By William G. Gale

The United States faces large federal budget deficits over the short-, medium-, and long-term. Although perhaps subject to the greatest public attention, the short-term deficits are generally thought to be helping the economy recover. In contrast, medium- and long-term deficits projected for years after the economy returns to full-employment are a source of concern: these deficits will create growing and serious burdens on the economy even if they do not lead to an immediate crisis. Economists of all political stripes agree on this point.

While extending the Bush tax cuts, if that occurs, will play a big role in making the medium and long-term deficit problems worse, economists agree that a key driver of the long-term deficit problem is growth in government spending on health care. Medicare and Medicaid, our two largest health spending programs, currently account for 23 percent of federal spending, or 5.6 percent of GDP. Under current law and optimistic assumptions for health spending, the Congressional Budget Office (CBO) estimates these programs will represent 30 percent of total federal spending (6.8 percent of GDP) by 2022 and will continue to grow thereafter.

The prospect of health-driven deficits has produced a burst of proposals for reform. Sadly, the simple truth is that we do not yet know how to reform government health programs to both rein in costs and maintain or improve quality and access.

Continue reading “Inoculate the Budget Deficit From Healthcare Reform”

By Jeff Goldsmith

A recent spate of commentaries on the continuing health spending moderation raise an important policy question:  If the cost curve is well and truly bent, why are we investing so much of our policy energy on bending it further, when the more pressing problem is the declining percentage of Americans that can afford our health system’s astronomical costs?

Health spending the past two reported years (2009 and 2010) have grown in the high 3 percent range, the lowest growth rates since Dwight Eisenhower’s last year in office (1960), five years before Medicare. Medicare’s actuaries have pointed to the recession as a root cause.  Yet even Medicare spending growth has subsided to about 5 percent in 2010, a development hard to attribute to recession since so few Medicare patients have first-dollar cost exposure. This analyst’s extensive industry contacts suggest no spending rebound in 2011 and 2012, despite an aging population and fee-for-service’s pernicious volume-increasing incentives in full force.

Pharmaceutical spending. The two most explosive cost problems of the 1980’s and 1990’s, pharmaceutical spending and imaging — which together now represent about 20 percent of total health spending — are now seeing low single digit growth, and seem likely to remain quiescent.  In the pharma case, the main contributor is the ruinous outflow of branded drugs from patent protection, and the failure to replace them with new protected drugs.  This outflow continues unabated until 2018.  Branded drug prescriptions are shrinking by 5 percent per year, and the only things preventing pharmaceutical sales from actually declining are brand price increases and growth in generics, which now represent almost 80 percent of prescriptions, according to IMS Health.  While specialty drugs (biologicals) remain a concern, those too begin losing patent protection in earnest in the next few years.

Continue reading “Barking Up The Wrong Tree: Affordability, Not Cost Growth, Is The Policy Challenge”

By John Goodman

On the eve of the release of this year’s Medicare Trustees report, the Obama administration released its own version of it. In the administration’s telling:

• Health reform (ObamaCare) will save taxpayers $200 billion in the Medicare program through 2016.
• About 90% of these savings will be produced by lowering “excessive payments” to Medicare Advantage plans, lower payments to doctors, hospitals and other providers to reflect their “improved productivity,” and through efficiencies gained by what is learned from “demonstration projects.”
• The demonstration projects include pay for performance, bundling, Accountable Care Organizations, and other frequently discussed ideas.

But whereas the Trustees report is expected to be a serious document, reflecting accepted accounting principles, the administration’s document was clearly a piece of political propaganda — one that stretched the truth so much that the word “spin” would be a charitable description. For example, the administration’s document failed to mention that:

• The Congressional Budget Office has studied the demonstration projects on three separate occasions (here, here and here) and each time has concluded that they are producing no serious savings and are unlikely to do so in the future.
• Medicare’s Actuary has determined that reductions in payments to Medicare Advantage plans will not only result in lower benefits for the one in four seniors who are in these plans, but that about 7 ½ million enrollees will actually lose their coverage and have to seek more expensive Medigap insurance elsewhere.

Continue reading “Bernie Madoff Accounting for Medicare”

By Peter R. Orszag

While Washington wonks continue to bicker over health policy, positive change is occurring outside the Beltway.

Last week, the Altarum Institute, a research organization based in Ann Arbor, Michigan, reported that the moderation in the growth of health-care costs we have seen over the past few years is continuing: Total health spending rose by less than 4 percent from February 2011 to February 2012. And it’s encouraging to see the progress that doctors, hospitals and other providers are making to improve the value of care — by cutting back on unnecessary procedures, for example, expanding their use of information technology, and switching from fee-for- service to compensation schemes aimed at maximizing the quality of treatment.

Instead of examining these changes and finding ways to encourage them, the Washington policy discussion continues to demonstrate its ability to, well, it’s not clear exactly what it does. The most senseless bloviating recently came from Charles Blahous, a senior research fellow at George Mason University, in Arlington, Virginia, and a former official in the George W. Bush White House. He claims to have shown that the 2010 health-care reform act will substantially increase the budget deficit, despite official estimates to the contrary. The Washington Post decided this warranted prominent coverage.

What Blahous actually did was play a trick. His analysis begins with the observation that Medicare Part A, which covers hospital inpatient care, is prohibited from making benefit payments in excess of incoming revenue once its trust fund is exhausted. He therefore argues that the health reform act is best compared to a world in which any benefit costs above incoming revenue are simply cut off after the trust-fund exhaustion date. Then, he argues that since the health-care reform act extends the life of the trust fund, it allows more Medicare benefits to be paid in the future. Presto, the law increases the deficit by raising Medicare benefits.

Continue reading “Washington Stuck Fighting Wrong Health-Care Battle”

By Vince Kuraitis

I’m surprised and intrigued by Medicare’s announcement of 27 new Shared Savings model ACOs.

Surprised

I had been anticipating this announcement as a defining moment for Medicare’s thrust into accountable care. My expectations had been that we would see either:

Boom — a big splash of new Medicare shared savings ACOs announced, including big name hospitals and medical groups that were starting large scale ACOs, perhaps with hundreds of thousands of patients.

Bust — no one showed up at the party. Providers would have concluded that Medicare ACOs were too risky, bureaucratic, and high effort.

Intrigued

What we got is something in the middle:

• Very small ACOs. Many only meet Medicare’s minimum of 5K patients; most are in the 8 to 25K range; and the largest ACO anticipates 70K patients. Collectively these 27 ACOs plan to serve 375K patients, less than 1% of the entire Medicare population.
• 13 are smaller, physician led
• Only 10 hospitals are involved across the 27 ACOs
• Very few household names

Continue reading “Medicare Announces 27 ACOs. A New Species?”

By DINOSAUR MD

Medicine is simple and straightforward; except when it’s complex and nuanced.

Medical diagnosis is a simple matter of taking a history, performing an examination, and reviewing the results of ancillary testing; except when it’s a complicated case of eliciting subtle nuances from the patient in both the interview and the exam, and interpreting multiple pieces of conflicting data.

Medical treatment is a straightforward affair of providing appropriate treatment; except when there are multiple treatment options with unclear risks and benefits, technically challenging surgical or other procedures to perform, not to mention fully informing the patient and family about all of those treatment options, risks, and benefits, plus eliciting and answering all their questions.

Nothing to it.

Notice, though, that the key ingredient here is DIAGNOSIS. Performing a flawless appendectomy won’t do a thing for an ovarian cyst, nor will a PPI prescription do much for an acute coronary syndrome. Performance measures that look at treatment without addressing diagnosis are somewhere between misguided and ludicrous.

Why does American medicine have this so bass-ackwards? Follow the money. Thanks to the specialty-heavy RUC, the commission that sets fees for various procedures, doing something — anything — is paid far more handsomely than thinking (even thinking about what to do).

Continue reading “Pay for the “A””

By MICHAEL TURPIN

As the Supreme Court considers the testimony presented at the recent hearings over the constitutionality of certain provisions of the Patient Protection and Accountable Care Act, the debate continues to escalate over the role that individuals, business and the government should play in the “commerce of health care.”

Most industry experts agree that PPACA is first about insurance reform and the expansion of coverage to some 30m Americans; yet,  detractors have criticized the legislation for failing to incorporate any elements that would serve as a catalyst for reducing costs, improving quality and restructuring a misaligned system that has been paid to treat illness rather than prevent it.

In the last two years, hundreds of millions of private and public dollars have been invested as stakeholders adjust to an uncertain but radically changing delivery system.  States are in various stages of constructing purchasing exchanges.  Physicians and specialists are choosing to consolidate, often with hospitals leading the process to create integrated delivery systems and restore the role of coordinated care through Patient Centered Medical Homes and Accountable Care Organizations.  Employers are waiting and watching — seeking greater regulatory clarity while slowly complying with a chronological time-line of new rules and expanded coverage requirements.

Municipal, state and national budget deficits continue to loom large. As Europe battles over mounting sovereign debt and the suffocating burden of  generous public pension and healthcare entitlements,  flash points are erupting across the USA as municipal, government and collectively bargained workers brace to defend retiree benefits in the face of legislative efforts to more aggressively reduce public spending. The Federal government is at a tipping point. Facing a $38T net present deficit in its funding for Medicare and $15T of public debt, PPACA was scored by the CBO as reducing $140B of public debt by 2020.  To achieve this, the government needed to drive $940B of taxes, assessments and spending cuts and fall within estimates of the number of newly insureds likely to qualify for Federal subsidies offered through public exchanges.  The promise of PPACA was to reduce the deficit, not further contribute to it. Continue reading “Be Careful What You Wish For”

By Joe Flower

Why “half the cost?” How? Most important, what does it mean for hospitals and health systems? Here’s the argument, and some of the implications.

In 1980, health care in the United States took no more of a bite out of the economy than it did in any other developed country. Then we instituted cost controls. By 2000, U.S. health care cost twice as much as everyone else’s. By 2020 or 2025, we may be back to costing the same as any other country — half the current cost in GDP.

Historical charts of the comparative cost of health care in different countries show a startling and obvious pattern. The trend lines of the leading economies form a fairly tight pack, drifting slowly upward from around 5 percent of GDP in 1960 to 8 percent to 10 percent in recent years — except for one. Around 1980, the U.S. trend line sharply breaks from the pack, and quickly establishes itself at half again as much as most other leading economies, then twice as much.

This happened over the very period that Medicare, followed by private health plans, instituted increasingly stringent and widespread unit cost controls.

I draw two conclusions from this: The notion that U.S. health care must cost twice as much as everyone else’s is not exactly the law of gravity. And there is no evidence that unit cost controls actually control system costs. In fact, through a series of complex feedback mechanisms, it may well be that controlling unit costs pushes up system costs, as members of the system find ways to increase their prices and the numbers and acuity of their utilization patterns despite the caps on reimbursements for individual items.

Continue reading “Better Health Care at Half the Cost”

By JD Kleinke

“The only constant in health care is change.”

It’s one of those clichés peddled at health care industry conferences by consultants who charge by the hour for helping attendees brace their organizations for all those terrifying changes just over the horizon. Not only is this cliche not true, but it is exactly untrue. The only constant in health care is gnawing anxiety about change that never actually occurs.

The Obama Administration’s health care reform plan – we can all call it “ObamaCare” now that the Administration finally owns the label it should have from the outset – is the motherlode of anxiety over change about to storm through the health care system. That is, unless you happen to cover your ears and block out all the partisan screaming, along with the political ideology dressed as legal arguments in the Supreme Court this week, and look at the actual plan and its numbers.

Yes, ObamaCare is expected to cram 30 million uninsured people into the current non-system. Complementary elements of the law make it illegal for health insurers to kick any of us out if we get too sick or stop paying our bills if we get too expensive. And if an insurer makes too much money in the process, it needs to refund a portion. Aside from these four economically intertwined health insurance market reforms, most everything else about ObamaCare is business as usual.

To wit: access to commercial health insurance for most of us will still run through the workplace; our employers will still, for better or worse, be charged with money-managing the system they love to hate, a messy, intrusive, difficult role foisted on them as an accident of history in the 1940s and enshrined in the tax code ever since. Health insurers will continue to operate half their book of business on a state-by-state basis, and the other half nationwide for self-insured employers, thus maximizing complexity, confusion and administrative cost for everyone involved.

There will be no new public health care plan for hard-pressed households – just a huge expansion of the nation’s 50 broke and broken Medicaid plans, plus subsidized coverage for the luckier among the working poor to purchase (at the fountain-pen gunpoint of the IRS) a plan from commercial health insurers. Those insurers will continue to design and sell their plans based on the crazy-quilt of local standards and state benefit mandates, along with a few new federal mandates for preventive services – including things like the economically trivial but culturally explosive birth control pill.
Continue reading “ObamaCare and the End of Nothing”

By Douglas Holtz-Eakin

During the original debate over the Affordable Care Act, I wrote that the proposed law failed to address out-of-control Medicare spending. Two years later, this urgent problem remains.

Medicare is awash in a sea of red ink — $280 billion in cash flow deficits already and getting worse — that is driving the U.S. credit rating south and threatening the very foundations of the U.S. economy. It makes no sense to sit idly by while the social safety net unravels and the promise of our future dims.

Advocates argue the health care law solves this problem. Specifically, it creates the Independent Payment and Advisory Board, which will be formed in 2014 and could make its first recommendations in 2015. This advisory board will consist of 15 officials appointed by the president. Board members will be required to make recommendations to cut Medicare funding in years when spending growth exceeds targeted rates. For Congress to block these recommendations, it must veto the board’s proposal with a 60 percent majority and pass alternative cuts of the same size.

In other words, this board puts Medicare on a budgetary diet. What’s wrong with that?

First, the system is clearly set up so that the advisory board, rather than Congress, makes the policy choices about Medicare. This means that the IPAB is not just an advisory body — despite its name. And policy choices, which should be made by elected representatives, are not.

Second, the advisory board threatens the quality of patient care. It can, in essence, ration the health care available to seniors. While technically prohibited from directly altering Medicare benefits, the IPAB will have no choice but to attempt to ratchet back spending by slashing providers’ reimbursement rates.

Continue reading “IPAB and Medicare Costs Are Bad Medicine”