The Alan Katz Health Care Reform Blog

Health Care Reform From One Person's Perspective

Posts Tagged ‘American Medical Association’

NAHU’s Legislative Influence in Context

Posted by Alan on February 12, 2011

This blog attempts to addresses health care reform issues of interest not just to brokers, but to a broader audience as well. This post, however, is aimed at brokers only.

Most brokers are disappointed with the Patient Protection and Affordable Care Act. The list of complaints are long, but would include the impact of the medical loss ratio provisions on their livelihood, the failure to deal with rising medical care costs, and a host of issues related to the exchanges.

Brokers fought hard to make health care reform meaningful, to assure it constrained costs and increased access. On some issues we succeeded. On too many we lost.

Brokers are angry with the result and, understandably, are looking to understand the cause. Sometimes its not enough to identify who won. Blame needs to be apportioned. And a surprising number of brokers, albeit a distinct minority, are blaming their own professional association, the National Association of Health Underwriters.

NAHU can defend itself from the specific charges being leveled (and I invite them to do so here on the blog). But if we’re going to spend time on a discussion of what NAHU could and couldn’t accomplished, then let’s have an informed discussion.

For example, I often hear brokers demand that NAHU educate Americans concerning the value of brokers. Ironically, this is a job each and every broker can do simply by doing their jobs in a professional, effective and visible way. But the context that’s missing from this criticism is the enormous cost such an undertaking would involve.

Then there’s the political battles. NAHU is apparently expected to win them all. But here’s a a quick quiz to explain why this might be harder than some believe. In considering your answers, it might be helpful to remember the adage of then-California Assembly Speaker Jesse Unruh that money is the mother’s milk of politics:

Given a political fight, who is more likely to be heard in Congress, Association A spending over $144 million on lobbying or Association B with a total budget – for everything it does – of less than $6 million?

Who is more likely to win a legislative battle, Association B with it’s $6 billion total spending budget or Association C with a mere $22 million lobbying payout?

Would it change your mind if Association B had a Political Action Committee with roughly $300,000 versus Association C’s contribution to federal candidates totaling more than $17 million?

When it comes to influencing Congress, the US Chamber of Commerce is the king of the hill. The Chamber spent over $144 million on lobbying activities in 2009 and another $132 million in 2010. No one else came anywhere close.

With over 225,000 dues-paying members, the American Medical Association is both a grassroots and a financial power. The AMA contributed over $27 million to federal candidates in the 2010 election cycle and spent $22.5 million on lobbying.

NAHU is the one with the $6 million budget (which also covers member educational activities and the like) and the PAC contributions totaling in the low hundreds-of-thousands-of-dollars.

Some other interesting numbers:

The Service Employees International Union spent over $1.7 million on campaign contributions in the 2010 campaign cycle, down from over $2.8 million for the 2008 election.

In the 2008 election cycle alone, the pharmaceutical industry contributed over $26 million to federal candidates.

Of the top spending lobbying efforts in 2009 according to OpenSecrets.org:

  • #1, as noted, was the Chamber of Commerce at $144.5 million
  • #4 was the Pharmaceutical Research and Manufacturers of America at $26.1 million
  • #5 was Pfizer Inc. at $25.8 million
  • $6 was the Blue Cross Blue Shield Association at $23.6 million
  • #7 was AARP at $21 million
  • #9 was the AMA at $20.7 million
  • #12 was the American Hospital Association at $18.3 million.

You get the idea.

The ability of these organizations to devote these resources to advocating for their members is because those members provide them the resources to do so. What resources NAHU has comes from the same source.

NAHU will never be in the league of $20 million lobbyists. Nor does it need to be. NAHU’s influence is far greater than its lobbying expenditures or the size of its PAC would suggest. It may not have the tens-of-millions of dollars necessary to run a national public education campaign, but it has educated lawmakers and regulators about the role of brokers. We did not win the fight on the medical loss ratio, but that battle continues and the loss would have been harsher, but for NAHU.

There are probably more than 100,000 brokers in this country who earn significant revenue from the sale and service of health insurance. Fewer than 25,000 are members of NAHU. That is a travesty, especially since many of the organization’s most vocal critics are numbered among those contributing nothing to the effort. Standing on the sidelines and criticizing is easy, often unhelpful, but easy.

So here’s the context: NAHU’s size is small relative to many of the other players. And here’s the reality: NAHU’s influence is much larger than its size. NAHU’s done much with relatively little. It could do more with more – more members, more revenue, more PAC contributions.

Asking tough questions of the association’s leadership is appropriate and helpful. If your not a member, letting the organization know why, in a professional manner, can be very helpful feedback. Seeking changes to its direction is the right of any member – non-members deserve and get no voice in determining the organization’s future.

So I am not suggesting in any way that criticism of NAHU is wrong. But to be constructive, the complaints need to understand the scale and scope of the political context in which NAHU operates.

Posted in Health Care Reform, Healthcare Reform, Patient Protection and Affordable Care Act, Politics, PPACA | Tagged: , , , , , , , , , , | 20 Comments »

A Few More Unrelated Health Care Reform Items

Posted by Alan on December 23, 2010

There’s always something happening related to health care reform in general and the Patient Protection and Affordable Care Act in particular. As I continue my year end “clean-up” here’s some short takes on some of the more noteworthy events and ideas I’ve come across lately.

The AMA and the Individual Mandate:
The American Medical Association is of two minds when it comes to requiring everyone to obtain health care coverage  This individual mandate is at the heart of many of the law suits seeking to overturn the PPACA in court. During the health reform debate they supported this requirement. As reported over at the HealthAffairs blog, during their recent interim House of Delegates meeting the AMA voted to reverse this position. Only after “desperate scrambling by AMA leaders” the House voted to refer the issue to the AMA Board of Trustees and to hold a vote concerning their their position on the individual mandate when the House reconvenes again in June.

Both votes were close and reveal a deep schism within the AMA. Like the Wright on Health blog where I came across this item, I don’t believe the result will actually split the AMA, but if the organization abandons its support for the individual mandate it would be a serious political blow to the Obama Administration.

The PPACA and Medicare:
President Barack Obama and his allies argue that the Patient Protection and Affordable Care Act will strengthen Medicare even though the health care reform package cuts about $500 billion from the federal health program over the next 10 years. The Associated Press did an interesting fact check that sheds some light on the PPACA’s impact on Medicare. The bottom line: unless there are offsetting cost reductions in Medicare, the cuts to the program required by the PPACA will simply need to be replenished by other sources. While the Associated Press’ Q&A points out another example of the financial gimmickry so common in Washington, it also highlights the need to reform Medicare, especially in terms of reining in medical spending. The PPACA creates some pilot projects and the like to do just that. Whether they will generate the savings necessary in time is the $500 billion question.

And for a lighter look at Medicare, feel free to check out “The New Medicare Drug Card” brought to you by the Onion.

Speaking of Controlling Medical Costs:
Health insurance premiums reflect the cost of health care. This is a fact that many lawmakers seems unable to grasp. Perhaps its a gap in their education or, at the risk of being appropriately cynical, perhaps it’s because it is easier – and better politics – to beat up on insurance companies than it is to take on hospitals and doctors.

One way to reduce costs is to reduce needless care. As David Leonhardt wrote in the New York Times earlier this year, the potential savings from eliminating unnecessary medical treatment is huge, both in terms of dollars and in lives. Mr. Leonhardt, who writes the Economic Scene column for the paper, identifies three steps necessary to earn these savings: 1) “learning more about when treatments work and when the don’t;” 2) “give patients the available facts about treatments;” and 3) “changing the economics of medicine to reward better care rather than simply more care.”

What’s especially interesting, and especially for those who believe the PPACA does nothing to restrain health care costs, is Mr. Leonhardt’s point that the new health care reform law makes a good start down this path. As he makes clear, the PPACA doesn’t go as far as is needed, but it lays the groundwork for much of the hard work yet to come.

Physician Owned Surgery Centers:
Here’s a not surprising headline: “Doctors with ownership in surgery center operate more often: U-M study.” Shocking, no? The University of Michigan study shows the financial incentives gained by doctors when they have a financial stake in a a surgery center. One possible explanation the researchers mention for this is “that these physicians may be lowering their thresholds for treating patients with … common outpatient procedures.” Those financial incentives can be hefty, amounting to what the authors call a “triple dip.” Doctors with a stake in a surgery center “collect a professional fee for the services provided … share in their facility’s profits and [in] the increased value of their investment.”

Writing in Health Affairs, the data showed that “owners operated on an average of twice as many patients as non-owners” and their caseloads increased more rapidly and dramatically. Significantly, the study reports that doctors have a stake in 83 percent of surgery centers in the United States. To be fair, these out-patient centers often charge less for comparable treatments than hospitals do. But if they double the number of surgeries, how much do they really contribute to constraining health care costs?

The “Best of” CBO’s Health Care Reform Reports:
The Congressional Budget Office occupies a unique position in the legislative process. In a hyper-partisan Congress, they are an island of non-partisanship. (Of course, partisans in both parties only admit this when what the CBO reports supports their position, but that’s politics). This is not to say that the CBO is always right or that they’re not constrained by the questions asked or the data they are provided. But at the end of the day, when it comes to reliable information and analysis, there are few places better to turn to than the Congressional Budget Office.

When it comes to health care reform the CBO was instrumental in providing meaningful input to the debate. And now those reports – and other health care related studies – are compiled in a greatest hits collection entitled “Selected CBO Publications Related to Health Care Legislation, 2009-2010.” The information contained in this 364-page compendium is invaluable. But what will be even more fun five or 10 years from now will to look back on the CBO’s projections and see how rarely the world world abides by the predictions of even well-informed and well-intentioned economists.

Posted in Health Care Reform, Healthcare Reform, medical cost containment, Patient Protection and Affordable Care Act, Politics, PPACA | Tagged: , , , , , , | 5 Comments »

The CMA, California’s 5th Assembly District and the Future of Health Care Reform

Posted by Alan on March 20, 2010

[Full Disclosure: This post is about the 5th Assembly District. The leading Democrat in the race, Larry Miles, is a Trustee on the San Juan School Board, an attorney, mediator and my close friend for over 35 years. I’m actively supporting his campaign.]

Regardless of whether health care reform passes the House of Representatives this weekend, a great deal of how health care reform takes shape going forward will be determined by the states. If national reform fails, state legislators, who for the most part have been holding back to see what emerges from Washington, will attack the problems inherent in the status quo with a vengeance. If Congress enacts President Barack Obama’s health care reform package, the terms of the new law creates substantial responsibilities on the states to implement many of its provisions.

In short, the health care reform debate won’t be over any time soon. It’s center of gravity will, however, shift somewhat toward the states. Special interests have recognized this coming reality and some are doing something about it.

Take physician groups, specifically, the California Medical Association. Even the most ardent supporters of the health care reform bill before Congress will concede it deals more with health insurance reform rather than medical cost containment. True, the legislation being considered by Congress has some cost reducing provisions and lays the groundwork for still more, but it also contains many elements likely to increase the cost of medical insurance. Having addressed the easy part of reform (changing how carriers do business) lawmakers will eventually have to tackle the hard, complex and politically charged work of constraining medical costs.

For now, however, President Obama’s health care reform package asks little sacrifice of doctors. And that’s just the way the American Medical Association and its affiliates like it. The Medical Associations exist, after all, to look after the financial interests of doctors as their focus on medical liability reform, medical physician payment reform, balance billing issues and the like makes clear. They are a political organization looking out for the best and specific interests of its membership. Nothing wrong with that. In fact, that’s what special interests groups are supposed to do.

What’s happening in the 5th Assembly District here in California illustrates just how serious the California Medical Association takes this role. There the CMA has recruited a candidate and is now seeking to buy the seat on his behalf. Thus the candidacy of Dr. Richard Pan in the 5th AD. (The 5th AD stretches from east Sacramento to Folsom).

Dr. Pan is by all accounts an outstanding pediatrician and a fine, decent person. Whether he had any political ambitions before the CMA came calling is unknown. He certainly cannot claim to be a community-generated candidate nor boast of much grass roots support in the district. In the financing period that ended December 31, 2009 (the last reporting period available) over 95 percent of Dr. Pan’s campaign contributions came from outside the 5th Assembly District. Even more revealing: over 95 percent of those campaign dollars came from the California Medical Association, other medical PACs, doctors, dentists and other members of the medical industrial complex. Calling Dr. Pan’s support from within the district “thin” would be an understatement.

But the CMA doesn’t care. They are not concerned with the interests of the residents of the 5th Assembly District. They want one of their own in the state legislature – one of their own who can look out for the interests of the California Medical Association.

In addition to pouring money into the campaign, the CMA has provided Dr. Pan with a campaign manager enamored with the Karl Rove school of politics, Josh Pulliam. Mr. Pulliam is well known for hardball tactics of the devious kind. He’s a brawler both in the political arena and beyond (Mr. Pulliam, is the alleged instigator of a melee at a Cubs-Dodgers baseball game involving players and fans when he reached into the Dodger bullpen and grabbed catcher Chad Kreuter’s cap). In fact, Dr. Pan has already had to apologize for Mr. Pulliam’s Liz Cheney-esque campaign attack on Larry Miles, the front runner in the Democratic primary. (Mr. Pulliam, like Ms. Cheney, fails to understand the role lawyers play in America’s system of justice).

The CMA’s concerns are not limited to the 5th Assembly District of course. In 2009 the California Medical Association Small Contributor Committee contributed over $925,000 to lawmakers and candidates. And this is just from one of their PACs. Nor does this total include contributions from their allies in the medical-industrial complex including contributions made by individual doctors, county medical associations and the like at the CMA’s request.

Nor is the substantial political spending by the CMA anything new. A recent report published by California’s Fair Political Practice Commission shows that, between January 1, 2000 and December 31, 2009, the CMA has spent over $9 million to influence elections (including ballot measures and giving money to political parties) and spent another nearly $14 million on lobbying activity to help shape legislation.

There’s nothing immoral with the CMA and like-minded attempting to foist Dr. Pan on the residents of the 5th Assembly District. They’re playing by the rules of the game. Nor is there anything wrong with the CMA spending large amounts on campaigns. It’s their money and again, they’re playing by the rules. While obnoxious, there’s nothing illegal with Mr. Pulliam’s hardball election tactics either. Politics is, after all, a contact sport. That the CMA and Mr. Pulliam are running Dr. Pan against a good friend of mine is just one of those things. May the best candidate win.

Nor is the CMA alone among interest groups concerned about how health care reform plays out. Others are spending tremendous amounts of money to influence elections and legislation, too.

What’s significant about the CMA’s efforts (and the efforts of other special interest groups) is what it says about the important role state legislatures will play in determining how national health care reform (assuming there is national reform) is implemented and how future health care reform efforts play out. Washington will still matter. Regulations will be developed there. Follow-on legislation will be voted upon there. But the role played by state lawmakers and regulators will be increasing The California Medical Association and their allies recognizes this. That’s why they want Dr. Pan in the State Assembly. They know one vote, one voice in the legislature, can make a difference.

Whether the CMA-led medical-industrial complex can purchase the 5th Assembly District for Dr. Pan is far from certain. The frontrunner for the Democratic nomination, Larry Mile, has built his campaign with a strong and broad foundation of local support. Significantly, Mr. Miles has won two elections in a school district that covers some 75 percent of the Assembly District. Then there’s the general election. Democrats only recently have come to outnumber Republicans in the District (and roughly 20 percent of registered voters are in neither party). But what’s significant is not whether the CMA wins. What’s significant is the money, resources and political capital they are spending to try.

[Note: As I mentioned at the beginning of this post, Larry is a long-time friend. I’ve contributed to his campaign (as has the California Association of Health Underwriters PAC).  Those readers of this blog wishing to join me in supporting Larry can do so at his web site or through ActBlue.]

Posted in medical cost containment, Politics | Tagged: , , , , , , , | 3 Comments »

A Public Health Plan and Competition

Posted by Alan on August 3, 2009

The purpose of a public plan, according to its advocates, is to assure a competitive marketplace. The result will be lower costs, they argue, because a government-run health plan will keep private carriers honest.

Senator Charles Schumer, speaking at a rally sponsored by Health Care for America Now!, put it this way, “A public health insurance option is critical to ensure the greatest amount of choice possible for consumers. We believe that it is fully possible to create a public health insurance plan that delivers all the benefit of increased competition without relying on unfair, built in advantages.”

If  a public plan is to provide competition, the question is: what does a competitive market look like? Is it three carriers slugging it out? Six? Ten? A report by the folks at Health Care for America Now! says the “U.S. Justice Department considers a market ‘highly concentrated’ if one company holds more than a 42 percent share of that market.”  But “highly concentrated” does not automatically result in anti-trust objections by the federal government. It’s a factor, but it’s not a determinative factor.

Competition is lacking in some states. The Government Accountability Office has tried to determine the competitive landscape in the small group market (not an easy task given differing definitions and variations in reporting methodologies). In a letter to several Senators on the subject of “Private Health Insurance: 2008 Survey Results on Number and Market Share of Carriers in the Small Group Health Insurance Market” the GAO reported that while there were, on average, 27 licensed carriers in a state, the median market share of the largest carrier was about 47 percent. Further it found that the combined market share of the five largest carriers in a market was 75 percent or greater in at least 34 states and was over 90 percent in 23 of these states (only 39 states provide sufficient information to determine the market share of its top five plans, so the actual number of states in these categories could be higher). The lowest combined percentage of market share held by the five largest carriers was 56 percent in Wisconsin according to the GAO.

The disparity among the states was substantial. The GAO study found that in Arizona the largest carrier has a market share of about 21 percent; in Alabama the leading carrier controlled 96 percent of the small group market. Even the most ardent capitalist should admit that Alabama is not a competitive market

The American Medical Association does. They publish competitive information on the commercial health-insurance market. I was unable  to find a description of the methodology to use this determination, and the AMA study includes large businesses, unlike the GAO study that focused on small groups). The AMA study found a paucity of competition. As reported by Business Week, the AMA claims that “in 15 states one insurer has 50% or more of the entire market.”  In a somewhat confusing statement, Business Week, reports the AMA as claiming that “out of 314 metropolitan markets, 94% are controlled by one or two companies, or fewer.” (I’m not sure what’s fewer than “one or two companies” — what does a half company look like? )

The AMA concludes that this means there’s no competition among health carriers, a somewhat predictable determination given their relationship with the carrier community. “These findings, coupled with higher insurance premiums, higher profits, lower scope of benefits and high barriers to entry, leads to the conclusion that health insurers are exercising market power in many parts of the country.”

Thus, claim public plan proponents, arises the need for government-run health insurance plan. But will the mere presence of a public plan increase competition. In Alabama, the answer is no doubt “yes.” With one small group carrier enjoying 90 percent market share the entry of a new player would certainly bring greater competition. In Wisconsin, where five carriers split 56 of the market and the largest carrier has a 32 percent market share, a public plan would be just one more choice among many.

The problem with the “public plan ensures competition” argument, in my view, is that it applies a national solution to regional problems. In some states and regions more competition is needed. In others where four or five carriers are already slugging it out, the public plan — if it competes on a level-playing field as lawmakers promise — contributes little.

Some government-run medical plan advocates claim the difference will be that a public plan will lack the profit motive of existing carriers. But there are already non-profit competitors in the small group market. In California, two of the top four competitors are non-profits. The addition of another is unlikely to change much.

It is true that premiums have skyrocketed in recent years. The Business Week article notes that, according to the Kaiser Family Foundation has found that health insurance premiums have increased 120 percent in the past 10 years. General inflation increased by 44 percent during that period. The AMA concludes this is the result of anti-competitive actions taken by carriers.

Another likely reason, as pointed out in the article, is that hospitals and other health care providers have commensurate power. “A 2006 study found that one or two hospitals controlled the market in 88% of the nation’s large metropolitan areas.” It goes on to quote Karen Davis, president of the Commonwealth Fund, as saying “’You’ve got a dominant insurer up against a dominant health-care provider … That just doesn’t work out well for lowering costs.’”

What this suggests is the most effective way for a public plan to lower medical costs is to impose MediCare-type pricing on doctors and hospitals. This, however, would violate the pledge of lawmakers to maintain a level-playing field between the public plan and private carriers.

Why this matters is that MediCare pays less than the actual cost of many medical services. Hospitals and doctors shift this shortfall to commercial carriers. If the government-run health plan did the same the cost shift would be brutal, driving many of those carriers out of the market — not because they couldn’t compete on a level playing field, but because the playing field was not level.

The messy legislative process is moving toward a solution that addresses the competition issue without incurring the consequence of additional government coverage cost shifting. The consensus is Congress is moving toward the idea of regional health insurance co-operatives (albeit not without loud cries of anger from liberal and other supporters of a government plan). An advantage of co-ops is that they can more easily address disparities in competition across the country as opposed to a national health plan that would treat the country as a whole. Based on the GAO report, for example, one might expect co-ops to do well in Alabama, but have a much tougher time getting established in Wisconsin where the need for them appears to be less.

The debate over a public insurance plan would be more straightforward if it focused on the real issue: should the government offer coverage at lower prices resulting from imposing reimbursement fee schedules on doctors and hospitals. That’s unlikely to happen, however. When it comes to health care reform the public trusts doctors and hospitals and they don’t trust insurance companies. Consequently, ignoring the fact that a lack of competition among carriers is a local, not a national, problem is good politics. But it makes for an awkward public policy debate.

Posted in Barack Obama, Health Care Reform, Healthcare Reform, Politics | Tagged: , , , , | 21 Comments »

Health Care Industry Groups Identify Cost Savings

Posted by Alan on June 1, 2009

The devil dances in the details and that’s especially true when it comes to health care reform. Words and policies seem to mean something different depending on your perspective and where you fit in the system. It’s like a group of people each looking into a room from a different window. It’s the same room, but it sure looks different depending on where you stand. Testing this is both easy and fun: get a doctor, hospital administrator and insurance executive in the same room and ask them to come up with a shared definition for the term “cost containment.”  For extra fun, ask them to come up with ways to implement cost containment.

Meanwhile, back at the details: back in May, leaders of six health care stakeholders met with President Barack Obama to promise $2 trillion in medical cost savings over the next 10 years. The meeting was groundbreaking, in that the six groups were: a) willing to appear together; and b) asking to be part of the reform process instead of simply opposing everything. In the past, these organizations — the Advanced Medical Technology Association (AdvaMed), America’s Health Insurance Plans (AHIP), American Hospital Association (AHA), American Medical Association (AMA) , the Pharaceutical Research and Manufacturers of America (PhRMA) , and the Service Employees International Union (SEIU) — were not known for working together.

While the mere act of making the promise was significant, as a friend of mine is fond of saying, “it’s trash ’til it’s cash.” Promises are cheap — especially in Washington, D.C. — so the real question was: how would they go about achieving these savings?

Now we know. The six groups sent their medical cost reduction proposals to the White House today. It calls for simplifying administration and reducing the cost of doing business (expected to generate $500-$700 million in savings), better managing chronic disease ($350-$850 billion in savings), and helping clinicians and other providers more cost effectively improve quality and safety for their patients ($150-$180 billion). You may have noticed, even the high end fails to reach $2 trillion, coming in at around $1.73 trillion — still a healthy number (you’ll pardon the pun). And the groups claim their cost estimates were conservative, so the proposals may represent even more savings.

According to the Associated Press, are already harping that the proposals fail to identify how any savings “would accrue to the federal government, rather than to the health care system as a whole.” Because the Obama Administration needs to find the resources to pay for health care reform, this kind of detail is critical. Further, as noted by Politico.com, it’s not clear how the proposals would be enforced — or even if they are enforceable.

Another interesting aspect of the submission is that each organization wrote their own section. There’s nothing wrong with this and it may even help hold each group accountable. But it does make for a disjointed presentation.

While imperfect, the document moves the health care reform debate forward. Lawmakers will no doubt comb through the package to find elements they can incorporate into legislation. And even if there are still lots of dancing devils yet to identify, the mere existence of proposals put forward by these groups to reduce costs in the system is a sign that the health care reform debate this time actually has a chance of improving America’s health care system.

Posted in Barack Obama, Health Care Reform, Healthcare Reform, Politics | Tagged: , , , , , , , , | Comments Off

Making Health Care Cost Reduction Promises Real

Posted by Alan on May 25, 2009

Representatives from insurance companies, doctor groups, hospital organizations and the pharmaceutical industry had their moment in the presidential sun on May 11th promising to slow down how quickly medical care costs increase. Their promise: $2 trillion in savings over 10 years. That would not only make it more affordable to provide coverage for the uninsured, it would be a huge boost the economy and to the financial condition of state governments.

In a letter signed by, among others, the American Medical Association, the American Hospital Association, the Pharmaceutical Research and Manufacturers of America, America’s Health Insurance Plans and the Service Employees International Union, which, as the Los Angeles Times described it “shepherded the agreement.” The unprecedented agreement among these health care stakeholders is meaningful for two reasons. First, these organizations were among the leading opponents of the Clinton Administration’s failed health care reform effort in the 1990s. Second, if it’s real, we’re talking about serious money.

And there’s the rub: is it real? President Obama is trying to find out. He’s instructed the organizations to come back to White House with specifics on how it will make this pledge real. As the Administration has demonstrated with the business plans demanded of the auto industry, the White House will hold these interest groups to a high standard. Which it should. The political stakes are high. If the cost cutting plans lack credibility President Obama will look, as the Associated Press noted, he “will be seen as naive for entertaining such promises.”  By holding them to a high standard, however, President Obama also has the power to undercut the industries’ opposition to his health care reform plan. Accusing them of insincere promises and inadequate commitment to cost cutting would bolster those who seek a bigger role for government in any new health care system.

The stakeholders have an equally important political task. By coming forward with voluntary, credible proposals for cutting costs, they provide political cover for those opposing the expansion of the government’s involvement in the system. If their proposals pass muster they will have gone a long way toward morphing from being a target of reform to being a part of the solution.  Their specifics for cutting costs will be part of the health care reform legislation Congress will produce this summer, which means they’ll have to live with them. But if that means the forthcoming legislation is a bit friendlier to their interests, that’s a reasonable price to pay.

Fortunately, the target, while a stretch, is eminently doable. Researchers at Dartmouth University have done several studies over the years that demonstrate that high costs for medical care do not correlate with better outcomes. As the Associated Press reports, they found that “as much as 30 cents of the U.S. health care dollar could be going for tests and procedures of little or no value to patients.”

One person who paid attention to this finding is Peter Orszag, Director of the Office of Management and Budget. As I wrote in 2007, when he was Director of the Congressional Budget Office, Mr. Orszag was “pushing for more evidence based assessments of new technologies and the need to expand research on comparative effectiveness. They key, Mr. Orszag indicated, is to provide new incentives in the system aimed at changing provider and consumer behavior.” His goal: to eliminate the $600 billion in “wasteful or low-value services” currently in the system.

If health care reform is going to work, squeezing this $600 billion out of the system is crucial. The associations’ efforts are an important first step. According to the Associated Press article, the groups are focusing on different aspects of the problem. Insurers, for example, are looking at reducing administrative costs by, among other initiatives, establishing a common, shared on-line claim form doctors and patients could use. Doctors are looking at establishing guidelines for medical practice. Improving information on drug interactions and reducing hospital readmissions are also part of the mix.

Most experts agree that the savings are there to be found. Identifying the savings will require political will and a willingness to change “business as usual” in the medical, pharmaceutical and insurance industries. Whether they pass the test will be determined by President Obama. Having shared the stage with him to make the promise, the price of failure will be extremely high.

Posted in Barack Obama, Health Care Reform, Healthcare Reform, Politics | Tagged: , , , , , , , , , , | 4 Comments »

 
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