Bipartisan Health Reform Shocker: Reagan was a RINO!

04/18/2010 05:12 am ET | Updated May 25, 2011

Shhh. Don't let Rush Limbaugh or Sarah Palin hear you, but by the standards of today's hard-right GOPers, Ronald Reagan was a RINO (Republican In Name Only) when it came to reforming health care.

Yes, as the much-ballyhooed bipartisan health care summit nears, we can credit Ronald Reagan with giving us the current administered price system for Medicare that the present-day guardians of conservative orthodoxy would undoubtedly denounce as socialist, Bolshevik or worse. Twenty-seven years ago, President Reagan and a Congress split between Republican and Democratic control agreed to a radical new Medicare payment scheme. The result? It trimmed billions of dollars from the federal budget and caused medical inflation to plummet, yet still maintained quality of care.

Although this stunning achievement led to a permanent change in how both the public and private sector pay for health care (as I recently wrote for the Kaiser Family Foundation), it has gone curiously unmentioned during more than a year of rancorous health reform debate. For Republicans, it's the RINO in the room.

Painfully for the ideologues, government intervention worked. More painfully still, Reagan's actions showed he held a pragmatic view of government that's much closer to today's political center (i.e., Barack Obama) than it is to hard-right GOP ideologues.

The 1983 legislation was conceptually simple. Medicare pulled the plug on paying hospitals whatever they billed the government as their costs, plus an additional profit margin piled on. Instead, Medicare switched to a fixed price linked to each patient's clinical condition, or diagnosis-related group (DRG). That price could vary somewhat due to adjustments such as regional wage levels, but it was essentially set in advance; hence the term "prospective payment system" (PPS) to describe the methodology.

As recounted by policy experts Rick Mayes and Robert A. Berenson, the effect of prospective payment was dramatic and immediate. Growth in Medicare hospital payments plummeted from 16.2 percent a year from 1980 through 1983 to just 6.5 percent from 1987 through 1990.

Even more heretically for free-marketeers, the government's actions spurred a timid private sector. When hospitals tried to shift costs to private payers, insurers responded to customers' complaints by tightening oversight of medical utilization and changing payment in the strategy. The result was the death of unregulated fee-for-service.

The Reagan administration understood a critical distinction about "anti-government" that the Tea Party types miss completely. Being for "small government" as a regulator did not mean abandoning efforts to make sure taxpayers got their money's worth from government-as-purchaser. Prospective payment was the strategy of a prudent purchaser committed to encouraging efficiency. Hospitals were put at financial risk: those who could efficiently deliver care for less than the average price made money; inefficient hospitals lost money.

DRGs were by no means perfect and are far less so today as efforts to modernize government health care purchasing have been defeated by special interests savvier than they were back then. But within the context of the time, prospective payment represented market discipline and deregulation.

Reagan's confidence in appropriate use of government power helped the administration withstand a firestorm of criticism that warned about (surprise!) the "rationing of health care" and a "no-care zone." (Remember death panels?)

Today, policymakers seem less sensitive to the demands a crisis puts upon us. Even in the extreme example of the 9/11 terrorist attacks, Congress has been slow to take simple steps to adequately protect chemical plants because of concerns about government regulation. If the vivid memory of the crumpling World Trade Center towers is inadequate to override ideological concerns, why should more abstract issues, such as the growing numbers of the uninsured, fare any better?

Even the rumor of short-term pain is unbearable; long-term gain is inconceivable if measured in months or even years.

Meanwhile, appropriate use of government power faces knee-jerk hostility from ideologues Reagan was able to keep in check. For example, comparative effectiveness research is a way to use the power of government to promote private sector efficiency. It's the kind of idea that centrists from both parties might rally around at a bipartisan summit; after all, it was part of both the John McCain and Barack Obama presidential campaign platforms.

Alas, while Obama and the Democrats have not exactly been a profile in political courage, the the biggest barrier to bipartisanship in health care right now is the kind of GOP ideological litmus tests that even Reagan would flunk.

In today's political environment the right wing of the GOP is very far from being Ronald Reagan Republicans.