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Commentary By Paul Howard, David Gratzer

Donald Berwick's Five-Year Plan v. the iPhone

Last month, Apple released its new iPhone, a faster and more powerful version of its ever popular computer-phone. It’s a remarkable device - particularly remarkable given that its machine ancestors were large and expensive, often filling whole buildings yet able to crunch fewer numbers than your average “app”. But, thanks to careful government planning and strict regulations, the computer industry has evolved at an extraordinary pace, from multi-ton mainframe to cool, hand-held gadget.

Except, of course, the smartphone revolution has been unguided by the hand of government planners. There is no central committee to steer consumers towards good hand-held devices and away from bad knock-offs. And that, in a nutshell, is the problem with President Obama’s appointment of Dr. Donald Berwick, a Harvard pediatrician and health-policy expert, to run the Centers for Medicaid and Medicare Services. To Dr. Berwick, there are two worlds: one in which brilliant intellects like - say - Dr. Berwick turn chaos into order, and our current health care system, where blind chaos rules.

Unfortunately, Dr. Berwick’s prescription for reform - a bolder, more determined bureaucracy - is the wrong strategy for an industry that has labored under increasing government control for the past 50 years. Instead, health care is in desperate need of more consumer-driven innovations like the iPhone that have the potential to change the way we think about health and health care.

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. Thus, he writes fondly of the “centralized stewardship” in the NHS.

While we share many of Dr. Berwick’s criticisms of the U.S. health care system - its ever-rising costs, uneven quality, and general lack of transparency - we disagree that these can be solved by the careful steering of enlightened bureaucrats.

Here are the real problems:

You don’t pay directly for your health care. Most Americans have their insurance purchased by someone else - their employers or government run programs. This disconnect between the user of the system and the insurance payer leads to a breakdown in the quality and cost control mechanisms that operate in other, consumer-driven industries like electronics. Other, more centralized systems, in the U.K. and Canada face similar problems.

It’s overly politicized already. Dr. Berwick praises the National Health Service for making health care a political question where stakeholders spar for funding through the ballot box. But he ignores how Congress and the state legislatures have become battlegrounds for disagreements over Medicare and Medicaid policy, constraining reforms that displease key constituencies. Shifting more control into government - as in the NHS - wouldn’t make these debates any less acrimonious or help control rapidly rising costs.

Government regulations are everywhere (and stifling). State and federal regulations discourage innovators from competing with established hospitals to offer improved quality at lower cost. Instead, providers are focused on protecting their revenue streams by gaming government-established reimbursement formulas. The fee-for-service models dominant in government programs help create the very fragmentation Berwick deplores.

If better data management is all that we need to succeed, why can’t national economies be managed by small coteries of experts? Market signals - including patient preferences, changes in population health, prices for millions of drugs and devices, salaries for physicians - are simply too complex and fluid for any central committee to second guess them for long.

Here is the biggest irony: despite his hostility to profits and markets, many of the quality and process improvements Dr. Berwick champions were borrowed from the private sector - from hotel chains, 3M, and Proctor and Gamble. Let’s just state the obvious, yet again: these innovations arose from consumer choice and market competition.

Dr. Berwick looks for a British-solution to our health-care woes. We don’t need to look so far afield. Policymakers should start by looking at how entrepreneurship and innovation work in the other five-sixths of the economy. They’ll discover that, when it comes to finding a uniquely American formula for health care reform, there’s already an app for that.

This piece originally appeared in RealClearMarkets

This piece originally appeared in RealClearMarkets