The Hidden Cost of Health Care Cost Control

The Hidden Cost of Health Care Cost Control

The US may one day have to spend every tax dollar on health care

With the ink barely dry on health care reform, its architects are on the defensive. At issue: Whether the multiple cost-control measures in the bill will succeed in “bending the cost curve” to sustainable levels, or whether every tax dollar collected will be spent solely on health care.  Forget about holding health care spending to the same rate of increase as the rest of the economy. “Bending the cost curve” is Washington wonk-speak for allowing health care costs to rise 50 percent faster than the rest of the economy instead of its usual 75 to 100 percent premium.

The Congressional Budget Office, the neutral arbiter in the debate, offered a relatively rosy scenario in March after the Patient Protection and Affordable Care Act passed. It predicted the law’s combination of spending on newly-insured, tax increases and Medicare savings would reduce the federal deficit by $124 billion by 2019 compared to baseline projections, and further reduce it by $681 billion over the succeeding decade.

Grabbing those numbers, White House Budget chief Peter Orszag and health care adviser Ezekiel Emanuel argued in the latest New England Journal of Medicine that “from a purely ‘green eyeshade’ viewpoint, the bill will significantly reduce costs.” Total health care spending by 2030 will be 0.5 percent percentage points of gross domestic product (GDP) below where it otherwise would have been.

But there’s the rub. Baseline projections showed health care soaring to 19 percent by the end of this decade (it’s already about 17 percent); more than 25 percent of all economic activity sometime during the next decade; and 34 percent by 2040. At that point, Medicare and Medicaid spending alone would account for a staggering 15 percent of GDP, which is roughly what the Internal Revenue Service now collects each year. Unless the nation is willing to let its government become totally preoccupied with providing health care, half a point of GDP in cost reductions simply isn’t going to get the job done.

The White House officials went on to argue that reform laid the groundwork for much more significant savings later on. The stimulus act’s investment in electronic health records will set the stage for better coordination of care for the 10 percent of patients who account for 64 percent of all costs, they wrote.

Comparative effectiveness research that will let physicians and patients know what works best will be diffused through the medical system by an independent Patient-Centered Outcomes Research Institute. Pilot projects encouraging accountable care organizations and bundled payments will, if successful, be spread through the entire system through a new Innovation Center at the Centers for Medicare and Medicaid Services (CMS).

But most important of all, they said, the reform law creates an Independent Payment Advisory Board (IPAB) that will make annual recommendations for holding down Medicare spending any time it rises at a rate that, after 2018, is greater than general inflation plus 1 percent. Congress must either accept the recommendations whole, or vote a comparable set of savings. Otherwise, it will take 60 votes in the Senate to override the automatic reforms.

“The focus on experimentation along so many dimensions suggests a general desire to move forward rapidly on all possible fronts instead of predicting which direction will be the most promising,” argued David Cutler, a Harvard health care economist who also advised the administration during the legislation’s drafting. Writing in the latest Health Affairs, he said, “the most surprising aspect of reform is the willingness of Congress to go along with major changes in Medicare even when the official scorers at the CBO estimated that such experimentation would not save money.”

You don’t have to be an economist to raise a skeptical eyebrow at that one. Co-authoring an article in the same issue of Health Affairs, Douglas Holtz-Eakin, former advisor to Sen. John McCain’s and former head of CBO, argued that “when the time comes to implement these savings, or those developed by the IPAB, the CMS will be faced with the possibility of strongly limited benefits, the inability to serve beneficiaries or both. As a result, the cuts will be politically infeasible, as Congress is likely to continue regularly to override scheduled reductions.”

Exhibit one in his brief is the annual “fix” in physician pay that every year since 2002 has rolled back scheduled cuts in the overall physician pay. Rather than fix outdated formulas that over-reward specialists at the expense of primary care and family practice physicians, Congress caves in to lobbyists from the American Medical Association and medical specialty societies and restores the status quo.

It’s happening now. The House this week will take up legislation passed by the Senate last Friday that restores the 21 percent scheduled physician pay cut (it’s gotten that high because of the accumulation of all the short-term fixes). Passage is expected.

The sound you hear is the rattle of a can being kicked down the road.