The Wall Street Journal, by Joseph Rago

By Joseph Rago

Natural experiments are rare in politics, but few are as instructive as the prototype for ObamaCare that Massachusetts set in motion in 2006. The bills for "universal coverage" are now coming due, and it appears the state political class is prepared to do lasting damage to one of America's top-flight health-care systems.

Last month, Democratic Governor Deval Patrick landed a neutron bomb, proposing hard price controls across almost all Massachusetts health care. State regulators already have the power to cap insurance premiums, which Mr. Patrick is activating. He also filed a bill that would give state regulators the power to review the rates of hospitals, physician groups and some specialty providers. Those that are deemed too high "shall be presumptively disapproved."

Mr. Patrick ad-libbed that he had "a whole bunch of pals here who are in the health-care field, and I saw the color drain out of their faces." Little wonder. The administered prices of Medicare and Medicaid already shift costs to private patients while below-cost reimbursement creates balance-sheet havoc among providers. Now the governor wants to import these distortions to save the state's heavily subsidized insurance program as costs explode.

It doesn't even count as an irony that former Governor Mitt Romney (like President Obama) sold this plan as a way to control spending. As with all new entitlements, the rolling cost crisis began almost immediately. For fiscal 2010 taxpayer costs are $47 million over budget, in part due to the recession, and while the $913 million Mr. Patrick requested for 2011 is a 5% increase over 2010, spending has grown on average 6.7% per year.

Meanwhile, average Massachusetts insurance premiums are now the highest in the nation. Since 2006, they've climbed at an annual rate of 30% in the individual market. Small business costs have increased by 5.8%. Per capita health spending in Massachusetts is now 27% higher than the national average, and 15% higher even after adjusting for local wages and academic research grants. The growth rate is faster too.

Those data come from granular studies about the Massachusetts health markets published recently by the state. Not that anyone on Beacon Hill seems to have to read them, judging by their policy proposals. Besides Mr. Patrick's latest inspiration, last year a blue-ribbon commission endorsed a "global budget"—i.e., an arbitrary government limit on medical spending, with politics shaping what gets covered and what doesn't.

As in Washington, the political class and providers blame insurers, but a better culprit is the state's insurance regulation. Incredibly, the average "medical loss ratio" in Massachusetts for individual policies is 112%—that is, insurers pay $1.12 in benefits for every $1 in premiums.

This is the direct result of forcing insurers to charge everyone more or less the same rate regardless of age or health status, which makes it rational for people to wait to enroll until they need expensive coverage. It is also the result of the state's decision to merge the individual and small-group insurance markets, which transfers individual costs onto small businesses. Mr. Patrick actually justified his plan by citing small-business costs.

Another reason costs are so high is that state regulations have mandated that insurance coverage be far richer than the rest of the country. The average insurance deductible is 28% lower than the U.S. average, and the benefits are more generous with less cost-sharing. Patients are thus insensitive to the cost of care.

The insurance industry points the finger back at providers, given that over the entire Massachusetts market they usually spend 88 cents of every premium dollar on claims. But the Bay State medical system isn't wasteful by any of the fashionable measures. The Dartmouth Atlas that measures regional variation in the supposed "overuse" of care ranks the state near the U.S. middle.

Though some large hospital systems, especially in Boston, have the market power to drive prices higher, the state's own reports mainly show that the dominant reason health costs are rising is medical progress and technological innovation. Massachusetts health care, with its abundance of academic medical centers and high-quality specialists, is the envy of the world.

This is the true target of Mr. Patrick's price controls: The goal is to engineer a cheaper system through brute force so government can pay for health care for all. What inevitably suffers is the quality of care for individual patients. Thirty states imposed hospital rate setting in the 1970s and 1980s. Except for Maryland, every one of them eventually eliminated it—including Massachusetts, in 1991—partly because it didn't control costs.

And partly because it killed people. A 1988 study in the Journal of New England Medicine found that the states with the most stringent rate-setting had mortality rates 6% to 10% higher than those that didn't.

All of this is merely a preview of what the entire country will face if Democrats succeed with their plan to pound ObamaCare into law in anything like its current form. Massachusetts is teaching the country a valuable lesson in how not to reform health care, if only anyone would pay attention.

© The Wall Street Journal

By Joseph Rago

With the House's climactic vote on ObamaCare tomorrow, Democrats are on the cusp of a profound and historic mistake, comparable in our view to the Smoot-Hawley tariff and FDR's National Industrial Recovery Act. Everyone is preoccupied now with the politics, but ultimately at stake on Sunday is the kind of country America will be.

The consequences of this bill will not only be destructive for the health-care system and the country's fiscal condition, though those will be bad enough. Inextricably bound up in a plan as far-reaching and ambitious as ObamaCare are also larger questions about the role of government, the dynamism of American enterprise and the nature of a free society. Above anything else, this explains why Democrats have had such trouble convincing the public, let alone their own Members.

Stripped of its romantic illusions, ObamaCare is really about who commands the country's medical resources.

Most acutely in the balance is the future of U.S. medicine. On the opposing page we reprint a 1996 essay by the great Milton Friedman that is more relevant than ever. Drawing from Alexander Solzhenitsyn's novel "The Cancer Ward," the late Nobel laureate traces the ways that national health care fundamentally alters "the consensual relation between the patient and the physician."

In our world of infinite wants but finite resources, there are only two ways to allocate any good or service: either through prices and the choices of millions of individuals, or through central government planning and political discretion. This choice is inexorable. Stripped of its romantic illusions, ObamaCare is really about who commands the country's medical resources. It vastly accelerates the march toward a totally state-driven system, in contrast to reforms that would fix today's distorted status quo by putting consumers in control.

Friedman lays out how the country arrived at our current pass, starting with the World War II-era decision to offer tax subsidies for employer-sponsored coverage only. Like the company store, this inefficient and inequitable preference encourages workers to be paid in kind rather than cash, and over the years the third-party payer system it entrenched has inhibited competition and desensitized patients to the costs of their own care. With the 1965 creation of Medicare for seniors and Medicaid for the poor, government has come to play the leading role in shaping the way care is paid for and provided.

Naturally, the result has been high and rising costs. Since 1962, the share of the economy devoted to health care has risen to about 17% from 6%. Today, health entitlements account for about 5% of GDP but on current trend will rise to 7% in 2025 and about 15% in 2062.

That is the problem President Obama inherited, as it were. Yet rather than fundamentally changing these incentives, he chose instead to create a new middle-class insurance entitlement that will transform the way U.S. health care is financed, and thus delivered. Such a "universal" system has been the core liberal aspiration since the age of Bismarck. But time and again this political ambition has been thwarted by American individualism, distrust of government power, the checks and balances of the political system, and, every so often, good judgment in Washington.

Once the health-care markets are put through Mr. Obama's de facto nationalization, costs will further explode. The Congressional Budget Office estimates ObamaCare will cost taxpayers $200 billion per year when fully implemented and grow annually at 8%, even under low-ball assumptions. Soon the public will reach its taxing limit, and then something will have to give on the care side. In short, medicine will be rationed by politics, no doubt with the same subtlety and wisdom as Congress's final madcap dash toward 216 votes.

As in the Western European and Canadian welfare states, doctors, hospitals and insurance companies will over time become public utilities. Government will set the cost-minded priorities and determine what kinds of treatment options patients are allowed to receive. Medicare's price controls will be exported to the remnants of the private sector.

All bureaucratized systems also restrict access to specialists and surgeries, leading to shortages and delays of months or years. This will be especially the case for the elderly and grievously ill, and for innovation in procedures, technologies and pharmaceuticals.

Eventually, quality and choice—the best attributes of American medicine in spite of its dysfunctions—will severely decline.

Democrats deny this reality, but government rationing will become inevitable given that overall federal spending is already at 25% of GDP and heading north, and Medicare's unfunded liabilities are roughly two and a half times larger than the entire U.S. economy in 2008. The ObamaCare bill already contains one of the largest tax increases outside the Great Depression or the world wars, including a major new tax on investment income—and no one seriously believes it will be enough.

So a vote for ObamaCare is also a vote against the vitality of American capitalism. Business elites have mostly held their tongues, or calculated that they can later dump their health-care liabilities on the government. Yet ObamaCare will lead to much higher levels of taxation across society. The tax wedge—the share of labor costs that never reaches workers but instead goes straight to government—will start flying towards the 50% that prevails today in most of Europe. In America, without the same welfare state obligations, it hovers near 30%.

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A self-governing democracy can of course decide that it wants to become this kind of super-welfare state. But if the year-long debate over ObamaCare has proven anything, it is that Americans want no such thing. There is no polling majority or any bipartisan support, much less a rough national consensus, for this expansion of government power. The election of Scott Brown in Massachusetts for Ted Kennedy's seat, of all things, was as direct a referendum as you could have.

So if the health bill passes in the House, it will only do so the way it did in the Senate, with a narrow partisan majority, abetted by political bribery and intimidation, budget gimmicks and procedural deceptions. An entitlement the country can't afford and doesn't want may pass because of sheer ideological willfulness. The ugliness of the bill, and of its passage, means that some or all of it might be repealable, but far better not to make the tragic mistake in the first place.

© The Wall Street Journal

By Joseph Rago

If Congress can force you to buy insurance, Article I limits on federal power are a dead letter.

The constitutional challenges to ObamaCare have come quickly, and the media are portraying them mostly as hopeless gestures—the political equivalent of Civil War re-enactors. Discussion over: You lost, deal with it.

The press corps never dismissed the legal challenges to the war on terror so easily, but then liberals have long treated property rights and any limits on federal power to regulate commerce as 18th-century anachronisms. In fact, the legal challenges to ObamaCare are serious and carry enormous implications for the future of American liberty.

The most important legal challenge turns on the "individual mandate"—the new requirement that almost every U.S. citizen must buy government-approved health insurance. Failure to comply will be punished by an annual tax penalty that by 2016 will rise to $750 or 2% of income, whichever is higher. President Obama opposed this kind of coercion as a candidate but has become a convert. He even argued in a September interview that "I absolutely reject that notion" that this tax is a tax, because it is supposedly for your own good.

Florida Attorney General Bill McCollum and 13 other state AGs—including Louisiana Democrat Buddy Caldwell—claim this is an unprecedented exercise of state power. Never before has Congress required people to buy a private product to qualify as a law-abiding citizen.

As the Congressional Budget Office noted in 1994, "Federal mandates typically apply to people as parties to economic transactions, rather than as members of society." The only law in the same league is conscription, though in that case the Constitution gives Congress the explicit power to raise a standing army.

Democrats claim the mandate is justified under the Commerce Clause, because health care and health insurance are a form of interstate commerce. They also claim the mandate is constitutional because it is structured as a tax, which is legal under the 16th Amendment. And it is true that the Supreme Court has ruled as recently as 2005, in the homegrown marijuana case Gonzales v. Raich, that Congress can regulate essentially economic activities that "taken in the aggregate, substantially affect interstate commerce."

But even in Raich the High Court did not say that the Commerce Clause can justify any federal regulation, and in other modern cases the Court has rebuked Congress for overreaching. In U.S. v. Lopez(1995), the High Court ruled that carrying a gun near a school zone was not economically significant enough to qualify as interstate commerce, while in Morrison (2000) it overturned a law about violence against women on the same grounds.

All human activity arguably has some economic footprint. So if Congress can force Americans to buy a product, the question is what remains of the government of limited and enumerated powers, as provided in Article I. The only remaining restraint on federal power would be the Bill of Rights, though the Founders considered those 10 amendments to be an affirmation of the rights inherent in the rest of the Constitution, not the only restraint on government. If the insurance mandate stands, then why can't Congress insist that Americans buy GM cars, or that obese Americans eat their vegetables or pay a fat tax penalty?

The mandate did not pose the same constitutional problems when Mitt Romney succeeded in passing one in Massachusetts, because state governments have police powers and often wider plenary authority under their constitutions than does the federal government. Florida's constitution also has a privacy clause that underscores the strong state interest in opposing Congress's health-care intrusion.

As for the assertion that the mandate is really a tax, this is an attempt at legal finesse. The mandate is the legal requirement to buy a certain product, while the tax is the means of enforcement. This is not a true income or even excise tax. Congress cannot, merely by invoking a tax, blow up the Framers' attempt to restrain government under Article I.

The states also have a strong case with their claim that ObamaCare upsets the Constitution's federalist framework by converting the states into arms of the federal government. The bill requires states to spend billions of dollars to rearrange their health-care markets and vastly expands who can enroll in Medicaid, whether or not states can afford it.

Florida already spends a little over a quarter of its budget on Medicaid, and under ObamaCare that will expand by at least 50% as some 1.3 million new people enroll. Those benefits, and the burden of setting up the new exchanges, will cost Florida $149 million in 2014 and $1.05 billion annually by 2018. The state will either have to cut other priorities or raise taxes. In legal essence, ObamaCare infringes on state sovereignty and unconstitutionally conscripts state officials.

Less potent, at least to our reading, is the challenge on behalf of state laws that bar or exempt their citizens from the mandate. Virginia passed such a law earlier this year, and Attorney General Ken Cuccinelli is suing on those grounds. But while such efforts serve as healthy political protest, federal laws that are constitutional are supreme under the 10th Amendment, and states can't "nullify" a Congressional action.

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Judicial and media liberals are trying to dismiss these challenges as a revanchist attempt to repeal the New Deal, or, worse, as a way to restore the states's rights of Jim Crow. Modern liberals genuinely believe the federal government can order the states and individuals to do anything as long as it is in pursuit of their larger social agenda. They also want to deter more state Attorneys General from joining these lawsuits.

The AGs should not be deterred, because the truth is that ObamaCare breaks new constitutional ground. Neither the House nor Senate Judiciary Committees held hearings on the law's constitutionality, and we are not aware of any Justice Department opinion on the matter. Judges have an obligation not to be so cavalier in dismissing claims on behalf of political liberty. Under the Constitution, American courts don't give advisory opinions. They rule on specific cases, and the states have a good one to make.

Democrats may have been able to trample the rules of the Senate to pass their unpopular bill on a narrow partisan vote, but they shouldn't be able to trample the Constitution as well.

© The Wall Street Journal

By Joseph Rago

The White House is launching its latest Willy Loman campaign to resell ObamaCare, helped by $125 million that unions and other interest groups say they'll spend to make Americans love their new entitlement. Seniors in particular should curb their enthusiasm.

"First and foremost," President Obama told seniors on Tuesday in Wheaton, Maryland, "what you need to know is that the guaranteed Medicare benefits that you've earned will not change, regardless of whether you receive them through Medicare or Medicare Advantage." First and foremost, nothing about that sentence is true.

Advantage gives almost one of four seniors private insurance options, and Democrats are about to cut its funding by some $136 billion over the next decade even as health costs rise. The Congressional Budget Office says these cuts will cause enrollment to drop by 35%, the Administration's own Medicare actuaries predict 50%, and both outfits take for granted that benefits will also decline.

The President knows this, so he and his fellow Democrats are gearing up to blame these cuts on . . . insurers, rather than on their own policies. In a letter last week, Democratic Congressional leaders Henry Waxman, Pete Stark, Max Baucus and Jay Rockefeller demanded that the Health and Human Services Department reject "any effort" by insurers to "reduce benefits next year."

Secretary Kathleen Sebelius followed up by warning insurers to "focus on price and quality rather than asking seniors who need health care the most to pay more for it." The Medicare regulator, CMS, is also reshuffling staff so Advantage is run by actively hostile bureaucrats.

The politics here is that Democrats loathe Medicare Advantage because it sanctions the private choices that might eventually liberate the U.S. health market from government price controls. They also wanted to raid Advantage to finance their new subsidies. But now they desperately want to dodge any near-term blame when seniors who use Advantage start to lose its benefits. Ergo, blame insurers first.

All of this is a replay of what Democrats did in the 1990s to a similar program called Medicare+Choice, which was created in 1997 but starved of funds by the Clinton Administration. "Dozens of HMOs Quit Medicare, Patients Face Upheaval," ran one Washington Post headline in 1998. The insurers served as political spear-catchers then too.

The larger debate is about how best to organize the health-care market. In an important new paper for the National Bureau of Economic Research, David Cutler explores entrepreneurial spirits in health care, or rather their peculiar absence in a $2.6 trillion industry. The Harvard economist notes annual productivity growth of minus-0.2 in the official data—"almost surely an underestimate"—and asks why there has been so little organizational innovation akin to Wal-Mart's supply-chain or Toyota's quality control.

Mr. Cutler, a close White House ally, cites many dysfunctional incentives, though one he singles out is "the stagnant compensation system of public insurance plans." In most markets, he observes, "higher quality is associated with higher prices. That is not true in medical care, however, largely because of the public sector." Original Medicare—about 25% of hospital and physician income—pays fixed fees to any provider a patient visits, regardless of the quality of the services rendered. "A less good job earns as much as a better job," Mr. Cutler writes.

Mr. Cutler is convinced that Medicare's dysfunctions will end with ObamaCare's multiple pilot programs—even though the current system was designed by the last generation of technocrats to solve the problems created by the previous generation. Such people have faith in ObamaCare on the theory that they are the ones they've been waiting for.

Yet no planner had to tell Wal-Mart how to revolutionize the retail industry. In the same way, Advantage offers the flexibility necessary for decentralized innovation, market pricing and competition that might rationalize the entitlement state. The program isn't a miracle worker, and some plans are far better than others. According to the Medicare Payment Advisory Commission, the Advantage HMOs that serve 15% of all seniors in Medicare cost on average two percentage points less for the same benefits than the traditional program, without fiat pricing.

Using government data, the insurer trade group AHIP estimates that Advantage beneficiaries in California spend 30% fewer days in the hospital than fee for service, 23% fewer days in Nevada. These successes and others have come about because Advantage allowed insurers and providers to collaborate, pay for value and coordinate care.

These successes are threatening to politicians because they are a model for true Medicare reform, which would reduce the health-care powers that Congress has exercised for nearly a half-century and let patients decide. This terror explains why Democrats are so intent on killing Medicare Advantage, and on blaming someone else for destroying a program that millions of seniors prefer.

© The Wall Street Journal

By Joseph Rago

If there's an American precedent for the medical central planning of ObamaCare, it's the Food and Drug Administration. Witness a looming FDA ruling that may deplete the drug arsenal for terminally ill cancer patients.

Last month, an FDA advisory board recommended withdrawing government approval of Avastin as a treatment for advanced breast cancer. The decision betrays a bias that puts costs above treatment, and unless the FDA leadership overrules its own experts, the 40,000 women killed by breast cancer each year will be denied an important clinical option.

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Avastin is a biologic that works by choking off the flow of blood to tumors and is approved for lung, kidney, brain and colon cancers. But it is loathed by many in the medical and political establishments because it also very expensive. Roche's Genentech unit charges as much as $88,000 annually for an Avastin breast cancer regimen, reflecting the costs of development and production.

The FDA allowed the use of Avastin for metastatic breast cancer in 2008, under the "accelerated approval" program for drugs that show promising evidence against life-threatening diseases. Avastin's dispensation came in spite of a negative 5-4 ruling in 2007 by the board known as the Oncology Drug Advisory Committee, or ODAC.

Senior Editorial Writer Joseph Rago has the latest on ObamaCare from a meeting of state insurance regulators.

ODAC decided that Avastin did not meet what the FDA considers its acid test: Patients did not live longer—that is, the overall survival rate did not improve in a statistically significant way. Yet a clinical trial showed a 52% median improvement in "progression-free survival," which measures the time women live without their disease spreading or worsening. In practice, this means delaying the growth of tumors by about 11 months in combination with chemotherapy—five and a half months longer than chemo alone.

Metastatic breast cancers remain incurable, so the main goal is to improve quality of life: Oncologists try to control the spread of cancer and delay the onset of symptoms. Having more than one treatment choice is itself a real benefit for patients, minimizing psychological suffering and offering hope.

ODAC met again in July to consider Genentech's request for conversion from accelerated to full approval, with new data at its disposal. Astonishingly, it ruled again, this time 12-1, that Avastin's progression-free survival advantages are not clinically meaningful.

True, the follow-up outcomes were not as robust as the original verdict. One trial showed a 36% improvement, another 31%. Critics claim these effects are worthless because they translate into only one to three extra months before tumors worsen. But variation is to be expected over several studies, which in this case both the FDA and ODAC agreed met their gold standards for placebo-controlled clinical trials.

Remember, too, that these are only averages over a narrow population, while individual patients respond in dramatically different ways. That includes prolonging survival, which Avastin does in some situations. The median overall survival benefit for one subgroup of 496 patients between the ages of 40 and 64 was an additional 5.7 months of life. Some individuals gain years. At any rate, even the 31% reduction in the risk of disease progression or death is better than the status quo.

Such quantifiable progress, moreover, was the "endpoint" that Avastin had been required to hit. In February 2009, the FDA confirmed that the drug would be approved if it showed "demonstrated improvement in progression-free survival and evidence that survival is not impaired," according to the agency's minutes.

The FDA later unilaterally redefined its regulatory expectations, devising a pretext to undermine Avastin. The terms of ODAC debate are set by instructions from FDA staff reviewers, and in round two they suddenly emphasized topics that had been resolved in round one, such as the lack of overall survival benefits and safety issues such as toxic side effects.

The latter can include severe bleeding and other life-threatening complications, though they are manageable. Some 812,000 patients world-wide have been treated with Avastin, 90,000 with metastatic breast cancer, and its safety characteristics are well understood. As for survival, Avastin hasn't been shown to extend life on average—but it doesn't impair it on average either, even as patients are enduring the savagery of traditional chemotherapy.

ODAC chairman Wyndham Wilson, a National Cancer Institute lymphoma specialist, conceded that Avastin's side effects only affect "small numbers," but "if you're the one, that's not what you want to be exposed to." But what if you're "the one" for whom Avastin offers massive breast cancer relief, or a reprieve of a few months at the end of life?

Dr. Wilson added that "I think the good housekeeping seal of approval is important and I think that it needs to reflect what the data shows." In other words, the FDA's regulatory afflatus is more important than options for actual patients with a deadly cancer who are informed of the risks. (As usual, the FDA didn't return our calls for comment.)

While ODAC is ostensibly independent, it is in practice a creature of the FDA and the FDA's political masters in Congress. The agency appoints the rotating ODAC members, which is like a prosecutor choosing his jury. The agency's oncology leaders—led by cancer drugs chief Richard Pazdur—routinely stack the panel with people who share their dislike for industry and accelerated approval. In recent years the FDA has also tightened conflict-of-interest rules, which means that ODAC's "experts" often have no specific expertise treating the diseases that the drugs they are adjudicating are meant to treat.

Few of the Avastin panelists had any first-hand clinical experience with metastatic breast cancer. Six of the 13 members sat on the ODAC panel that judged Avastin in 2007 and five of them were invited back by the FDA on an ad hoc basis as "temporary members." They ought to have recused themselves if only to preserve the appearance of impartiality.

One of them was Natalie Compagni Portis, a member of the original panel and amazingly enough its "patient representative." She said, "Hope is very important. But to offer hope that isn't substantiated I don't think is responsible." Jean Grem of the University of Nebraska explained her anti-Avastin vote by observing, "We aren't supposed to talk about cost, but that's another issue."

So here we have government-anointed medical patriarchs substituting their own subjective view of Avastin's risks and costs for the value that doctors and patients recognize. If Avastin is rescinded, thousands of dying women will lose more than proverbial false hope in the time they have left. They will lose a genuinely useful medicine.

Avastin's opponents absolve themselves of any moral qualms by claiming women could still be treated "off label." The ODAC members repeatedly brought this up during the hearing. But private insurers and Medicare are reluctant to cover treatments that aren't recommended by the FDA.

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The Avastin mugging is really an attempt to undermine regulatory modernization like accelerated approval that offends the FDA's institutional culture of control and delay. It is also meant to discourage innovations like Avastin that the political and medical left has decided are too costly, with damaging implications for the next generation of cancer drugs.

Investigations at the frontiers of genomic science have only begun, and the learning curve for how subsets of patients respond to biologics, and how to target them, is steep. Yet the world's oncologists agree that the future of their science lies in patient-specific, biologic treatments. Cancer survival rates have improved gradually over the last several decades, thanks in part to improvements at the margin like Avastin.

ODAC's advice is not binding, and the FDA will deliver its final judgment in September. It would be a hideous injustice if the agency came down once more on the wrong side of a life-and-death question.

© The Wall Street Journal

By Joseph Rago

'They're betting that between now and November, you're going to come down with amnesia," President Obama told a Milwaukee crowd on Monday, vilifying the Republicans who "helped devastate our middle class." But it seems as if the real case of amnesia—or maybe post-traumatic stress disorder—has struck the Democrats, who are now doing everything they can to help voters forget ObamaCare.

This is a remarkable turn of events for Mr. Obama's major domestic achievement that was also supposed to be a political winner. Facing a grim November, Democrats are now running on another quarter-baked stimulus plan and the specter of John Boehner's perpetual tan, instead of the bill they spent more than a year debating and hailed as the liberal triumph of the century. Democrats now barely mention ObamaCare on the trail—unless they're trashing it.

In Milwaukee, the President made a few desultory mentions of "health care that will be there when you get sick." And in Cleveland Wednesday, his list of the iniquities from which he saved the country included "health insurance reform that stops insurance companies from jacking up your premiums at will."

But what about all the grandiose ambitions of universal coverage? What about bending the cost curve? The parade of horribles that would occur if Congress failed to act? "Our deficit will grow. More families will go bankrupt. More businesses will close. More Americans will lose their coverage when they are sick and need it most. And more will die as a result," as Mr. Obama put it in a speech to Congress a year ago.

The only politicians who today are finding any redeeming electoral value in ObamaCare are Republicans running on reform alternatives and the Democrats who voted against it. In South Dakota, four-term Democrat Stephanie Herseth Sandlin is running ads that tout her vote against "the trillion-dollar health-care plan." Mrs. Herseth Sandlin won in 2008 with 68% of the vote but now is in a dead heat against GOP challenger Kristi Noem.

Idaho freshman Walt Minnick says in one TV spot that "I've had to say no far more than I've said yes. I've said no to more government spending, no to President Obama's big health-care plan," because "standing up to what's wrong in Washington is right for Idaho." Pennsylvania's Jason Altmire, class of 2006, features constituents who say things like, "You saw when he voted against health care" and, "He's not afraid to stand up to the President."

Frank Kratovil from Maryland's eastern shore says he voted against ObamaCare and sundry other White House priorities because it was merely "common sense and doing what's best for our families." All these Members would be better off had their party used its historic majority for something else, but then again at least they're better off than Blue Dog colleagues like Earl Pomeroy (North Dakota) and Tom Perriello (Virginia) who voted for it and are in danger of defeat.

Editorial Page Editor Paul Gigot, Deputy Editorial Page Editor Daniel Henninger and Senior Economics Writer Steve Moore analyze the President's press conference.

The Barney Franks and Pete Starks can continue to plug ObamaCare from their safe liberal redoubts. But the marginal seats are the ones that matter for controlling Congress. At any rate, even among the 219 House members and 60 Senators who voted for final passage, the new Democratic triage strategy seems to be to claim the bill is not perfect and could be improved, but it still has a heart of gold.

Senate Finance Chairman Max Baucus, who wrote most of the bill, attempted this line at an August townhall in Billings, Montana when he tried to calm an angry voter by saying, "Mark my words, several years from now, you're going to look back and say, 'Well, that wasn't so bad after all.'" Now there's an endorsement.

This public revolt comes despite the millions spent by Big Pharma and the Obama Administration to promote the bill since its passage. The Administration even rolled out ol' Andy Griffith of Mayberry for a plug, which has only hurt his reputation. This week two new pressure groups are forming to try again, the Health Information Center and the Health Information Campaign. These outfits were founded by former White House communications director Anita Dunn and Democratic strategist Andrew Grossman, formerly the executive director of Wal-Mart Watch, the Service Employees International Union-backed antibusiness outfit.

They plan to spend $2 million on TV advertising before the election to rebut ostensible "myths." Perhaps they have in mind the 1% to 9% premium increases that insurers nationwide are planning for individuals and small businesses to cover the cost of new mandated benefits, as the Journal's Janet Adamy reported.

These and many other emerging consequences of the bill—all of them predicted by opponents—are the reason it remains so unpopular. Democrats convinced themselves they could ram ObamaCare through Congress on the liberal noblesse oblige theory that the public would eventually come around, but their own campaign strategies now show how wrong they were. If Democrats are victims of their own success, so is everyone else—because despite the political second thoughts, the country is still stuck with this policy debacle.

© The Wall Street Journal

By Joseph Rago

ObamaCare's once and future harms have been well chronicled, but the major effects so far are less obvious and arguably more important: A wave of consolidation is washing over the health markets, and the result is going to be higher costs.

The turn toward consolidation among insurance companies is not new, and neither is it among doctors, hospitals and other providers. Yet the health bill has accelerated these trends, as all sides race to anticipate and manage political risk and regulatory uncertainty. This dynamic is leading to much larger hospital systems and physician groups, and fewer insurers dominated by a handful of national conglomerates. ObamaCare was sold using the language of choice and competition, but it is actually reducing both.

With these headwinds, investors and Wall Street analysts are now predicting a lost decade for health insurance stocks. But it may be more accurate to say that there will be a lot of losers and some very big winners. Mergers and acquisitions will increase dramatically once companies get a better look at the regulation and figure out the valuation of M&A targets. Larger carriers will swallow smaller ones quietly before they fail.The first surge will come among the 1,200 insurers doing business in the U.S., given that a major goal of ObamaCare is to convert these companies into de facto public utilities. Those regulations are now being written—and once they're up and running some medium-sized carriers will collapse under the new mandates and higher overhead. State insurance commissioners warned the Administration this month that "improper or overly strident application . . . could threaten the solvency of insurers or significantly reduce competition in some insurance markets." They also implied that bankruptcies are likely.

Senior Editorial Writer Joseph Rago maps out the bureaucracy to come.

Both publicly traded and nonprofit insurers have been heading in this direction for years, as in any industry where there are returns to scale. Size is also important in a low-margin business in which capital is costly and political clout vital. But scale is far more central now, because ObamaCare standardizes benefits. Once insurers lose the freedom to design their own products, they'll essentially be selling commodities, and survival will depend on enrollment volume and market share.

The same thing will happen to stand-alone and community hospitals—always a precarious business. Nearly a third of U.S. hospitals are currently operating in the red and will get steamrolled by ObamaCare, and many of them will be annexed by national chains and larger local systems.

This trend got a preview two weeks ago when Mercy Health Partners announced that it was seeking buyers for three Catholic hospitals in northeast Pennsylvania. CEO Kevin Cook told local media that ObamaCare was "absolutely" a factor in the decision to sell, only to backtrack once his comments were used in campaign ads against House Democrats Paul Kanjorski and Chris Carney, who voted for the bill.

Though it received little attention over a year of debate, ObamaCare actively promotes provider consolidation. Writing this summer in the Annals of Internal Medicine, Nancy-Ann DeParle and other White House health advisers argued that "The economic forces put in motion by the Act are likely to lead to vertical organization of providers and accelerate physician employment by hospitals and aggregation into larger physician groups."

Ask and ye shall receive. Across the country, providers are building giant hospital systems and much tighter doctor alliances like multispecialty groups to get out ahead of a concept known as "accountable care organizations," or ACOs. To modernize the delivery of medical services, ACOs would encourage doctors to work in teams to use resources more efficiently, streamline treatment and improve quality. The model is the Mayo Clinic and other large integrated systems.

At the moment ACOs are only a gleam in some bureaucrat's eye, and no one has a clue how they'll operate in practice until the government releases a working regulatory definition next year. Yet the percussive effects are already being felt across medicine.

Hospitals are now on a buying spree of private physician practices in the rush to build something that will qualify as an ACO. Some 65% of doctors who changed jobs in 2009 moved into a hospital-owned practice, while 49% of doctors out of residency were hired by hospitals, according to the Medical Group Management Association. In its 2010 census, the American College of Cardiology reports that nearly 40% of private cardiology groups are currently integrating with hospitals or merging with other practices.

Doctors are selling because complying with the ever-growing list of mandates has become more cumbersome; and while staff physicians on salary do gain predictability, they also lose the autonomy of independent practice. The other problem is price controls in Medicare, which are about 20% below private payments for doctors and 30% lower for hospitals. Hospitals are also scooping up practices to lock in referral sources and make up for ObamaCare's Medicare cuts. As it is, two-thirds of hospitals lose money today on Medicare inpatient services, according to Medicare.

ACOs are also driving consolidation among hospitals. Anecdotally, Marquette General Hospital and Bell Hospital formed a strategic ACO partnership in July that will dominate Michigan's upper peninsula. In Omaha, Methodist Health System and the Nebraska Medical Center recently followed suit. Similar alliances are underway in Detroit, Baltimore, Chicago, greater Boston, Roanoke and southwest Virginia—even Youngstown, Ohio.

The accountable care movement could do some good if it spreads best practices. But no one should entertain the illusion that it will reduce costs perforce and "bend the curve." In fact, the most concrete effect of this wave of consolidation may be to increase private health spending significantly.

Unlike Medicare and Medicaid, private reimbursement rates are determined by negotiations, often highly antagonistic. Insurers always attribute premium increases to the underlying cost of care, while doctors and hospitals always argue that there isn't enough competition among health plans. Both claims are "true," some of the time—but it depends on which side has more market power.

Insurers extract lower rates by steering patients and revenue to certain providers through their networks. Providers gain bargaining leverage when health plans can't credibly threaten to exclude them, whether because their share of the market is too large or due to public demand for "must have" hospitals. Consolidation will increasingly feed off itself as providers and insurers vie to get the whip hand in rate negotiations.

Most neutral experts believe the balance of power has tipped toward providers over the last decade, though this isn't always anticompetitive. Higher rates generally reflect investments in staffing, technology, specialization and sometimes consumer preferences. There is also the cost-shift to private insurance to offset Medicare's price controls. However, most economic studies on hospital M&A over the last two decades show that consolidation increases unit prices, though there is significant disagreement over the magnitude.

Accountable care organizations may become little more than a pretext for building up market power and fixing prices. The American Medical Association wants the government to stop insurers from individual contracting in favor of "exclusive dealing arrangements" with ACOs. In effect, the AMA wants a mandatory collective bargaining tool that would convert ACOs into unions.

***

"In a lot of states, the problem is just you don't have competition at all," President Obama said in February at his health summit. "We want competition."

Yet the consolidation wave is churning the insurance markets and reshaping clinical medicine with almost no public scrutiny. A rational system would give consumers an incentive to reward those businesses that innovate and deliver higher quality at lower cost, whether they are providers or insurers. ObamaCare is already moving the U.S. even further from the rational world, and this forced retreat will continue the longer it is left in place.

© The Wall Street Journal

By Joseph Rago

Yesterday the Food and Drug Administration moved to revoke its regulatory approval of Avastin for metastatic breast cancer. Withdrawing a cancer treatment is almost never done, and though the decision was expected, that does not make it any less reprehensible.

The FDA said in a statement that it is removing Avastin's breast cancer indication because the biologic does not provide "a sufficient benefit in slowing disease progression to outweigh the significant risk to patients." Ponder that "sufficient." The agency is substituting its own judgments about clinical meaningfulness for those of practicing oncologists and terminally ill cancer patients.

The risks of Avastin are real, but manageable. Clinical trials do not show that the drug extends life overall in the aggregate, but they have shown that it allows women to live longer without their disease getting worse. Avastin improves progression-free survival by about four months on average. Different patients respond differently, and the drug is far more effective in some than in others, for reasons that researchers still do not understand. There aren't any perfect therapeutic options in end-stage oncology, and Avastin ought to have remained one of them.

Looking at the same data, the European Medicines Agency—the FDA's counterpart in the European Union—decided on Thursday that it would continue to approve Avastin for breast cancer in combination with chemotherapy. In October, the U.S. National Comprehensive Cancer Network—a consortium of 21 leading cancer centers that issues evidence-based medical guidelines—reaffirmed its position that Avastin is valuable in some cases.

But such finely graded distinctions are not part of the FDA's bureaucratic culture. The FDA provisionally (and reluctantly) approved Avastin for breast cancer in 2008 under an accelerated process for serious diseases. But the cancer drugs division believes that such flexibility is too friendly to industry and took extraordinary measures to rig the review process against Avastin's maker, Genentech, as we reported on August 18 in "The Avastin Mugging."

Genentech is contesting the ruling through a formal FDA appeals mechanism, and Avastin will remain available on an "off label" basis, because it is still approved for other cancers such as those of the lung, kidney and brain. However, private insurers are generally reluctant to reimburse for therapies that are not FDA-approved, and Medicare, which is the dominant payer in oncology, never does.

One depressing implication is what the decision says about health-care financing as government entitlements expand. Avastin is a political target because of its high cost—a typical course runs as high as $88,000—and after ObamaCare all medical questions are inevitably political questions too. In September, the FDA and Medicare proposed a "parallel review" process that will allow the two agencies to coordinate market and reimbursement approval. Medicare is also increasingly opening "national coverage determination" reviews that allow a government board to decide if a therapy is "reasonable and necessary."

Another danger is to the future of medical innovation. Cancer treatment advances incrementally. Every year doctors are better able to pair medicines with the biomarkers pointing to the individuals who are most likely to respond and learn more about tumor angiogenesis, which is the process of cancer growth that Avastin helps to choke off. The FDA's assault will make it harder to conduct and enroll patients in further clinical studies, to say nothing of its message about the regulatory risk for drugs still in development.

The greatest tragedy will fall on the women who are suffering from an incurable disease and whose caregivers are trying to improve their quality of life in the months they have left. The FDA is taking away one of their only options.

© The Wall Street Journal 

By Joseph Rago

And seasons greetings from the folks at Health and Human Services too. Yesterday the department dropped one of ObamaCare's more destructive regulations, which will further increase political control of health care and impose price controls on private insurance premiums.

Under the 136-page rule, the federal government will now decide what counts as an "unreasonable" rate increase, and HHS Secretary Kathleen Sebelius wrote to Governors yesterday urging them "to prevent unjustified and excessive health insurance premium growth." Apparently, "unreasonable" means rate increases that exceed 10% next year, except when it doesn't. If an insurer crosses this arbitrary threshold, "The review process would then determine if the increase is, in fact, unreasonable." So that's cleared up.

This discretion is typical of the vast ad hoc powers that ObamaCare handed to regulators, though Ms. Sebelius's true goal is to punish the insurance industry for rising health costs that the new entitlement is already turbocharging. Like so much else in U.S. health care, no one seems to find it odd that the government is decreeing how much businesses are allowed to charge for a product that consumers want to buy, regardless of the economic reality.

ObamaCare mandates greater insurance benefits and other regulations that distort market pricing, while also accelerating the explosive costs of medical services. Premiums will naturally climb to cover those costs. It won't take much to hit 10% when the Standard & Poor's Healthcare Economic Commercial Index, which tracks private spending, increased 8.5% over the last year—and that's prior to the worst of ObamaCare kicking in.

Contrary to the HHS caricature of a pitiless free market, 43 states already regulate and approve premiums in the individual or small-business markets, or both, based on actuarial and solvency data. HHS will allow state insurance commissioners to continue under the status quo, unless it decides that their reviews aren't "effective," whatever that means.

This is all an effort to end-run Congress, which by some miracle declined to give HHS the formal legal authority to explicitly block premium increases, despite a direct appeal from President Obama. Instead, Ms. Sebelius is creating by regulatory fiat larger de facto powers to achieve the same end.

Yesterday, HHS reiterated Ms. Sebelius's threat to exclude certain insurers from ObamaCare's insurance exchanges if they show "a pattern" of unjustified rate increases. In practice, that would be a corporate death warrant. In September, after some carriers spoke honestly about rising costs, she warned that "there will be zero tolerance for this type of misinformation and unjustified rate increases."

To understand how this political thuggery will operate, look to Connecticut and the recent campaign of intimidation against former insurance commissioner Tom Sullivan. In September, following a thorough actuarial analysis, Mr. Sullivan approved some rate increases reaching 20% for Anthem Blue Cross Blue Shield, the largest state insurer by membership.

The higher rates applied to new customers only (not existing policy holders) and were largely the result of ObamaCare's mandates. In one case, a single stray provision increased the cost of a prescription drug benefit by nearly 23%. Yet Attorney General Richard Blumenthal made the approval a centerpiece of his Senate bid, while Mr. Sullivan was demonized by local labor unions.

"I find myself in an unprecedented place and time, as do my counterparts throughout the country," Mr. Sullivan wrote to Mr. Blumenthal, "in overseeing the implementation of one of the most far-reaching policy initiatives enacted by the federal government in recent history." State regulators, he continued, are "in an unenviable position as we are required by Congress to approve richer benefit packages, while simultaneously being called upon by you to reduce rates."

In October, Jay Angoff, the HHS director of insurer oversight, sent a very public letter calling the Anthem approval "particularly troubling" and demanding a re-evaluation, including a new public hearing. Under duress, Mr. Sullivan resigned in November, and his successor promptly overturned his ruling.

A similar premium drive-by continues to play out in Massachusetts—and is coming soon to a state near you. Politicized rate-setting is the new reality of the U.S. health insurance market, not that consumers will in any way benefit.

© The Wall Street Journal