The Politics of Oxygen

Today’s WSJ has a fun profile of Peter Orszag, the Director of the Office of Management and Budget, and the challenges he faces making cost control a key part of health care reform.

I particularly enjoyed this episode:

The battle heated up in June, when Mr. Orszag visited Capitol Hill to discuss health care with a small group of House Democrats. The meeting started well, with one lawmaker after another echoing his message that spending controls were critical to any health-care overhaul, according to two administration officials.

Then one member said her top priority was winning higher payments for oxygen suppliers, the officials say. Mr. Orszag was taken aback. Officials had been trying for years to cut payments to suppliers of oxygen and other medical equipment, which critics say are inflated. Yet when a new competitive bidding process was set to take effect last year, industry supporters in Congress were able to delay the plan. They are still fighting to block changes.

“One of the reasons we currently have such disjointed and skewed incentives is that we have an excessively political process,” Mr. Orszag said in an interview.

I think Peter is absolutely correct.

When I first worked for Congress, I was stunned by the amount of time and effort that members gave to issues that struck me as minutiae. This was particularly severe in health care. Congressional staff — and, at times the members themselves — would worry about things like payment rates for wheel chairs, bidding rules for oxygen suppliers, and other micro-health financing issues.

Those micro issues are, of course, a big deal for the individuals involved. And it’s natural that they would go to Congress to express their views, since Congress ultimately controls the payment rates for programs like Medicare.

But it still strikes me as a fundamental mismatch between what Congress ought to be doing — establishing the broad policies that guide the delivery and financing of health care — and what Congress actually does.

As the health debate moves forward, it would be useful to consider whether some decisions might best be transferred from Congress to other decision makers. At Peter’s initiative, the Obama administration has offered one approach: empowering in the Medicare Payment Advisory Commission to make some decisions about payment rates. MedPACs decisions would go into effect unless Congress over-ruled them. That still leaves some power in Congress’s hands, but perhaps it will shield the payment process from so much politics.

A bolder approach, well beyond the bounds of the current debate, would be to move Medicare to a premium support model, in which the government provides subsidies for seniors to purchase insurance from competing providers (somewhat similar to what happens in the current drug benefit). Premium support raises a host of challenges. But, at least in principle, it would provide a way to focus Congress on big picture issues — what’s appropriate minimum coverage for seniors, how much should taxpayers chip in, etc. — while leaving the micro issues to the competing insurance companies.

My point is not to recommend either of these approaches specifically, but just to suggest that it would be useful to consider health financing reforms that would separate Congress (and, therefore, politics) from individual payment decisions.

About Donald Marron 294 Articles

Donald Marron is an economist in the Washington, DC area. He currently speaks, writes, and consults about economic, budget, and financial issues.

From 2002 to early 2009, he served in various senior positions in the White House and Congress including: * Member of the President’s Council of Economic Advisers (CEA) * Acting Director of the Congressional Budget Office (CBO) * Executive Director of Congress’s Joint Economic Committee (JEC)

Before his government service, Donald had a varied career as a professor, consultant, and entrepreneur. In the mid-1990s, he taught economics and finance at the University of Chicago Graduate School of Business. He then spent about a year-and-a-half managing large antitrust cases (e.g., Pepsi vs. Coke) at Charles River Associates in Washington, DC. After that, he took the plunge into the world of new ventures, serving as Chief Financial Officer of a health care software start-up in Austin, TX. After that fascinating experience, he started his career in public service.

Donald received his Ph.D. in Economics from the Massachusetts Institute of Technology and his B.A. in Mathematics a couple miles down the road at Harvard.

Visit: Donald Marron

1 Comment on The Politics of Oxygen

  1. Let’s put aside some distractions caused by the health industry-sponsored Democrats, and the controversial analysis of CBO on the economic effect of the proposed independent advisory council and how to empower it substantively, get back to focus on how to meet the goal of deficit-neutral.

    The House leaders reached a deal on Medicare payments: A “Pay for Value” reimbursement system that rewards doctors and hospitals that achieve the best outcomes at the lowest cost.

    As a result, The House gained a lot of votes, a lot of people who were withholding support.

    The federal Medicare program insures some 44 million elderly and disabled Americans at an annual cost of $450 billion, almost one-fifth of total U.S. health care spending.

    Supporters of the agreement say it could save the Medicare System more than $100 billion a year and improve care, that means $1trillian over a decade. (Please visit for detailed infos)
    The Times in a July 7 editorial argued “As much as 30 percent of all health-care spending in the U.S. -some $700 billion a year- may be wasted on tests and treatments that do not improve the health of the recipients,” Thus the remaining $239 billions over a decade do not matter.
    No one can disagree with this best outcome / evidence-based system, and private insurance, too, will be greatly influenced by this change with the focus on value over volume. !

    Dr. Armadio at Mayo clinic says, “If we got rid of that stuff, we save a third of all that we spend and that is 2.5 trillion dollars on health care. A third of that and that is 700 billion dollars a year. That covers a lot of uninsured people.”


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