For the Obama Administration Health Care Reform Will Require Tough Cost Containment


The President has made a powerful argument— America cannot get its economic house under control without comprehensive health care reform. The cost of existing entitlements – public and private —and any new ones are just too big a ball and chain on our short and long-term economic health.

President has also argued that there could be no better time to fix
this mess than now—when it is so critical to get our economic house in
order once and for all.

The President is right on both counts.

As any of us who have studied this issue know, the number of those uninsured in America are not really the problem—they are a symptom of health care costs
run amuck as individuals, employers, and government just can’t afford
to insure everyone. Adding more people to this unaffordable mess
without fixing it first is not an answer—it’s a prescription for even
more fiscal irresponsibility.

So if cost is the real problem then cost containment is the whole ballgame.

As the Congressional Budget Office (CBO) pointed out
in its December tour de force on costs and options, the cost
containment “lite” proposals out there will not get the job done.
Things like more health information technology, wellness efforts,
comparative research, and pay-for-performance are all fine and
important but individually, or all taken together, result in hardly a
rounding error on the huge health care bill America faces.

cost containment means paying providers (doctors, hospitals, insurers,
drug companies, nursing homes, device manufacturers, and all the rest)
less than they would have gotten.
It also means paying less out
for beneficiaries than they would have received. That probably means
more premium sharing, copays, adopting effective consumer-driven
principles, and it probably has to include means testing as a
progressive way to get wealthier people to pay more and ease the burden.

It might even mean redoing our decades old and now obsolete tax system that rewards too much easy money for health care.

cost containment will also absolutely mean more mandatory cost/benefit
decisions on what will be covered—the kind of “big brother” intrusion
into coverage decisions lots of people hate. But what good is comparative research if, as has been the case for years, it is more often ignored than used?

If you want to contain costs do you know what you have to do? You have to contain costs.

the Obama administration and the Congress cannot produce these real and
politically problematic savings then the same CBO that put everyone on
notice about where the real money is in our bloated health care system
is going to score the health plan effort as not in fact bringing our
long-term entitlement costs under control.

That is where the Obama strategy meets itself coming and going.

If you say health care reform is needed now to bring our out of control health care costs
under control and make a big difference in rebalancing our economy then
you have to produce a bill that actually does that—that actually
controls these costs by succeeding with those politically problematic
cost containment challenges.

There will now be lots more “irrational exuberance” over the chances for health care reform in the wake of the President’s speech in the coming days just as there was in the days following the election.

would rather we had a much more sobering discussion on just what it
will take to craft a health care bill that does make the difference we
so sorely need to bring our deficits, and our overall economy, back to
an acceptable place.

That would be a discussion that included
the incredibly politically problematic challenges we will need to face
in order to get the health care special interests on the right side of
this issue.

When I finally see that discussion taking place, I will be optimistic.

Otherwise our new President is just going to meet himself coming and going.

Robert Laszweski has been a fixture in Washington health policy circles for the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. Before forming HPSA in 1992, Robert served as the COO, Group Markets, for the Liberty Mutual Insurance Company. You can read more of his thoughtful analysis of healthcare industry trends at The Health Policy and Marketplace Blog.

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26 replies »

  1. I’m still learning too about all the complications and loop holes of our health care system, but here are some thoughts if interested.
    I like the idea of comparing our need for health care reform to our current need for a change in our awareness of impact on the environment. It’s like the damage we do to our bodies is reflected as the pollution we put into our atmosphere/planet.
    Our immune systems are becoming weaker because we over-sanitize our hands and reach for an antibiotic every time we sneeze. Children who attend public pre-schools grow up to be generally healthier adults.
    I think many of our ‘mental illnesses’ are caused by overpopulation, over-crowding and so on. Too many poeple and innefficient use of resources.
    I’ll stop, I start thinking too broadly. Mainly, most of our nation’s issues (health care included) require a shift to a higher level of conscienciousness; and I hope I spelt that right.

  2. SHOW ME THE LAW ! For many years Congress has omitted Product Liability for Prescription drugs,with a protected shield preemption of the Law in the FDCA ACT leaving the public at risk. Thousands of American Consumers have been killed and injured with defective prescription drugs.This is driving the cost of Medicare and Medicaid up.Congress needs to make the drug manufacturing companies accountable for the damages they do to the Consumers. Because there is NO LAW, Federal or State the public is at risk and the drug manufacturing Companies are protected with a shield. Show me the Law.

  3. I am a nurse anesthetist. My salary may be considered by you to be rediculous. Fact is; it barley covers my student loans. I drive a 1998 camry and rent a home for 1200 a month.
    I was involved in a surgery last week where the surgeon accidently lacerated the patients liver. the patient lost one third of their blood within 40 seconds. after 5 hours, “we” meaning me saved the patients life. (these types of situations are part of my life they happen more often than you know)
    If they want to pay me one iota less than what I make now; which has already been drastically reduced by medicaid cutts. I and many many others will walk away from health care. It simply won’t be worth the risk.

  4. john h., i have to respectfully disagree. i believe that’s bad news about embryonic stem cell research.
    the zealotry of some to open this door has overshadowed the real promise of adult stem cell research. they have spent way too much time and money on it, when adult stem cell research has shown so much more progress and hope.

  5. Obama to Lift Ban on Funding for Embryonic Stem Cell Research
    The Washington Post (3.6.09) reports that President Obama is planning to sign an executive order on Monday rolling back restrictions on federal funding of human embryonic stem cell research.
    That’s great news! The lifting of funding restrictions on stem cell research may have been prompted, in part, by Orrin Hatch’s (R – Utah) comments at the White House Health Care Summit yesterday.
    Below is a transcript of what Senator Hatch had to say:
    “I hope this Administration will revoke any Executive Order with regard to stem cell research. I personally believe we have to go full bore on stem cell research.
    We have a Nobel laureate out at the University of Utah. I asked him, Mario – his name’s Dr. Mario Capecchi – ‘If we could get the NIH to set the moral and ethical parameters and the provide the income, the moneys, for research that you could do, how long would it take you to arrive at a treatment or cures and maybe even get rid of the teratoma argument that tumors come up with in regard to embryonic stem cell research?’
    He [Capecchi] said, ‘I really believe I could arrive at a treatment or cure within seven years from the day we’re funded.’
    That’s a pretty amazing thing, because if he could find even a treatment, but let’s say he could find a cure for diabetes; that would save trillions of dollars.”
    -Orrin Hatch
    White House Health Care Summit Breakout
    5 March 2009
    For more details, see the CSPAN video:

  6. How can any discussion of health care reform be had without discussing tort reform? If doctors and other providers have to charge more for their services because their premiums are sky high because of the plaintiffs’ attorneys out there who will file a lawsuit at the drop of a hat, then how can we get anywhere?

  7. If Obama wants to cut compensation for hospitals without going after the insurance companies he is headed into a world of trouble. Eliminating insurance companies and replacing them with a well compensating government plan is the best way to go.
    Imagine no insurance companies, they are nothing but a bunch high school graduates determining if treatment can be initiated. How can insurance companies cut costs when they are listed on the stock exchange. Cigna, aetna, metlife are all listed. These companies only care about profits. The way they profit is denying care for as long as they can. This is the main reason health care costs are soaring. By denying care they put the pressure on the patient to pay for the costs. Why do you think people say health care is expensive thank your insurance company.
    If Obama is really for the people let him get rid of these for profit insurance companies and replace it with a well compensating government plan. Then health care will be be back on track. People will get the care they deserve, and health care workers will be properly compensated.
    Hopefully Obama does not put everyone on a capitation plan, and then say everyone can afford insurance now. Capitation is nothing but buying votes for the politicians. The dirty secret of capitation plans is that the hospital loses money when that type of patient comes in. The hospital receives a list at the beginning of the month with patients names and certain dollar amount assigned to each patient. If that patient comes the hospital loses money, the object of the plan is to cut patient care and do minimum work. This is how insurance companies operate. They claim to offer cheap insurance, and it is. Until you realize that your plan covers nothing.
    If Obama offers the same capitation he is only after votes. The patient won’t get treatment and the hospitals will not be properly compensated. Be wary of any plan that does not offer proper compensation to the providers.

  8. Mr. Bruce Quinn’s points are interesting. If you want to save money on office visits, you have to put pressure on providers as well as patients.
    What kind of pressure? Following simple guidelines in common situations where there is a lot of waste. Examples, from the top of my head:
    -no ABx for sketchy “infections” that are – at best – a common cold
    -no brain scans for typical migraines
    -no back scans for axial low back pain, at least not initially and not by PCPs
    For some if not all of the above, there are pretty clear guidelines.
    In general, there is diagnostic overkill in the US as pointed out elsewhere, and in addition to the above, this could be easily rectified by: sl. upgrading reimbursement for cognitive services, not making every study orderable by any physician (a brain MRI, for instance, costs several thousand bucks), decreasing reimbursement for imaging. And of course we need tort reform to protect doctors who are (justifiably) afraid of being hit with a failure to diagnose lawsuit if the outcome is bad, even though they made a reasonable effort.

  9. We have known for many years that we have a wasteful health care system full of overuse, misuse and underuse. The system is not getting better and people are less healthy than ever. It is exciting and inspiring that we have political leaders who are willing to fight the tough and thankless battles that they will have to fight to get us on the right track as a nation. While there will be plenty of specifics to make everyone unhappy about one element or another, can’t we all pull together to have a much better, more effective and affordable health care system for the good of the country? Helen Darling, President, National Business Group on Health

  10. I worked as a regional Medicare medical director from 2004-2008. While I am in favor of comparative effectiveness research, obviously, most of those commenting on it, anywhere, have little data on how much money is “saveable” through this route. Specific technology issues – like whether a CT, MRI or PET scan is better for staging pancreatic cancer – are NOT necessarily a major part of US health care costs. I suspect (and would love to see a data wonk document) how much is actually the softer decisions – e.g. should Patient X may be admitted to a likely-$200K ICU stay against long odds, and similar high cost but diffused decisions. For example, in the Medicare Part B system, I recall data that roughly half the costs (even in our era of technology) are office visits, where it is hard to have a “tech assessment” of when a patient does or doesn’t need an “office visit” on a given day with a given at-home symptom. Comparative effectiveness could have a good ROI – imagine, say, if $1B of CE research leads to $10B of cost savings, or even $50B – but it’s budget dust compared to the $2T of healthcare spending.

  11. Michael Millenson in now way have doctors fought third party payment. It wasn’t insurance companies that added assignment of benefits to claim forms. Providers LOVE third party liability and have helped force the system to the point consumers only pay for 18% of their care today versus 50% in the 60s.
    Peter – “What costs can the government control/cut”
    State premium taxes, regualtion, compliance to name a few. The government requires me to mail all sorts of notices to plan members every year. If every insurance company has to mail every covered women the same women’s health notice why not just post it online at a central site and save the postage and paper cost? Not saying there is a conspiracy but as the Post Office struggles more congress requires me to do more mailing….connected?
    “in America are not really the problem—they are a symptom of health care costs run amuck as individuals, employers, and government just can’t afford to insure everyone.”
    The majority are uninsured by choice. Half are already entitled to free care and choose not to enroll and another 20% can afford it but choose not to buy it. We do not have a problem affording to insure people, they lack the risk or consequences forcing them to enroll. More money won’t solve the problem, we need a stick to force them into the system.
    “and it probably has to include means testing as a progressive way to get wealthier people to pay more and ease the burden.”
    One of the biggest falacies that created this mess is you can give people free or cheap insurance and they won’t abuse it. Give lower income subsidized care they will still bankrupt the system. NO FREE LUNCHES!
    “When I finally see that discussion taking place, I will be optimistic.”
    If only this could ever happen. Politicians will never solve the crisis they created. They will never admit 40+ years of terrible reform, since Medicare was poorly designed and implmented, has created this mess and only the removal of government will fix it.

  12. Do you want a for-profit business making decisions about your health care?
    Besides the fact that our archaic system is costly and unsustainable, it does not provide the best care.
    For-profit health care insurers can deny doctor recommended treatments based on their bottom line and sometimes people die.
    But the CEOs still get their bonus at the end of the year.

  13. jd – Are you saying that individual Americans contributing to reform is off the table? I’m not thinking we can wait much longer to change the lifestyles of our society, particularly with the vast numbers of aging boomers.
    Universal healthcare is a worthy goal, but don’t you think that universal healthiness is a little more important? It costs less and it’s a more logical way to reduce the number of uninsured.

  14. Too bad you can’t edit after posting. The second to last paragraph should have read more like:
    I know it sounds like the responsible thing to say we can’t afford universal health care without deep reforms to how health care is provided and paid for. It’s absolutely true in the long run, but I don’t think it’s the smartest thing to insist on in the short run. Not if your goal is to have both universal health care and deep reforms in the next 6 years. If you insist on both simultaneously, be prepared to get neither.

  15. Count me in the camp that sees full scale reform as an elusive dream in 2009. Universal health care is possible. Reforms that restructure the entire incentive system or that in some other way force a halt to the outsized growth in the medical cost trend are NOT possible. Not this year.
    There are many, many reasons why this is not yet the time for full scale reform:
    1) We are in a recession. To cut back health care expenses now would be to cut revenues to health care industries now, and that would result in layoffs around 6-9 months down the road–just as the economy might have started recovering in a best case scenario, prolonging the recession. Need I mention that this a political loser?
    2) Policy folks continue to downplay how hard the provider lobby will fight to keep its fatty deposits. Pharma and Insurance have some power in Washington, but the AHA and AMA have twice the clout. Why? Because the public believes what the AMA and AHA shovels, whereas most Americans don’t trust PHARMA and AHIP. And I haven’t even brought SEIU and other unions into the mix. Expect them to join on the side of AHA and AMA, as I have seen them do repeatedly in New York, to beat back reform. It is very easy for the provider lobbies to present most reforms as preventing doctors from caring for patients or giving them the best care possible in the public’s mind. That’s because…
    3) The public does not understand the cost drivers of health care today, and so they do not clamor for the kind of change that is needed, and in fact they find it confusing and kind of scary, without a clear payoff. Comparative Effectiveness, Pay for Performance, Pay for Value, Medical Homes and Care Integration, Best Practices and Evidence-Based Medicine (at least that one has a great name!), etc., don’t mean much to 95% of Americans. There is no constituency demanding these things. On the other hand, there is a huge constituency for universal health care right now.
    The healthcare industry (or industries) will offer the following deal: we will not fight universal healthcare so long as you don’t make us lose money in the process. And you know what, Congress and the Obama administration are going to take that offer, with a few highly visible reforms that will make almost no short-term dent in costs. Maybe instead of a cost trend 2% higher than GDP growth, reforms could pass in 2009/2010 which allow projections of a trend 1% higher than GDP growth. Enough for Obama and Congress initially to declare victory in saving hundreds of billions of dollars over 10 years.
    They will make that deal in the name of helping those who can’t afford coverage.
    They will make that deal in the name of helping the economy in a time of need so that hospitals and other segments aren’t laying off tens of thousands (though Medicare Advantage will shed a few thousand jobs).
    They will make that deal because they know that once universal health care is in place, the game changes. Totally. The debate will become far more focused on cost and what drives high costs. I’ve written before about how liberals and conservatives will have interests that align more closely after universal health care passes than before (assuming conservatives don’t spend all their time trying to destroy universal health care and instead focus at least as much on reforming it).
    I know it sounds like the responsible thing to say we can’t afford universal health care without deep reforms to how health care is provided and paid for. But I just don’t think it’s the smartest thing to say…if your goal is to have both universal health care and deep reforms in the next 5-6 years.
    Universal health care this year, minor reforms in the next 1-4 years, and then huge reforms around 2013.

  16. What costs can the government control/cut – Medicare, Medicaid? Where else does the government have control of to force cost containment? If it forces cost cutting there what provider is going to tag along and see those patients when they can go to the private side where there’s still the same pricing/profit system? I think this will be a dismal failure.

  17. Actually, Bob, to say the uninsured are a symptom of health care costs run amuck is only true in a small way. Even in good economic times and even when health care costs have been relatively under control (key word is relatively), the best we’ve ever done in this country is to get the rate of uninsured down to about 10 percent of the population in the early 1970s. That still amounts to millions of Americans.
    It’s true that when costs skyrocket there are more people uninsured. And, yes, some of the “young invincibles” choose not to buy insurance they could afford. But any objective history you read will tell you that doctors have bitterly fought third-party payment from its inception and have only gradually acceded to its spread.
    Our lack of universal insurance is because we, as a nation, have decided that we don’t want to pay the taxes for it and/or don’t want the government to make that its responsibility and/or it is too expensive for business. All those “cost” justifications, however, are not due to a particular price point for insurance but to ideological decisions.
    They may be the right ones, depending on your viewpoint. Why, NOT having universal insurance may be the reason American doctors are the pride of the world — or not. But let’s be clear about the decisions we Americans have made and why.
    The old joke goes that when people say it’s not the money, it’s the principle of the thing — it’s the money. Here, indeed, it is the principle that’s the sticking point.

  18. How can we have a discussion about cost containment without a mention of our increasingly sick population? I’ve said it many times before and I’ll keep saying it until people start talking more about it: Reform will be a LOT easier if we have 100+ million people making small contributions than it will if we have a small number of people telling us how it needs to be.
    I’d like to know what everyone here is prepared to do to contribute to reform. I have quit smoking, replaced much of my soda habit with water and started offering free nutrition counseling, yoga and gym memberships to my employeees. I have eliminated my stress on my daily commute by leaving earlier and ignoring some of the schmucks out there that drive aggressively.
    Don’t you see? If we all take steps to improve our individual situations, we will lower the demand for healthcare services and flush a lot of cost out of the system completely. This is not a popular solution because it requires everyone to chip in instead of calling it someone else’s problem. Obama let me down last night. I truly thought he might place greater emphasis on personal responsibility. He’s hinted at it before, but I guess he’s backing away from it.

  19. I also think cost containment comes hand in hand with efficient use. Inefficient use leads blurs the real cost and changes consumption. Thus, a nationwide cost containment scheme is not only about reducing cost, but about efficient use.
    This should also feed into the excessive use of new technology; there are cost effective alternatives.

  20. Among the many necessary methods to reduce costs WHICH IS THE CORRECT WAY OUT OF THIS MESS is the following-
    “Every American citizen deserves a dignified and painfree death”(ral)
    Profiteering off the dying is a huge expense as we all know and it is also immoral.
    Smart politicians have learned not to say it – so we must be their voice.
    Dr. Rick Lippin

  21. Layman here. New to the subject but doing my homework.
    This all looks right to me, especially the part about “more premium sharing, copays, adopting effective consumer-driven principles, and it probably has to include means testing as a progressive way to get wealthier people to pay more and ease the burden.”
    I hate it but there it is. And long overdue.
    I started out with a bad attitude about the insurance industry. My thought was that if the money now going for dividends to shareholders, big bonuses for sales people and obscene money and perks for executives it would be enough to even things out.
    Those are a start, but the real challenge is health care “inflation.” I never thought about it before, but it’s true. Maggie Mahar put up a chart showing a thirty-year history of percentage increases, tracking how well Medicare and insurance companies compared. A mixed-up double line indicates that annual increases have been hitting BOTH segments for as long as records have been kept with annual percentage increases WAY over the growth of the economy or other economic indicators.
    It is clear to me that our system is bloated by excessive use. Too many probably unneeded drugs and procedures. I say “probably” simply because no one knows. No one want to know if anything is needed. All they want to know, patients and providers alike, is whether or not it’s “covered” by (pick one: my insurance, the other guy’s insurance, workers comp, Medicare, Medicaid, my token co-pay, product sample, other).
    Did I leave anything out?
    My career was in the food business as a cafeteria manager. Years ago we priced food according to the quaint idea that you paid more for expensive foods (meats, seafood, poultry) and less for less expensive foods (vegetables, desserts, etc). Everyone knew that beverages were over-priced so there was no secret about how cafeterias made money.
    The day came when the marketplace produced all-you-can-eat buffets. At first they were doomed to a four or five season lifespan as the quality lines and operating cost lines crossed. But the day finally came when they figured out how to set a competitive price point and product mix that seemed to be a better value than us low-end cafeteria people, so as our volume dropped we had to go up on prices to stay alive. Volume is no longer large enough to sustain tight margins.
    Same thing has happened to health care.
    Americans switched from “thrift” to “value.” There was a time when our mindset was to get by on as little as possible, wasting nothing. Now, however, we demand “value.” Whether or not we NEED it we want more bang for the buck. Whether it’s antibiotics for the common cold or whatever the surgical fashion happens to be, if it’s “covered” then lemme have it. Cost be damned.
    To use an automotive metaphor Americans are speeding down the health care highway in a gas guzzler when they should be using a better mileage vehicle. A more economical car gets to the same destination at the same time.
    Keep the conversation going. There is an ocean of ignorance out there.

  22. The trick, and it will be a good one, will be to rebalance individual benefits and community benefits. We know what the costs are. What am I willing and able to give up so that my neighbor might get something? Especially if I really don’t think she/he deserves it!
    What’s the ancient Chinese curse, “May you live in interesting times.” These are the most interesting of times.
    Keep up the thought provoking commentary Bob.
    Lynn Bailey
    Healthcare Economist

  23. we all are horribly mistaken if we think an answer to the problem is going to come out of washington, dc and the hhs secretary.
    the government should be a part of the solution, only because it is currently a part of the problem. but more government intervention is not what we ought to be seeking.
    let’s hope that, at worst, the hhs sec and the federal government do absolutely nothing on health care reform. and at best, let’s hope that the government slowly backs away from it’s current interventions and allows the private sector to handle it, lest our whole health care system devolves into the bureaucratic nightmares of the VA or indian health services systems of care.
    there are enough brilliant minds in business and medicine to figure this out, without us having to look to the government to tell us what to do.

  24. Dear Bob: I think you’re hitting the nail on the head. But, as I travel around the country and talk to and with people, it’s still the case that talking about cutting health care costs is very, very difficult. It’s as though people simply don’t believe it can be done, perhaps because they’ve never seen health care that’s affordable. There’s no confidence that health care costs can become less, rather than more. Very, very doubtful are the audiences with which I discuss ways to make wellness, health promotions, and disease treatment less expensive.
    I’m glad you’re talking about it. Regards, DCK

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