January 30, 2009 9:59PM

Only the Little People Pay Taxes

Tom Daschle has joined Timothy Geithner in the not-so-exclusive club of Obama Cabinet appointees who evaded tens of thousands of dollars in federal taxes until they were vetted for their Cabinet nominations.

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It's too bad Leona Helmsley can't be nominated as Commerce Secretary.

I sympathize with anybody trying to hold down his tax bill. Government is too big and too expensive, few of us feel we get our money's worth from our taxes, and we all have better uses for our money than bridges to nowhere and free condoms.  But honestly, shouldn't people who want to increase taxes on the rest of us -- like Daschle, Geithner, Eleanor Holmes Norton, Chairman Charles Rangel, Al Franken, Governor David Paterson's top aide, Democratic National Convention staffers, Al Sharpton, and so on -- pay their own taxes?

January 30, 2009 8:58PM

Coordinated Care: An Exchange with Greg Scandlen

Last month, Cato released a paper titled, "Does the Doctor Need a Boss?" Our friend Greg Scandlen called it "one of the most offensive papers I've ever read." Scandlen is one of the leading lights of the consumer-directed health care movement. He is a senior fellow at the Heartland Institute, founder and director of Consumers for Health Care Choices, a former Cato health policy scholar, and has written for health policy journals such as Health Services Research and Health Affairs. I invited Scandlen to exchange thoughts on the issues raised. Here I set up the issues and offer my first response.

In "Does the Doctor Need a Boss?", Arnold Kling and I argue that "the traditional model of medical delivery, in which the doctor is trained, respected, and compensated as an independent craftsman, is anachronistic" given the growing complexities of medical care:

Patients with multiple diagnoses require someone who can organize the efforts of multiple medical professionals. It is not unreasonable to imagine that delivering health care effectively, particularly for complex patients, could require a corporate model of organization.

Kling discusses our paper in a recent podcast.

Scandlen disagrees. In the latest issue of his Consumer Power Report newsletter, Scandlen addresses our paper under the title, "Cato Goes Off Track." Here are Scandlen's comments in full:

Boy, I hate it when this happens.

Two gentlemen I admire have published one of the most offensive papers I've ever read. Arnold Kling and Michael Cannon just released a paper, "Does the Doctor Need a Boss?" in which they conclude that independent physicians may be okay for treating simple things, but when it comes to anything complicated they ought to be working for a corporation. YIKES!

In coming to this conclusion, they cite a host of discredited work such as Alain Enthoven and the Institute of Medicine's "To Err is Human." But they seem driven by the personal experience of Mr. Kling, whose 88-year-old father was poorly treated in a hospital. One might think the lesson here would be less corporatization, not more, since a hospital is nothing but a corporate entity.

The paper says, "During his father's illness, Arnold observed firsthand the lack of continuity and coordination of care, which squandered the sincere efforts of many individual doctors and nurses." I don't doubt that is true, and repeated thousands of times a day. But is the answer adding another corporate bureaucrat ... or turning to someone like a concierge physician who knows the patient, knows the family, and is able to advocate for the patient at every level of care?

The gentlemen also fall into the old trap of blaming the problem on fee-for-service medicine when it should be well-established by now that the problem is not FFS but third-party payment (speaking of corporate medicine). Obviously this level of expense required insurance coverage, but it did not require third-party payment. Providers will always respond to their paymaster. They get into the habit of tailoring what they do to please whoever is paying the bill. Third-party payers have rules and procedures that must be followed and providers learn to perform in ways that maximize their pay.

What failed here was not the doctors and nurses, but the fact that Mr. Kling was crushed between corporate entities (the hospitals and the health plan) that were more interested in their bottom lines than in the well being of the patient.

I won't belabor this. It underscores the emotional side of health care and how personal experience can color our thinking. I don't blame Mr. Kling for being unhappy with the system. But to conclude that competent physicians created this system and are to blame for it boggles my mind. Read the paper and draw your own conclusions.

Though Kling tells a very personal story, the paper was not driven by anecdote or emotion — in fact, quite the opposite. "Does the Doctor Need a Boss?" came about because I read an article Kling wrote about his father's illness, and I noticed that Kling's anecdote matched the data. The elder Kling's experience personalized many problems that the health-services literature has addressed ad nauseam, but often facelessly: fragmented care, poor quality, and possibly even medical errors. I asked Kling to elaborate on his article, and that led to our collaboration.

Scandlen suggests that the solution to those problems is "less corporatization, not more, since a hospital is nothing but a corporate entity." In one sense, that is correct: hospitals are owned by corporations. But in another sense, it is flat wrong: the multiple physicians who treat a complex hospital patient are not part of the corporation. They are typically independent contractors on whom the hospitals rely for revenue. They typically have significant autonomy and their own idiosyncratic practice styles. Our paper contains a lovely quote from Jeff Goldsmith that describes just how not incorporated the two groups are. As we analogize in our paper, it is as if the bricklayers, plumbers, and electricians building your house can largely do as they please, without having to take orders from the general contractor — and no one is responsible for the final product.

We should expect that, nevertheless, those independent, autonomous, idiosyncratic subcontractors would at least try to coordinate their activities. But consider the heavy favoritism that Medicare and other government interventions show toward fee-for-service payment, where providers receive additional revenue for each additional service. When those subcontractors fail to coordinate care, FFS payment systems reward them. Poorly coordinated care leads to patients needing more services (more antibiotics, more doctor visits, more hospital admissions, etc.). Low-quality care thus results in more revenue. It's not that doctors and hospitals consciously respond to that financial incentive by providing low-quality care. It's that when docs try to coordinate care, FFS payment systems punish them. Coordinated care means fewer hospital admissions, fewer services, and (you guessed it) less revenue. The problem is not FFS payment itself, but the fact that government tips the scales in favor of FFS. As a result, we lose the benefits of open competition between different payment systems. If FFS providers had to worry about losing patients to health systems that use capitation/prepayment — which encourages coordinated care — then the threat of competition would create financial incentives that overwhelm the perversities of FFS payment.  (And competition from FFS providers would overwhelm the perverse incentives inherent in capitation/prepayment, such as the incentive to skimp on care.)

Despite Scandlen's claim, Kling and I never laid the blame for this sad state of affairs on "competent physicians." The physician lobby deserves its share of the blame for supporting corporate-practice-of-medicine and licensing laws that block competition by truly incorporated delivery systems. The physician lobby also deserves criticism for supporting government interventions that flood the health care sector with subsidies and favor fee-for-service payment. Yet we would never suggest that the physician lobby behaves as competent physicians would.

I doubt that Scandlen and we really disagree all that much about these things. I imagine we agree that fee-for-service, capitation/prepayment, and everything in between should have to compete without government favoring any one payment system over the others. Likewise, solo practitioners, HMOs, and everything in between should compete on a level playing field. And I suspect Scandlen would agree with our policy recommendations: that we should deregulate the medical profession, and let consumers control their health care dollars and choose their own health plan. 

And may the best delivery system win.

January 30, 2009 5:52PM

Big Business and the Stimulus

I was asked by a radio host more than once this week what I thought of the fact that some big business leaders were standing by President Obama in his pursuit of the gargantuan "stimulus" package. There is an unfortunate public perception that supporters of free markets are knee-jerk supporters of anything that could be perceived as benefiting "big business." As the thinking apparently goes, because free marketers favor business, and members of the business community favor the stimulus, shouldn't free marketers therefore favor the stimulus?

Hardly. In his book, The Myth of the Robber Barons, historian Burton Folsom differentiates between market entrepreneurs and political entrepreneurs:

A key point about the steamship industry is that the government played an active role right from the start in both America and England. Right away this separates two groups of entrepreneurs — those who sought subsidies and those who didn't. Those who tried to succeed in steamboating primarily through federal aid, pools, vote buying, or stock speculation we will classify as political entrepreneurs. Those who tried to succeed in steamboating primarily by creating and marketing a superior product at a low cost we will classify as market entrepreneurs. No entrepreneur fits perfectly into one category or the other, but most fall generally into one category or the other. The political entrepreneur often fits the classic Robber Baron mold; they stifled productivity (through monopolies and pools), corrupted business and politics, and dulled America's competitive edge. Market entrepreneurs, by contrast, often made decisive and unpredictable contributions to American economic development.

This afternoon I was forwarded an article regarding IBM chairman and CEO Sam Palmisano's public endorsement of the "stimulus" package alongside President Obama. According to Palmisano, “We need to reignite growth in our country. We need to undertake projects that actually will create jobs.” 

But as the reporter noted:

Since November, Palmisano has been making a pitch to Obama’s transition team that investing $30 billion in expanding rural broadband access, computerizing health-care records and improving the electrical grid could create 949,000 U.S. jobs. [ The stimulus package] could also create billions in revenue for Big Blue, which specializes in the technology and services used for health-care IT and smart-grid infrastructure, not to mention its recent $9.6 million contract to provide broadband service in rural America.

What we see here is IBM as the political entrepreneur. 

While IBM would stand to make a killing on the "stimulus," those companies unlucky enough to be left off the government gravy train, the market entrepreneurs, will get stuck partially financing the profligacy. According to Chris Edwards, "The U.S. statutory [corporate income tax] rate is the second highest of the 30 nations in the Organization for Economic Cooperation and Development, and by one estimate, the effective rate is the highest."  Of course, corporate taxes mean bad news for consumers, employees, and investors — not just the corporate owners, as many forget (or ignore).

January 30, 2009 4:04PM

A New Tone toward the Muslim World

After his first major interview with an Arab TV network, it is clear President Obama is striking a decidedly different tone in talking about terrorism. In today's Cato Daily Podcast, legal policy analyst David H. Rittgers discusses the new direction Obama will take in the fight against terrorism.

“This is a serious departure from some of the message that the Bush Administration put forth," says Rittgers, who served three tours of duty in Afghanistan as an officer in the Army. "Using ‘you are with us or against us’ is appropriate in certain circumstances, but as a blanket approach that is not the message we need to be sending.”

Add the Cato Daily Podcast to your RSS Feed.

January 30, 2009 2:45PM

Susette Kelo Tells Her Story

No U.S. Supreme Court decision in the modern era has been so quickly and widely reviled as the infamous Kelo decision, in which the Court ruled that the government could take Susette Kelo's house in New London, Conn., and the homes of her neighbors, and give the property to a private developer. The courts justified the ruling by saying the new use for her property could generate more taxes and jobs.

Kelo told her story at the Cato Institute on Monday.

For more on Kelo's story, read Little Pink House: A True Story of Defiance and Courage, by Jeff Benedict.

January 30, 2009 2:44PM

35 Million Still Not Hungry

Once a grim statistic gets some play in the media, it keeps getting repeated even if it is completely erroneous.

On the Washington Post front page Saturday: "In soup kitchens, food pantries and universities across the country, activists are planting the seeds for an overhaul of the way America feeds its more than 35 million hungry people...."

Doesn't 35 million seem kinda high to you? It did to me, and so I looked up the official data. As I noted in prior blog posts (and here), the the actual number of Americans going hungry is about 11 million, according to U.S. Department of Agriculture data.

Reporters seem to grab data from past stories, or get data from lobby groups, without going to the original government sources to check the accuracy. Hunger is a serious problem in America, but so is sloppy and biased newspaper reporting.

January 30, 2009 1:38PM

Pat Lang on Israel/​Palestine

National Journal's Sydney Freedberg asks a group of distinguished foreign policy types, "Is the two-state solution dead?" Pat Lang offers some sensible remarks:

It is expected ritual to say that the Palestinians and Israelis want peace. What is never specified as part of that incantation is the description of just what sort of peace each group wants. Here it is... What they still want (on both sides) is to win in the contest for that sad, beautiful, stony little strip of land and for their own group to live in peace and possession of the country.

There is no external power preventing the sides from making peace. If the Israelis and Palestinians wanted peace more than they want to win, they would make peace. They do not make peace because there is not enough good will toward the "other" among them to allow peace to exist. No. I no longer really believe that the inhabitants of Israel/Palestine want peace for other than their own side in the bloody mess that has persisted there throughout their lives.

Someone has said on this blog that the United States lacks the ability to "make peace" between these two peoples. That is profoundly true. It is part of our national illusion that we Americans think of the rest of the world as though we are the guardians of distant, unruly and childish folk who act in strange, inexplicable and unreasonable ways. We tend to believe that their quarrels are errors in information or simply bad behavior of the kind seen in school yards.  This mistake on our part is persistent....

Then, however, I'd humbly submit that Lang goes astray in arguing that while neither side appears ready to make the sacrifices required for a workable peace deal, the problem will ultimately "require an external formulation of a peace settlement when they ARE ready."

Why am I skeptical? Because, as Lang admits, what would be required for this to work is "a consensus of the interested parties across the Middle Eastern, Islamic and Western regions, a consensus that does not shrink from domestic political pressure, that does not fear to apply the inherent leverage provided by huge annual budgetary contributions to both sides and that values human life and happiness more than it does momentary advantage." If both sides were ready for peace, why would pulling budgetary levers be required? Alternatively, it seems terribly unlikely that pulling budgetary levers could make either side amenable enough to genuine concessions to make peace work. And aside from the extreme unlikelihood of the blessed convergence described above happening in our lifetimes, I’m reminded of George Kennan's concern in the 1970s about the responsibilities that come with imposing a settlement:

[W]e should not try to tell [the Israelis], or the Arabs, what the terms of a settlement should be. It is they, after all, not we, who would have to live with any settlement that might be achieved. Many of us can think, I am sure, of concessions which, in our personal opinion, it would be wise for the Israelis to make; but for the United States government to take the responsibility of urging them to make such concessions is quite another matter. There are many who would think, for example, that it would be wise for them to give up the Golan Heights. They may of course be right. But how can we be sure? What would our responsibility be if we urged this upon them and it turned out to be disastrous?

It seems like the problem for the United States is less that the Israelis and Palestinians seem unwilling to make the sacrifices required for peace, and more that we find ourselves in a position such that, as Kennan wrote, with respect to both sides of the dispute, "each has the impression that it is primarily through us that its desiderata can be achieved, with the result that we are always first to be blamed, no matter whose ox is gored; and all this in a situation where we actually have very little influence with either party. Seldom, surely, can a great power have gotten itself into a more unsound and unnecessary position."