Monday, May 9, 2011

Health Reform: Can Big Government Innovate?

Hayek’s great insight is that individual human beings muddle along, making progress by planning, experimenting, trying, failing, and trying again. They never have as much clarity about the future as they think they do. But Hayek somehow knows with great certainty the when governments, as opposed to individuals, engage in a similar process of innovation and discovery, they will fail.

Francis Fukuyama, “Big Government Skeptic,” book review, The Constitution of Liberty, the definitive edition of the works of F.A. Hayek, New York Times, May 8, 2011

The Center for Medicare and Medicaid Innovation is a branch of the United States government under the Centers for Medicare and Medicaid Services. It was created by the Patient Protection and Affordable Care Act, the 2010 U.S. health care reform legislation. The center is to test innovative payment and delivery system models that show important promise for maintaining or improving the quality of care in Medicare, Medicaid, and the Children's Health Insurance Program (CHIP), while slowing the rate of growth in program costs.The center is to give priority to twenty models specified in the law, including medical homes, all-payer payment reform, and arrangements that transition from fee-for-service reimbursement to global fees and salary-based payment.


May 9, 2011 - There you have it – the ideological divide.

• F.A. Hayek (1899-1992), the Chicago-based economist, the patron saint of conservatives, saying all government attempts at innovation are destined to fail.

• The Obama administration and Democrats, saying a government-led Medicaid and Medicare innovation center, consisting of a slew of new federal agencies and a covey of management experts, will lead the nation to the promised land of a better health system by creating 20 new models of care.

Who is right? Who is wrong? I do not know, but I do know President Obama’s promise to return to “big government” lasted less than a year and met with fierce resistance from the voters in November 2010. Whether this resistance will gather momentum through the November 2012 election is unknown.

From my vantage point on the physician side of the aisle, I can tell you there is fierce physician resistance to many of the major proposals of the Center of Medicaid and Medicare Innovation – particularly herding doctors into accountable care organizations, placing physicians on salaries, doing away with fee-for-service, creating a host of “free” preventive services, and reducing physician paymentas dictated by an Independent Payment Advisory Board.

From our point of view, these proposals smack more of centralized planning than of individual-inspired changes, of “mandates” rather than “innovations."

Given the government record of never giving up on failed federal programs once instituted and funded, physicians may have solid ground for skepticism.

Big government is simply not very good at transformative innovations. Add to the certainty of governmental innovation incompetence, the uncertainty swirling around the Affordable Care Act (aka Obamacare), and government threats it won’t pay for any innovations until it approves the process and the product, and you have the ingredients of innovation stagnation.

In this climate, venture capitalists won’t invest and entrepreneurs won’t take risks. At this juncture, the regulatory and payments barriers are simply too great until we sweep aside federal mind and mine fields.

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