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Federal health reform? Just don’t ask CBO to score it

Merrill Goozner cheers the announcement on Monday that health-care leaders would try to cut $2 trillion from health care in the next decade. But he also outlines what it will take to keep many of these constituencies on board with the plan. “They like the idea of getting more paying customers through universal insurance,” he writes. “But their overriding concern is ensuring that whatever plan gets passed, it doesn’t include rules and regulations that would let the government set prices or restrict payments for useless procedures.”

Merrill Goozner is an award-winning journalist and author of “The $800 Million Pill: The Truth Behind the Cost of New Drugs” who writes regularly at

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I, too, join in praising the medical-industrial complex’s pledge to hold down costs. Monday’s White House announcement — already carried in every major paper and telegraphed to New York Times columnist Paul Krugman with a personal phone call on Saturday — greatly increases the likelihood that some kind of health care reform bill will pass this year.

The groups that will gather around the president today include the Pharmaceutical Research and Manufacturers Association, the Advanced Medical Technology Association (devices), the American Medical Association, the American Hospital Association, America’s Health Insurance Plans and the Service Employees International Union (which represents more health sector workers than any other labor organization). Their pledge: holding health care spending to a growth rate that’s 1.5 percentage points less than the projected trend, which would save $2 trillion over ten years.

With employer-based coverage unraveling at an ever faster clip in this Great Recession, it’s not hard to understand why the special interests that deliver and insure health care are seeking a place inside the glass house instead of throwing rocks from outside. To quote the great American orator George W. Bush, the American people are very much in the “fool me once, fool me twice, I won’t be fooled again” mode when it comes to public relations gimmicks like Harry and Louise that successfully derailed reform the last time around.

But what price will be paid to keep these groups on board? In an interview with the Wall Street Journal, Nancy-Ann DeParle, who is coordinating the White House push for reform, said there are many public plan alternatives that can serve as a default option for people who do not accept the products offered by private health insurance firms. If there is going to be a public plan, AHIP (the insurance trade group) would like one that plays by the same rules as every other insurance company. That way, Congress can satisfy the clamor on the left that is calling for a public plan. It just won’t have any administrative efficiencies (by piggybacking on the Medicare bureaucracy) or any pricing power (from using the Medicare fee schedule).

PhRMA and AdvaMed will undoubtedly exact their own pound of flesh to keep them supporting reform. The best model for what that price may be is the 2003 Medicare Modernization Act, which ushered in the senior citizen prescription drug benefit. That passed only after Congress agreed that Medicare couldn’t negotiate prices and there would be no central formulary that ruled out costly products that have cheaper, equally effective alternatives.

Physicians are mostly concerned about their fees in the fee-for-service system, which current law holds steady but Congress routinely overrides so the rates can at least keep pace with inflation. Hospitals, meanwhile, are leery of linking payments to quality, such as Medicare’s recent plan to refuse payments for some hospital readmissions after botched care episodes. Will either group support the various payment reform measures being considered to hold down cost growth, such as pay-for-performance or capitation?

The operative word in today’s announcement is voluntary. Each of these groups is voluntarily pledging to do its best to hold spending down. They like the idea of getting more paying customers through universal insurance. But their overriding concern is ensuring that whatever plan gets passed, it doesn’t include rules and regulations that would let the government set prices or restrict payments for useless procedures.

Alas, as Princeton health care economist Uwe Reinhardt famously pointed out many years ago, there are essentially just two factors that drive higher health care spending in the U.S.: price and volume.

Americans pay the highest prices in the world for almost everything associated with health care. And they also consume higher volumes of questionable tests, operations, drugs and other services. Are the trade groups promising to get 1.5 percentage points out of projected health care cost growth saying their members will voluntarily hold down prices and cut down on needless procedures?

If so, there’s no shortage of irony in that pledge. For decades, trade associations like PhRMA have been very circumspect about making statements on behalf of individual companies. That would be a violation of antitrust rules, they say. And the rap on using information from comparative effectiveness studies to root out useless care is that it would enthrone cookbook medicine, and interfere with physicians’ ability to order what their individual patients need.

From my years observing health care, it’s hard to imagine that jawboning by trade groups and professional societies would have a major impact on the decisions by individual firms and physicians, not as long as medical marketing remains unfettered. Voluntarism certainly isn’t going to get much credence from the green eye-shade crowd at the Congressional Budget Office, whose job it will be to put a price tag on any health care reform legislation.

While voluntarism could work for a while, especially in today’s economic environment, it’s not a long-term solution to rising health care costs. But that’s not really the goal of today’s announcement.

The White House is signaling that it will back health care reform legislation that does not contain stringent cost containment measures. The goal this year is to get everyone insured. Effective cost control measures can come later. In an environment where private health insurance is evaporating as fast as employment, it’s hard to argue with that logic.

[Front-page photo courtesy of Flickr user James O’Malley]

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