Two weeks ago, recognizing the overwhelming and insurmountable issues associated with implementing the Community Living Assistance Services and Support (CLASS) Act, the House voted to repeal what Democratic Senator Kent Conrad described as "a Ponzi scheme of the first order, the kind of thing that Bernie Madoff would be proud of." While Senate action on the bill remains uncertain, this recent turn of events illustrates another example of the question that PPACA has exemplified -- free market or nanny state?

The amusingly-named CLASS Act was supposed to create a voluntary program wherein monthly premiums would be used to finance benefits of at least $50 a day for those needing long-term care. The money would go for services at home or to help with nursing home bills. Last fall, HHS Secretary Kathleen Sebelius finally admitted that it would not be possible to certify the program's financial solvency, so it would not be implemented.

And as another piece of the fiscal gimmickry associated with ObamaCare is exposed, it's possible to overlook the bigger issue. Why should the federal government need to create this program? If there is a real need for a product or service, and someone can provide it and make the case for it, then it will be successful -- because the market has mandated it.

A quote from Senator Tom Harkin (D., Iowa) to the National Journal has been making the rounds on the blogosphere as well -- "the problem with CLASS is that it's voluntary." This summarizes the threat -- that a future Congress could amend the act, forcing another unsustainable entitlement program on all of us. So long as it remains on the books, CLASS is another example of the menacing hand of government threatening our liberty.

In this case, the solution is clear. But as I pointed out earlier this week, the bureaucratic mindset behind programs like CLASS is unlikely to result in better health outcomes at lower cost.

It's just starting to sink into public consciousness how fiscally deceptive the Affordable Care Act is and was, and how much it worsens an already unsustainable trajectory for U.S. health care spending and the federal deficit. With Republicans in the House of Representatives voting yesterday to repeal the Community Living Assistance Services and Support (CLASS) Act, it may be an opportune time to revisit some of the other key fiscal gimmicks and extremely dubious fiscal assumptions that helped pass the law:

Double counting $53 billion in Social Security payments

Cutting Medicare reimbursement rates for hospitals and nursing homes to the point that, by 2019, Medicare payments would be lower than those currently paid for Medicaid - and which the Medicare Actuary says are, in the long run, unsustainable

But the CLASS Act has got to take the cake in terms of sheer chutzpah, since it was touted by supporters as saving $81 billion over its first decade - but only because the program counted 10 years of premiums before it started paying out benefits in earnest. The program was so seriously flawed even in its earliest conception that Senator Kent Conrad, Chairman of the Senate Budget Committee, called the CLASS Act "a Ponzi scheme of the first order, the kind of thing that Bernie Madoff would be proud of."

(While the Obama Administration has finally admitted that the program is unworkable as structured, it refuses to repeal the Act, perhaps hoping that if the U.S. Supreme Court sustains the individual mandate to purchase private health insurance or pay a penalty, President Obama could add another mandate and make the CLASS Act "sustainable" by imposing yet another mandatory entitlement program on every American.)

Here's what no one can argue with: the ACA creates a massive (and massively expensive) expansion of Medicaid (16 million Americans) and spends hundreds of billions of dollars in new subsidies for the purchase of private insurance on state health insurance exchanges. As the "out years" in the previous CBO estimate of the ACA's price tag have come into focus, cost estimates have risen as well: CBO now estimates that the subsidies and costs of running the exchanges will start at $17 billion in 2014, but will exceed $100 billion by 2022 (CBO now estimates that the ten year cost for the exchanges will be $650 billion).

To add insult to injury, America's budget forecast keeps getting uglier: according to the CBO, in 2012 the U.S. will spend $1.6 trillion or 44% of the entire federal budget on just three programs: Social Security, Medicare, and Medicaid. In 10 years, that figure will rise to 54% of the federal budget. (Along the way, the Social Security Disability trust fund is projected to go bankrupt in 2016; the Medicare hospital insurance trust fund will go bankrupt six years later, in 2022.)

What does any of this have to do with innovation? By expanding coverage without first seriously addressing existing entitlement costs, the ACA creates tremendous political pressure to crack down on spending through the crudest tools we have available: price controls.

Along the way, truly innovative reforms are apt to fall by the wayside because drugs or devices (or programs) that cost more up front, but payoff more in terms of better health and lower costs in the long run don't fit into the ACA's cut first and ask questions later structure. Indeed, if experience holds true to form, price controls will simply shift costs across the system and encourage providers to find yet more ways to game reimbursements without actually improving quality.

There are a few bright glimmers in America's health care system today: personalized medicine promises to make health care more predictive and more powerful, improving outcomes while chasing waste out of the system; health savings accounts continue to show the potential to make consumers smarter health care shoppers; and in the few parts of the market where providers compete (like retail clinics) it does seem possible to improve outcomes and access at lower cost using technology like electronic health records.

Ultimately, the CLASS Act is another morality tale in Washington's perennial fiscal shell game, promising everything without actually paying for it (like a jumbo subprime mortage, with no money down). To be fair, both parties have played that game cheerfully, but every fiscal bubble bursts eventually.

No matter who wins the White House next November, health care reform Part II is already a given, this time (hopefully) driven by smart bipartisan reforms like the Wyden-Ryan plan. While few people give it much chance of passing today, it has this to recommend it: we've tried everything else already.

And look where that got us.

It's hard to believe that we're at the end of the first month of the New Year! And it has been anything but dull. Just look at the world theatre or the controversies, twists, and turns of the 2012 presidential race in the U.S. Before we get too far into the year, I didn't want to miss the opportunity to reflect on one of the most significant developments of 2011... and perhaps even of the last several years.

In a political climate of flying rhetoric and accusations, it is noteworthy when calm and reason prevail. When self-interest is rampant, often cloaked in holier-than-thou proclamations, simplicity and compelling logic offer a welcome respite. When true collaboration appears to be in short supply, it is so refreshing when it emerges from the rubble. In case anyone hasn't figured out where this is going... let me be perfectly clear!

At the tail end of 2011 Senator Ron Wyden (D-OR) and Representative Paul Ryan (R-WI) came out with their bipartisan and cross-legislative proposal for the future of Medicare -- Guaranteed Choices to Strengthen Medicare and Health Security for all. It was a courageous act and a masterfully crafted document. Its Executive Summary is a mere three pages in length. The proposal is nine pages. The document is clear, to the point, compelling, logical and insightful. Oh, did I mention that it's readable, too? Or that it's devoid of jargon and policy-speak, accessible to 'every man' (or is it... 'every person'...) and challenges partisan attacks and assumptions. It is a sad commentary on the national debate surrounding the topic of healthcare (... no, a debate is far more reasoned, fact based and thoughtful on the issues)...that these positive characterizations are so special, in part, because what's represented by the document is so rare.

The basic outline of the Wyden-Ryan plan includes choice that begins ten years from now in 2022 (i.e. Medicare approved private plans and traditional Medicare); affordability through premium support, and a set of protections for vulnerable populations, ostensibly stronger protections against fraud and abuse, and most notably the opportunity to separate the purchase of healthcare insurance from employer sponsored programs. The latter component would apply to those employees who wish to do so in companies employing fewer than 100 workers.

At the heart of the recommendations is the recognition that Medicare has issues which must be confronted and resolved, and that any changes to the program must be patient-centered... not structured to meet the needs of bureaucrats... wherever they may reside. The language emphasizes market competition to improve quality of care as well as reduce cost and waste. Consistent with positions that I and others have taken over the last several years, the Wyden-Ryan approach relies on a market based set of solutions, competition that fosters innovation, and guarantees for those without the financial means to secure care and coverage on their own.

The proposal acknowledges serious flaws in the current system, including design issues inherent to Medicare Advantage which result in access and payment problems -- for both recipients and providers.

While the plan offers a broad brush outline of principles and a framework for a conversation, the devil is always in the detail. There are many points unspoken... like understanding and managing variation, employing predictive care paths, focus on outcomes and engaging greater transparency and accountability across the board... even among beneficiaries! We are all in this together; there really is no free-lunch. The Wyden-Ryan proposal represents a serious effort at presenting a framework for reasoned discourse to solve a very old problem. In that regard it is a welcome change we should embrace even as we challenge its assumptions and bring more insight to bear regarding how we will achieve better health outcomes at lower cost.

One of the provisions of the Patient Protection and Affordable Care Act, AKA Obamacare, is "free" preventive care. (Fact check: This care still costs money, but is paid for by someone else.) The thought is a good one, to pay a little now to avoid a larger payment later. (Fact check: The health care data don't support this assertion.)

The same logic, than an ounce of prevention is worth a pound of cure, can also be applied to the administration of health insurance. It should be self-evident that insurance companies don't spend money on administration just to waste resources. One reason insurance companies spend money on administration is to prevent fraud and abuse. Contrast this with Medicare. And we shouldn't forget that Medicare is the primary factor driving U.S. government debt to a percentage of GDP that will, in 15 short years, equal Greece's disastrous level today. Anyway, Medicare's apparent administrative costs are only about 2 percent, compared to 10-15 percent for private insurers. (Fact check: Medicare's own data show that when all true costs are included, its administrative expenses per life covered are actually higher than those for private insurers.)

What is important here is that health insurance organizations, be they Medicare or Humana, need to decide how much to pay upfront to prevent erroneous and fraudulent claims. If that amount is close to zero, as it is with Medicare, fraud and abuse will be rampant. By the government's own estimate, Medicare makes $50 billion in bad payments each year.

In what economists refer to as an unintended consequence, Obamacare's rule stating that health insurers must pay 85 percent or more of premiums on health care--leaving only 15 percent for administrative costs, marketing, and profits--may actually increase costs by limiting the ability of health insurers to catch and prevent erroneous and fraudulent claims. Pay me now or pay me later.

As I noted yesterday, the Wyden-Ryan plan on Medicare reform has elicited quite a bit of commentary, which continues today. The reaction from Dems in Congress and the White House is fairly predictable: they see Medicare as the third rail of American politics and are happy to electrocute any Republicans who try to reform it, no matter that Medicare begins going bankrupt in 2020.

The response on the right has been more nuanced. There, analysts are wondering if the plan compromises too much, and how much of an effect it will really have on Medicare spending.

Peter Suderman, writing at Reason notes that:

...the option [Wyden-Ryan] describe as "traditional" Medicare wouldn't quite be Medicare as-we-know-it. Seniors would have to buy in using capped premium support payments (similar to vouchers, but with the federal government serving as a go-between for seniors and insurers). If "traditional" Medicare couldn't hold down costs and premiums, seniors might have to spend some of their own money in order to stay in the program. The idea is to create savings through competition, on the assumption that seniors will pick plans that represent the best value for their own health needs. And, at least in theory, that's how this plan restrains the growth of Medicare: The value of the premium support payments is capped at GDP plus 1 percent, meaning that spending on the program grows only a little faster than the economy.

The political advantages of a plan like this should be obvious: Leaving a government-run Medicare option in the mix insulates the proposal from the sort of you're-killing-granny! criticism that Ryan's earlier reform plans drew. Cosponsoring the plan with a popular, health-policy focused Democrat (Wyden offered a health policy overhaul during the late Bush years that Obama mostly ignored) further insulates the plan from partisan criticism, and may even help make it politically plausible--which even the most compromised version of Ryan's plan never was--at some point in the future. More importantly, it isolates President Obama, who can be accused of ignoring a genuine bipartisan reform option if he doesn't support the joint proposal.

Peter also picks up on the same issue that I noted yesterday. Politically, the Wyden-Ryan plan muddies the water by creating a frawework for seniors that mirrors Obamacare's state based exchanges:

But there are political complications as well, for both Republicans and Democrats. The Ryan-Wyden plan looks a lot like ObamaCare with the addition of a public option. That makes it somewhat harder for Republicans to oppose last year's health care overhaul, but it also makes it more difficult for Democrats to oppose, given that they passed a law essentially doing for the middle class what Ryan-Wyden would do for seniors.

In a follow on post, Peter qualifies that even more:

Passing legislation usually requires compromise, but this one gave up a lot of ground in hopes of sparking bipartisan support for reform. And after making the sacrifice play, Ryan may not even end up with much to show for it. Senior Democratic staffers are already issuing anonymous sneers at the plan. And despite Wyden's assurances, House Minority Leader Nancy Pelosi has taken to warning her Twitter followers that the plan is just a sneaky attempt to kill traditional Medicare completely.

Over at NRO's the Corner, my colleague Josh Barro weighs in as well:

House Budget Committee Chairman Paul Ryan (R) and Senator Ron Wyden (D) are out today with a joint proposal on Medicare reform, and structurally, the plan makes a lot of sense. The plan is built much like the "premium support" plan that Ryan has been advancing for the last year.

However, there are two key differences from Ryan's original proposal. One is that traditional fee-for-service Medicare would be retained as a "public option" that seniors could choose, using their premium support payments to buy insurance from the government instead of from a private insurer. The other is that the plan does not include Ryan's aggressive cap that would have held the growth in the value of Medicare benefits to CPI. As I wrote at the time, this was an implausibly low target, especially because the plan lacked accompanying cost-control measures. Wyden-Ryan aims to hold overall Medicare cost growth to GDP growth plus 1 percent, which is still ambitious but plausible.

I like this proposal structurally. What I don't like about it is another feature it keeps from Ryan's original plan-it wouldn't be effective until 2022, and then only for new retirees. That means, like Ryan's proposal before it, it saves no money this decade and almost no money in the next decade. I understand the political impulse-it avoids impacting anybody now, so maybe Ryan and Wyden won't get beaten up for taking away Granny's benefits. But this delay is still a serious mistake-reforms should be effective immediately, and for current participants as well as new ones.

Finally, Reihan Salam, notes that:

It happens that the Wyden-Ryan proposal does two things: it sets a global budget and it creates a plausible mechanism, though obviously not an assured mechanism, for introducing constructive competition that can restrain cost growth.

At its heart, Wyden-Ryan is a version of the defined benefit proposal first advanced by a (bipartisan) group of health economists, Robert F. Coulam, Roger Feldman, and Bryan E. Dowd. This post from August offers some background on the concept. Like Yuval Levin's Medicare reform proposal, however, it matches premium support to the second-cheapest plan in a market area, so that Medicare beneficiaries will have at least one cheaper plan that will offer cash back. ...

To be clear, Wyden-Ryan is a gamble that competition in urban markets will reduce costs with a global budget as a backstop. As for quality, Wyden-Ryan guarantees a certain benefit and then allows Medicare beneficiaries to pay an additional amount if they seek services of higher quality. If the gamble succeeds and the new premium support structure is able to hold down the cost of today's benefit, it seems plausible that many Medicare beneficiaries will be willing to pay top-up fees for plans that offer richer benefits.

The response to Wyden-Ryan seems to parallel the earlier response to the Simpson-Bowles deficit recommendations. From the right, a cautious embrace; on the left, lots of consternation.

The theme on the left is that any significant changes to Medicare will "end the program as we know it". Well, Medicare is unsustainable in its current format, and so ending it "as we know it" will be the only way to save it.

The right is edging towards compromise. The left doesn't see any need for compromise, at least not until after November 2012.

I'm still digesting the Wyden-Ryan plan, but since the blogosphere is exploding over the plan, and the White House is attacking it, I think it's appropriate to offer some early thoughts. (For the record, former CBO Director Douglas Holtz-Eakin and I proposed something similar back in July.)

First, the politics of the plan: this is clearly a "win" for conservatives, since it reduces Democrats ability to play the Mediscare card in the general election next November. Although Democrats have done their utmost to cast the Ryan plan as nothing short of feeding granny to the lions, momentum has been growing among policy wonks on both the left and the right to experiment with some sort of premium support plan, beginning with the Congressional "Super Committee" discussions in November, as the New York Times noted not too long ago:

Members of both parties told the panel that Medicare should offer a fixed amount of money to each beneficiary to buy coverage from competing private plans, whose costs and benefits would be tightly regulated by the government. ...

Alice M. Rivlin, who was budget director for President Bill Clinton, had urged the deficit panel to establish an insurance exchange for Medicare beneficiaries. Private plans would compete with the traditional Medicare program and would have to provide at least the same benefits. The federal contribution in each region would be based on the cost of the second-cheapest option, whether that was a private plan or traditional Medicare.

That a well respected senator like Ron Wyden has officially embraced the model of Medicare "premium support" makes it a legitimate topic for debate and dicussion - and takes much of the Fear Factor out of the proposal.

But since Medicare bipartisanship of any kind breaking out is bad news for the White House, the Obama Administration wasted no time attacking it:

"We are concerned that Wyden-Ryan, like Congressman Ryan's earlier proposal, would undermine, rather than strengthen, Medicare," said White House Communications Director Dan Pfeiffer. "The Wyden-Ryan scheme could, over time, cause the traditional Medicare program to "wither on the vine" because it would raise premiums, forcing many seniors to leave traditional Medicare and join private plans. And it would shift costs from the government to seniors. At the end of the day, this plan would end Medicare as we know it for millions of seniors. Wyden-Ryan is the wrong way to reform Medicare."

What then is the right way to reform Medicare? Presumably, it's the massive provider cuts included in the Patient Protection and Affordable Care Act, which Medicare's own actuary has concluded are unsustainable since 40% of Medicare providers would become unprofitable by 2040. But even if the cuts were sustainable the CBO says they don't do enough to slow the growth in federal health care expenditures:

Rising health care costs will put tremendous pressure on the federal budget during the next few decades and beyond. In CBO's judgment, the health legislation enacted earlier this year does not substantially diminish that pressure.

- Douglas Elmendorf, Director, Congressional Budget Office, Presentation to the Institute of Medicine, Health Costs and the Federal Budget, May 26 2010

The President's only "solution" has been to offer the prospect of more cuts to provider rates through IPAB, which will only lead to the prospect of more providers dropping out of the program, and the rationing of care for seniors.

Wyden-Ryan actually advances several important new ideas. First, it would institute a new regional competitive bidding system, where plans would agree offer the same coverage as traditional Medicare. Federal premium support would be pegged to the second least expensive plan. This means that seniors who chose lower cost plans could keep the savings, and seniors who chose the benchmark wouldn't pay any more out of pocket than they do for Medicare now. Seniors who wanted richer plans could pay more for additional services.

Plans would be chosen from an insurance exchange, and insurers would have to take seniors without regards for their age or health status. Sicker seniors would get more money to buy affordable coverage.

As in Medicare's current Part D prescription drug program, competitive bidding would help to keep costs down. And insurers - unlike traditional fee for service Medicare - would have powerful incentives to create efficient networks of providers to offer high quality, affordable care.

Medicare has never been able to achieve this kind of efficiency because seniors have always been able to go anywhere they want, to any provider, and Medicare has paid for services on a piecemeal basis, which has led to the fiscal train wreck we're in today.

Ideally, competitive bidding and consumer choice would slow the rate of Medicare spending without impeding access or hurting quality. With a nod to the need for some kind of hard cap on Medicare spending, the Wyden-Ryan plan would limit growth in overall Medicare spending at GDP+1 percent - about where spending is capped currently under PPACA's Independent Payment Advisory Board.

(Some courageous journalist should actually have the temerity to ask President Obama why Wyden-Ryan would be any worse than his even more draconian IPAB proposal, or, for that matter, the premium support system that President Obama has created for everyone under 65 on the state exchanges.)

But this is where the bipartisanship rubber really hits the asphalt of election politics. The Wyden-Ryan plan protects Republicans from the charge that they want to kill Medicare...but it's resemblance (both in structure and regulation) to "Obamacare's" state exchanges also limits conservatives ability simply lambaste the Affordable Care Act.

The debate would then shift to the details: How quickly should premium support grow? How much should wealthier seniors (or the middle class on the state exchanges) pay for their own care? How much do state and federal regulations actually drive up insurance costs and limit provider competition?

Some liberal commentators see Wyden-Ryan as crumbling conservative opposition to universal coverage. But it's equally possible to see Wyden-Ryan as crumbling liberal opposition to more market forces in health care generally, and Medicare in particular.

Wherein lies the truth? Health care spending is driving the U.S. toward fiscal ruin. Reforms must be serious to be sustainable, and sustainable reforms require bipartisan support. They will also require uncomfortable compromises from both parties that shatter long held caricatures.

Senator Wyden and Representative Ryan have begun a serious dialogue about what that compromise would look like. It would be nice if we had a president who could embrace that opportunity, rather than reflexively vilify it.

Today, U.S. Senator Ron Wyden and Representative Paul Ryan released a new Medicare reform plan that focuses on competition between private plans and traditional Medicare, built around competitive regional bidding and an insurance exchange for seniors.

Here's a link to the Wall Street Journal op-ed explaining the plan, along with links to additional commentary from around the Web:

A Bipartisan Way Forward on Medicare
Ron Wyden and Paul Ryan, Wall Street Journal

Our plan would strengthen traditional Medicare by permanently maintaining it as a guaranteed and viable option for all of our nation's retirees. At the same time, our plan would expand choice for seniors by allowing the private sector to compete with Medicare in an effort to offer seniors better-quality and more affordable health-care choices.

Under our plan, Americans currently over the age of 55 would see no changes to the Medicare system. For future retirees, starting in 2022, our plan would introduce a "premium support" system that would empower Medicare beneficiaries to choose either a traditional Medicare plan or a Medicare-approved private plan. Unlike Medicare Advantage, these private plans would compete head-to-head with traditional, fee-for-service Medicare on a federally regulated Medicare exchange.

Wyden: Medicare proposal doesn't erase GOP votes for earlier Ryan plan
The Hill

Wyden said he and Ryan (R-Wis.) want to move past the divisive politics of healthcare. But he said Republicans can't walk away from their support for Ryan's proposal to end the existing Medicare program.

 The Medicare proposal that Wyden and Ryan released Thursday would give seniors a choice between Medicare and private insurance, a departure from Ryan's earlier proposal to privatize the entire program. 



"Traditional Medicare will always be part of this program," Wyden said.

 The two lawmakers said both parties have been on the receiving end of intense healthcare attacks -- over President Obama's healthcare law and Ryan's Medicare proposal -- and cast their proposal an effort to start a new conversation.



What Wyden-Ryan hath wrought
Matt Miller, Washington Post

In this new plan, Wyden gets Ryan to sign onto a key component of that earlier reform. Though it has nothing to do with Medicare, Wyden-Ryan would allow firms with fewer than 100 employees the option of giving their workers (on a tax-advantaged basis) the cash the firms would have spent on their health coverage to buy, voucher-style, other policies. Since most small firms offer just one health plan, this is a huge victory for choice. It means that as many as a third of American workers could use the new health-care exchanges -- a fantastic expansion of access to the exchanges that was perversely killed by both big business and big labor in the Affordable Care Act endgame.

Ryan, Wyden Lay Out Medicare Reform Plan
National Journal

Rep. Paul Ryan, R-Wis., and Sen. Ron Wyden, D-Ore., laid out a bipartisan plan for Medicare reform on Thursday that would give seniors a choice of using their premium dollars to purchase private plans, or stay in traditional Medicare. Ryan proposed a simpler voucher system as part of his budget plan last year. He and Wyden said the key to success in the program will be the power of choice and the market to drive down health care costs by transitioning one large government payer into a series of smaller plans.

"Traditional Medicare will always be part of this program, not something that's going to be shrouded in ambiguity," Wyden said at a breakfast event hosted by the Bipartisan Policy Center. "It will also offer a menu of private sector choices." People 55 and over now would be unaffected by the proposal. But starting in 2022, it would introduce a "premium support" system that would allow seniors to choose between enrolling in traditional Medicare or in a Medicare-approved private plan.

Ryan, Wyden back a new Medicare option
Politico

Wyden is the first Democrat on Capitol Hill to so strongly embrace a variant of Ryan's approach. And Ryan has accepted more flexibility than the Medicare approach in the House budget. Wyden insists the plan would be designed in ways that would preserve the safety net for the elderly.

"I will never do anything to shred that or weaken it or harm [Medicare] in any way," the Oregon Democrat said. "I simply believe that there is now an opportunity for progressives and conservatives to come together and to strengthen the program for the long term and particularly, deal with the costs and demographic challenges."

The Ryan budget plan would have moved seniors in the future into private health plans, with government subsidies known as premium support or -- to his critics, vouchers. Ryan and Wyden plan to release a white paper with more details Thursday at an event sponsored by the Bipartisan Policy Center.

With Dr. Donald Berwick's recess appointment ending last week, the media is full of praise for his common sense approach to Medicare reform, and how his reform of the program was stymied by evil Republicans who refused to confirm him.

Writing today in the New York Times, Joe Nocera repeats the meme in his column today:

Dr. Berwick, I'm here to tell you, was the most qualified person in the country to run Medicare at this critical juncture, and the fact that he is no longer in the job is the country's loss. ...

Naturally, this view made him anathema to Republicans, who blocked his nomination in the usual way. They pored through his old speeches and articles, plucked out a few comments they objected to -- he once praised the British health care system! -- and announced that they would never confirm him.

Well, this is a story line guaranteed to evoke outrage among liberals...except that it's probably untrue.

While it is likely that most Senate Republicans would not have voted to confirm Dr. Berwick, it is also irrelevant since the President had 59 Democratic votes in the Senate up until November 2010. That means they would only have needed one lone Republican vote to have him confirmed.

And, in fact, Democrats did not even hold a confirmation hearing for him, which would have allowed him to confront and (potentially) persuade his Republican critics.

Instead, it was Democrats' tactical (read political) decision not to hold a confirmation hearing for Dr. Berwick, since the American people might have found his many past statements in favor of rationing or his praise for the British NHS health system (which actively rations access to, among other things, new cancer drugs) deeply problematic in the run up to the November 2010 elections. In fact, that record might have made it very difficult for Senate Democrats in swing states to vote for him - creating a bipartisan vote against his confirmation and a huge embarassment for the Obama Administration.

In other words, revisionist history notwithstanding, Democrats found it inconvenient to actually schedule a hearing and vote for the man who they now say is indispensable for Medicare reform.

This is not to say that much of what Berwick advocates - bringing private sector quality control and managment techniques to Medicare - is at all objectionable. It isn't. What is objectionable to conservatives is his unabashed faith in central planning, a faith that would make any Soviet era bureaucrat blush. My colleague Avik Roy makes this exact point in a recent Forbes column.

What Berwick ignored in his work - and continues to ignore - is that systems that strangle consumer choice and competition are doomed to failure, as David Gratzer and I wrote after he was nominated:

Across the economy, companies thrive by becoming more and more responsive to consumers. Innovation is driven by competition and feedback from the bottom up - the iPhone (and its smartphone competitors) is the result of decades of us demanding better and faster machines.

In contrast, Dr. Berwick (who has professed his love for Britain's government-run National Health Service) thinks that the secret to improving American health care is having experts in Washington dictate prices and force process reforms on thousands of hospitals, hundreds of thousands of physicians, and tens of millions of patients, by sheer dint of ambition and will. Alas, he has fallen victim to the Harvard Disease: the idea that having experts peer through reams of data will lead to system wide improvements.

A record tempered with more humility about the power of top-down managment and more openness to market-based reforms would've not only made Dr. Berwick more politically palatable to his critics on the right, but it would've made him a better reformer.

Dr. Donald Berwick has left the Centers for Medicare and Medicaid Services (CMS). Admittedly a controversial figure, he has nailed several key points in the healthcare reform debate that rages on. In a parting interview in the New York Times, he noted that there is enormous waste in spending on healthcare delivery. He's right in concept, conservative on the estimate. While he suggested the number was 20-30%, research that we've done puts the number at 30-40% (approximately $500 billion annually) - more than enough to cover the uninsured without a reform law - and this was before taking into account savings from addressing fraud and abuse.

Yet CMS, the agency that could have changed this situation without what Dr. Berwick aptly described as, "a complex, complicated law," didn't. Berwick's ideals and vision - more healing, safer care and more access - are all noteworthy, reasonable, and aspirational.

Lilly is facing a $13 billion dollar patent cliff in the next three years - but CEO John Lechleither explains to Xconomy that increasing R&D spending, rather than chasing mergers, will better help the company weather the storm in the long run.

U.S. Senator Claire McCaskill (D, MO) is calling for the Department of Health and Human Services to investigate the Obama's Administration's award of a $433 million dollar sole source contract to a company owned by billionaire Ronald Perelman, who also happens to be a "major democratic donor." The company, Siga Technologies, is set to make an antiviral drug for smallpox that cannot be tested or approved for use in humans, according to the FDA. For more on this, see my earlier commentary here and the L.A. Times, here.

Robert Samuelson looks at recent OECD data comparing health care costs and outcomes in the U.S. to other wealthy nations, and says the data paints a "devastating picture" of U.S. health care. For another view of the OECD data, at least on life-expectancy, see Avik Roy's excellent post here.

The A.P. reports a sobering picture of more parents "opting out" of having their children vaccinated for school. Health officials fear that the trend could lead to a resurgence of diseases that haven't been seen in the U.S. in decades, like polio.

(Cross-posted from The Apothecary on Forbes.com.)

It's one of the most oft-repeated justifications for socialized medicine: Americans spend more money than other developed countries on health care, but don't live as long. If we would just hop on the European health-care bandwagon, we'd live longer and healthier lives. The only problem is it's not true.

Wealth begets health

Benjamin Disraeli, British Prime Minister under Queen Victoria, once said, "There are three kinds of lies: lies, damned lies, and statistics." Nowhere is this more true than in the debates about health-care policy.

Life expectancy is an appealingly simplistic, but deeply flawed, way to think about the quality of a country's health-care system. After all, shouldn't good health care make you live longer? Well, yes, but. The problem, of course, is that there are many factors that affect life expectancy.

One is wealth. It's gross domestic product per capita, and not health-care policy, that correlates most strongly to life expectancy. Gapminder has produced many colorful charts that shows the strong correlation between wealth and health. Here's one from Lane Kenworthy of the University of Arizona:

Measuring health outcomes at the point of intervention

If you really want to measure health outcomes, the best way to do it is at the point of medical intervention. If you have a heart attack, how long do you live in the U.S. vs. another country? If you're diagnosed with breast cancer? In 2008, a group of investigators conducted a worldwide study of cancer survival rates, called CONCORD. They looked at 5-year survival rates for breast cancer, colon and rectal cancer, and prostate cancer. I compiled their data for the U.S., Canada, Australia, Japan, and western Europe. Guess who came out number one?

U-S-A! U-S-A! What's just as interesting is that Japan, the country that tops the overall life expectancy tables, finished in the middle of the pack on cancer survival.

Car accidents and homicides don't tell us much about health care quality

Another point worth making is that people die for other reasons than health. For example, people die because of car accidents and violent crime. A few years back, Robert Ohsfeldt of Texas A&M and John Schneider of the University of Iowa asked the obvious question: what happens if you remove deaths from fatal injuries from the life expectancy tables? Among the 29 members of the OECD, the U.S. vaults from 19th place to...you guessed it...first. Japan, on the same adjustment, drops from first to ninth.

It's great that the Japanese eat more sushi than we do, and that they settle their arguments more peaceably. But these things don't have anything to do with socialized medicine.

America doesn't have one health care system, but three

Finally, U.S. life-expectancy statistics are skewed by the fact that the U.S. doesn't have one health-care system, but three: Medicaid, Medicare, and private insurance. (A fourth, the Obamacare exchanges, is supposed to go into effect in 2014.) As I have noted in the past, health outcomes for those on government-sponsored insurance are worse than for those on private insurance.

To my knowledge, no one has attempted to segregate U.S. life-expectancy figures by insurance status. But based on the data we have, it's highly likely that those on private insurance have the best life expectancy, with Medicare patients in the middle, and the uninsured and Medicaid at the bottom.

If we look at Switzerland, a country with private-sector, market-based universal coverage, we see very good health outcomes data. Put another way: if we compared the life expectancy of Americans on private insurance with that of centrally-planned Europeans, I'd bet that the U.S. would come out on top. And if that's true, the argument that socialized medicine leads to longer life evaporates.

(This post originally appeared on Avik's Forbes blog, The Apothecary.)

On Friday, FDA Commissioner Margaret Hamburg announced that the agency was revoking its approval of best-selling cancer drug Avastin for breast cancer. This decision is no surprise, coming on the heels of advice from the agency's panel of outside experts last August, which itself was triggered by Genentech's failed phase III trial of Avastin in breast cancer. I continue to fail to understand why conservatives are up in arms over the FDA's decision. If anything, the way FDA has handled Avastin should be a model for future regulatory decisions.

Avastin's FDA history

First, some background. In 2004, the FDA approved Avastin for first-line treatment of patients with metastatic, or malignant, colorectal cancer. The tremendous success of Avastin turned Genentech from a biotech also-ran into the sector's most-valued company. The drug eventually gained additional approvals for second-line metastatic colorectal cancer (2006); first-line non-small cell lung cancer (2006); metastatic HER2-negative breast cancer (2008); second-line glioblastoma, a form of brain cancer (2009); and metastatic renal cell carcinoma, a form of kidney cancer (2009). The drug's mechanism of action--starving tumors of the blood supply they need to grow--proved effective in a wide variety of cancers, and Avastin became one of the most successful cancer drugs in history.

The FDA takes a leap of faith on Avastin

The 2008 approval in breast cancer was based on encouraging results from a 2005 phase III study, the E2100 study sponsored by the Eastern Cooperative Oncology Group. ECOG-E2100 compared Avastin in combination with Taxol (paclitaxel), an older chemotherapy drug, with Taxol alone. While the ECOG study wasn't blinded--patients knew what treatment they were getting--the study showed that patients on the Avastin-plus-Taxol did better on an endpoint called "progression-free survival," which measures how long patients live without a growth in the size of their tumors. Avastin-plus-Taxol patients had a median PFS of 11.3 months, versus 5.8 months for Taxol.

On the basis of ECOG-E2100, the FDA granted "accelerated approval" to Avastin in breast cancer, despite the fact that the trial wasn't up to traditional FDA standards: it wasn't blinded such that doctors wouldn't know which treatment they were giving, and such that patients wouldn't know which treatment they were receiving (what statisticians call double-blinding). In addition, the FDA strongly prefers not to approve drugs on progression-free survival, which is a somewhat soft endpoint, preferring instead to approve a drug on overall survival: the most objective endpoint there is. (Did you live, or die, after taking the drug?)

The FDA's accelerated approval of Avastin was conditioned on Genentech conducting a proper, double-blinded study comparing Avastin to the standard of care. The study would need to show that patients on Avastin lived longer than those who weren't on Avastin.

The FDA's decision aids biomedical innovation

In other words, the FDA did exactly what I and other FDA-watchers are always asking the agency to do: get drugs out there quickly, put them in the hands of doctors and patients, and let the clinical evidence pile up over time.

The FDA only pulled its approval of Avastin for breast cancer after that blinded phase III trial was finished, a trial that showed that patients on Avastin didn't live longer than those not on it. Because Avastin is already approved for other diseases, doctors are free to prescribe it "off-label" for breast cancer if they want to. Medicare has promised that they will continue to pay for it, even though it's debatable as to whether or not they should.

The Wall Street Journal, and others, have denounced the FDA's move as "a chillingly blunt assertion of regulatory power." But Paul Howard is the guy who gets it right:

If you think (as I do) that the FDA should be expanding the accelerated approval pathway and allow more drugs to get to market based on promising early studies. rather than waiting for large Phase III clinical trials that can take years to complete, you can argue that this outcome actually strengthens AA. Critics have charged that AA is sop to industry, and that companies never do the follow up studies to support AA. Avastin proves them wrong.

This is exactly the point. If you want the FDA to approve more innovative, new drugs based on promising but early clinical results, you have to give the FDA a way to revoke those approvals later on, should larger trials prove that those drugs aren't as safe or effective as they first seemed. This is why the FDA should be congratulated for the way it has handled the Avastin breast cancer saga, and why I hope we will see the FDA handle more cases like this one, not less.

Parallel review may improve speed-to-market for some products. Potential side effects include decreased approval volumes, and disincentives for innovation across a broad spectrum of therapeutic areas.

As I pointed out last week, the more cost-containment policy is effective, the more disincentives there are to innovate. We know that government agencies like CMS and HHS are focused on cost-containment, but what happens when this focus spreads to the FDA -- an organization whose mandate has historically been safety and efficacy?

On September 17, 2010, the FDA and CMS jointly announced their intent to institute a process for cooperation and concurrent review of medical products. The proposed approach would give CMS the go-ahead to begin considering a request for a National Coverage Determination (NCD) before the FDA has completed its review of the product's safety and effectiveness. Pilot programs have since begun -- including a pilot for medical devices announced earlier this month.

Healthcare reform legislation has put intense pressure on medical products manufacturers. What we know about the law has set in motion regulatory changes that already have had far reaching (and costly) impacts. In a nutshell, they include:

• A $2.5B in branded pharmaceuticals excise tax starting in 2011, and increasing to $4.2B in 2018
• 2.3% excise tax on "taxable medical devices" starting in 2013
• Increased access to generics
• 32 million more people gained access to prescription drugs
• Increased transparency around physician payment (each event >$10 or >$100 annually)
• Increased focus on fraud and abuse (compliance program integrity, Anti-kickback Statute, False Claims Act, etc.)

One objective of the legislation that's been generally accepted is that, as a society, we need to achieve better health outcomes at lower cost. How to get there is the subject of great debate. Challengers decry the law and proponents applaud it as the gateway to a single payer system (and therefore the solution to what ails American healthcare). In reality, PPACA is only the tip of the iceberg! The real news is what's less known...

Generic drug shortages continue to perplex hospitals, policymakers, and regulators.

New vaccine for meningitis faces delays after FDA approval.

Innovation: Is the U.S. slipping, or is the rest of the world catching up?

Where the cuts will come from if the deficit "Super Committee" can't come up with a deal.

HHS closes CLASS early, and (apparently) permanently.

As part of his deficit reduction plan, President Obama recently announced two proposals that would reduce innovation and employment in the biomedical industry.

First, the president has proposed lowering data exclusivity protections for biotech medicines from 12 years to 7, which would allow "biosimilars" to come to market much faster than under current law (the Affordable Care Act, signed by the president in March 2010).  This would sharply reduce incentives to invest in biotech medicines, as discussed in this recent AEI paper by Henry Grabowski:

Data exclusivity periods of twelve years or more provide an "insurance policy" to stimulate innovation in cases in which effective patent protection is limited in scope or time, or uncertain in nature. If the data exclusivity period is only a nominal five to seven years, many products with limited patent protection, regardless of clinical value and importance to patients, will not enjoy sufficient exclusivity time to recover R&D costs and earn positive returns.

President Obama also wants to expand Medicaid price controls for "dual eligibles" in Medicare's Part D prescription drug program, which may deter innovation and likely raise premiums or reduce prescription drug plans avaialble to many seniors. For more on this perspective, see this paper, from Douglas Holtz-Eakin and Michael Ramlet.

While controlling health care costs and lowering the deficit are critical national priorities, they should not come at the expense of the most innovative medical therapies.  Cost shifting through price controls or reducing market exclusivity for biotech medicines would impact all innovative therapies, regardless of their overall impact on health or health care costs.

A better approach is to focus on Medicare (and Medicaid) reforms that encourage recipients chose health plans that coordinate care or use the most effective therapies (new or old) to improve health outcomes at lower cost.   

The Medical Progress Today blog provides a forum for economists, scientists, and policy experts to explore the scientific, regulatory, and market frameworks that will best support 21st century medical innovation.  We will focus especially on the U.S. Food and Drug Administration, the agency responsible for overseeing the nearly half-trillion dollar drug and medical device markets in the United States.

The blog will range widely in terms of topics and POV.  But, at its heart, MPT is about harnassing the power of science, market incentives, and (prudent) regulation to create the kind of health care system that we all want - more effective, efficient, and affordable.

We live in a time of breathtaking advances in the capacity to treat--and cure--illness. The translation of the human genome and an explosion of information from new sciences like metabolomics and proteomics have given researchers powerful new tools for understanding, treating and (eventually) curing deadly diseases like cancer and Alzheimer's. The old medical paradigm treated illnesses symptomatically with one-size-fits all medicines; the new paradigm will analyze disease at its molecular roots and to develop personalized therapies that match a patient's own unique biochemistry.

The question is not whether personalized medicine will become a reality, but when. Innovation is currently struggling in the face of regulatory, reimbursement, and insurance frameworks built around public health assumptions that fit the middle of the last century, rather than the first decades of the 21st century.

Turning personalized medicine from an aspiration into a reality will require regulators, companies, and researchers to breakdown binary regulatory frameworks; develop collaborative approaches to rapidly validate new technological standards; and embrace clinical tools that allow patients and physicians to become full partners in the innovation process.

Through both this blog site and the original essays it will commission, MPT will provide a forum to explore the most current ideas--and emerging challenges--in the field of personalized medicine.

We hope that you will find MPT a vital and provocative resource for building a health care system ready to embrace the full potential of personalized medicine and sustain U.S. leadership in biomedical innovation.

Sometimes, libertarian ideology and the reality of modern technology come into conflict--we saw that at the Republican presidential debate in Tampa on Monday night. The issue then was healthcare, but the issue, in the future, could be many other things as well.

It was a lot easier, for example, to practice laissez-faire live-and-let-live in the era before modernity gave each individual, and each country, the capacity to generate significant amounts of pollution or maybe even weapons of mass destruction (like a genetically engineered smallpox bioweapon).

So the Super Committee--formally known as the Joint Select Committee on Deficit Reduction-- is up and running on Capitol Hill. It even has its own website. And yet one US Senator, Mike Lee of Utah, told a reporters' breakfast this morning that he is "bleak," "pessimistic," even "bitter," about the prospects for the Super Committee. The fundamental problem, Lee says, is the inability of one Congress to bind a future Congress. To which we can add, the even more fundamental problem is straight out of the Austrian School of Economics--the unknowability of the future, and the folly of trying to know the unknowable.    

The mission of the Super Committee, as everyone knows, is to reduce the future deficit by $1.5 trillion over the next ten years. Although some members of the Super Committee, including Rep. Chris Van Hollen (D-MD), have urged the Super Committee to seek even larger deficit reductions, as much as $4 trillion. Inevitably, deficit reductions of that magnitude will cut into Medicare, Medicaid, and all other federal health and research programs.