rate of cost growth, or improve the return on dollars invested (in terms of quality of outcomes), but will never reduce total spending relative to the more streamlined and rational systems of our international peers. In fact, I predict it will make things worse, as it introduces brand new layers of bureaucracy in the form of Exchanges (different in each state, new federal and state agencies for oversight, new provider departments to deal with them, etc.)