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Health bills too timid on cutting costs, experts say

November 04, 2009

Democrats in Congress are embracing the spirit of President Obama’s call to slow the runaway rise of health-care costs but are shying away from some of the most aggressive techniques for achieving that.

Instead of revolutionizing how care is delivered and paid for, experts say, the legislation being shaped takes a cautious approach to reining in costs.

“The bills are directionally correct, but they’re not going far enough,” said George Halvorson, chairman and chief executive of Kaiser Permanente and the author of “Health Care Will Not Reform Itself.”

In years past, policymakers tried taming health-care growth with price controls — in government reimbursements and through managed care. The Obama administration has advocated a third way: moving away from fee-for-service payments, which reward providers for doing more procedures, to a coordinated system that pays doctors and hospitals for doing better.

Under that vision, providers would be given a few years to move to performance-based medicine, in which fees and results are published, money is directed to evidence-based therapies, and harmful errors such as preventable infections are reduced. In short, the goal is to save money by modernizing and improving.

Now, as the debate reaches a critical juncture, many are worried that the president’s ambitious hopes to constrain costs could result in tepid half-measures on Capitol Hill. Among the concerns:

— A Senate plan to tax high-priced insurance policies saves far less money — and is less likely to change medical consumption — than eliminating the tax exemption for employer-sponsored coverage.

— Proposals on comparative-effectiveness research and a new Medicare cost-cutting commission have been watered down.

— An array of Medicare pilot projects aimed at paying doctors and hospitals for quality rather than quantity would take years to be implemented nationally — if they ever were.

— None of the bills addresses medical liability, even though the Congressional Budget Office has concluded that tort reform could save $54 billion over the next decade.

‘Tried and true’

Overall, Democratic lawmakers have turned to “tried and true” strategies for reducing spending that merely ratchet down payments rather than fundamentally changing how the health-care system operates, said Drew Altman, head of the nonpartisan Kaiser Family Foundation.

More than $110 billion worth of Medicare “savings,” for example, simply comes from a cut in reimbursements to insurers that run the private Medicare Advantage program, and much of the $80 billion extracted from drug companies is in the form of higher Medicaid rebates to the government. Both proposals would reduce costs but have little to do with fundamentally refashioning health care.

What’s more, Congress has a history of reversing itself on politically unpopular cuts, so it is risky to count on those savings, Altman said.

Unlike past reform efforts that barely gave a nod to tackling double-digit medical inflation, the bills this year “have some of the right rhetoric,” but they fall short of real-world applicability, said Jack Lewin, chief executive of the American College of Cardiology. Without significant financial incentives and strict deadlines, he predicted, few doctors would rush to move toward the coordinated-care models reformers say are needed to save money and maintain high quality.

Ralph Neas, head of the nonpartisan National Coalition on Health Care, noted that “these bills do very little in terms of reining in long-term cost growth,” adding: “There is not enough in the public sector and virtually none in the private sector.”

Neas called on Congress to adopt up to $2 trillion worth of potential savings trumpeted by Obama and industry leaders at a White House event in May. Only a few of the specific ideas, such as streamlining insurance claims forms, have been included in the legislation.

“Voluntary efforts are never enough,” Neas said. “There has to be some way to make it enforceable.”

Richard Foster, the chief actuary of the federal Centers for Medicare and Medicaid Services, said lawmakers could achieve far greater savings in the health system if they aggressively pursued research that identifies the best, most cost-effective treatments.

“If you did comparative effectiveness in a way that looked at whether to approve a new therapy because it is cost effective and is an improvement, then you’d have a fighting chance of slowing down the rate of growth,” he said in an interview. “Nobody’s proposing that.”

Taxing benefits

White House budget chief Peter Orszag said in an interview that changing the tax treatment of employer-sponsored health benefits “is among the most important single things that could be done to constrain costs and improve quality.”

Employees currently do not pay taxes on insurance purchased through the workplace. Lifting the exemption would be likely to make workers more price sensitive and prompt insurance companies to market more affordable policies, according to most economists.

Eliminating the exemption could raise $250 billion a year and more than pay for the enormous expansion of coverage envisioned by Obama and Democrats. But the Senate compromised, with a proposal to tax only high-priced “Cadillac” plans. That approach is estimated to save $200 billion over a decade, and House Democrats have opposed the idea, raising concerns that it may be dropped.

Orszag also bragged that a set of Medicare pilot projects could dramatically reshape how medicine is practiced in this country. The proposals include reducing reimbursements to hospitals that have unnecessarily high readmission rates, “bundling” payments to medical teams that coordinate patient care and providing bonuses to doctors who meet quality standards.

“We’re creating incentives for a more efficient system,” he said. Because lawmakers are still negotiating and the proposals could change, Orszag said, it is impossible to quantify the eventual savings.

‘Just do it’

While Orszag says a go-slow approach will help determine the best course, others say the ideas are promising enough to pursue aggressively now.

“I wish they had the courage of their convictions,” said Douglas Holtz-Eakin, a former Congressional Budget Office director and adviser to Sen. John McCain (R-Ariz.). “Just do it.”

Mark McClellan, a physician who ran two health agencies in the Bush administration, endorsed the ideas in the legislation but warned that pilot projects take too long to adopt broadly and that not enough emphasis is being placed on financial rewards and penalties based on health outcomes.

Orszag has high hopes for a proposed Medicare cost commission as well, suggesting that the panel of independent experts would guide the government program to deliver more efficient care. But the hospital industry has already struck a deal exempting it from any suggested cuts for 10 years, and Congress is likely to limit the panel’s power to recommendations that do not touch eligibility or benefits.

Many remain skeptical that Congress will let stand spending reductions included in this year’s comprehensive reform initiative, particularly $400 billion in Medicare trims. They point to 1997’s Balanced Budget Act, in which Congress set a Medicare fee schedule that would squeeze physician payments if costs rose too steeply. But nearly every year, at the behest of the American Medical Association, lawmakers override the scheduled reductions.

That history “teaches us that single provisions that can be easily lobbied against tend not to survive the political process,” said Helen Darling, president of the National Business Group on Health.

But for Orszag, the cost-control efforts on Capitol Hill represent significant progress.

“There’s always the potential to do more,” he said. “When you look at the details in the legislation, it is a substantial step, especially within the realm of the politically viable and realistic, as opposed to a think tank or academic ideal.”