Saturday, November 14, 2009

Centers for Medicare and Medicaid Service: House reform bills increase health spending (by just a bit)

The Republicans in the House Ways and Means Committee have posted a memo from the actuaries at the Centers for Medicare and Medicaid Services. CMS projects that under current law, healthcare spending by all payers (i.e. the government, insurers and people paying out of pocket) will grow to 20.8% of GDP in 2019 (up from about 16% now). Under the House reform bill, CMS projects that spending will grow to 21.1% of GDP. One key difference between the CMS memo and CBO projections is that CBO does not come up with numbers for total health spending; CBO only does federal spending. CMS estimates spending for everyone. The House Republicans will trumpet the fact that the House bill does not "bend the curve". However, people who are actually interested in health reform need to read the memo more closely.

First, as did CBO, CMS says their numbers are a very rough estimate. They used the best data they had, but they need to base their estimates on precedents, and precedents do not exist for everything the bill is trying to do.

Second, insured people use more healthcare than uninsured people - if I recall correctly, the insured spend about twice the dollar amount per year that uninsured people do . CMS says the bill would more than halve the number of uninsured, which I think is about what CBO says. Ergo, if nothing else changes, this represents additional spending. It is money well-spent, in my opinion - governments should not 'save' money by denying people services they need.

Third, the bill makes certain cuts to Medicare payments. It does not reduce the benefits that the government has promised to seniors in the Medicare statutes. It does reduce payments to Medicare Advantage, which contains a significant and unjustified subsidy to private insurers (the MA program costs the government about 14% than regular Medicare to provide the same benefits). The bill also implements automatic reductions in Medicare payments to account for productivity growth in the regular economy; the theory is that when information technology allows us to do the same thing for less effort, the government should reduce its payments. The same thing happens in the private sector - if a business can use IT or other technology to do things more cheaply than a competitor, they charge less for the same product and then prices go down across the board. So when some Republicans say that the Democrats are cutting Medicare, they are either intentionally or accidentally misleading the public.

Nonetheless, CMS did say that productivity in the health sector is far more labor-intensive than the general economy, and they expressed doubts that the health sector would be able to see the same productivity gains. If the health sector isn't able to match everyone else's productivity gains, reducing Medicare payments could impede beneficiaries' access, if many providers stopped taking Medicare due to overly low reimbursements. However, the health sector's adoption of information technology lags the general economy's by an astounding amount. The health sector has generally been shielded from being forced to get their act together. This issue can be revisited later. Nonetheless, the Congressional Budget Office did identify Medicare payments as one big lever the Federal government has to reduce overall health spending - many insurers base their own payments off Medicare payments.

Fourth, the second big lever that CBO identified was the exclusion of employer health insurance contributions from wages. The House bill doesn't pull this lever. The Senate Finance bill does, but I think it doesn't pull the Medicare levers. Whatever bill comes out of the conference committee (this is where both the Senate and House reconcile the legislation each has passed and send back an identical version to both chambers) needs to incorporate both these levers. As we can see, the CMS actuaries say that the House bill makes essentially no change to health spending. Incorporating a cap on the value of the exclusion is the only other thing that will make a major change in health spending. This must be done. One other thing that could make a big difference is bundling payments for acute care and post-acute (follow up) care. It's a great idea but it isn't quite ready to be rolled out nationwide in Medicare; the Senate Finance Committee allows for a pilot project, and this should certainly be incorporated.

Last, the actuaries estimate that savings from comparative effectiveness research will be minimal. However, they noted that studies that tried to estimate such savings produced widely variant results: "Small savings could be achieved through the wide availability of non- binding research, while substantial savings could be generated by a comparative effectiveness board with authority over payment and coverage policies." CMS bases its savings estimates on the least stringent level of influence for CER.

The Republicans have also been adamantly opposed to any sort of comparative effectiveness research body that would have authority over payment and coverage policies. Republicans Senator tried to insert an amendment in one of the health reform bills stating that none of the findings could be used to make coverage decisions by any public or private insurance program. That would defeat the entire point of the research.

The Republicans have also been devoted to entitlement reform. One of the problems with the American health system is that people feel entitled to have the most technologically advanced treatments without necessarily considering if they are effective compared to others, or effective in comparison to their cost. Technological advances are the single biggest driver of increased healthcare spending. It is unfortunate that the Republicans would take this illogical stance. Comparative effectiveness research, even if linked to a body that would have authority to require public and private insurance companies to make coverage decisions, would not destroy medical innovation. It would be a lever to force the medical industry to direct its innovations to the places that do the most good.

In the very long run, improvements in health IT and comparative effectiveness research could transform the entire health system and make a huge difference in health spending. Fortunately, nobody opposes improving the health IT infrastructure. However, one party seems to think that comparative effectiveness research will create death panels and take medicine back to the Dark Ages. This is wrong. If opposition to comparative effectiveness research is successful, it will mean that we have no way to effectively ration healthcare except by ability to pay and other arbitrary factors.

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