For Medicare, this has been a summer of good and bad news. On one hand, the program’s costs continue to rise remarkably slowly. So far this fiscal year, they have gone up by only 2.7 percent in nominal terms, the Congressional Budget Office reports.
On the other hand, opposition to the Independent Payment Advisory Board — created as part of the Affordable Care Act — continues to mount. And opponents continue to mischaracterize the whole point of the board.
What they seem not to understand is that the board is needed mostly so that that Medicare can continue to encourage slower growth in costs.
One reason costs have been rising so slowly is that systems for paying hospitals and doctors are changing. We’re moving away from the old fee-for-service plan and toward paying for value in health care — and we’re making the shift more rapidly than expected.
Redesigning the payment system is a fundamentally different approach to containing costs. The old way was to simply slash the amounts that Medicare pays for services. And here is where the criticism of the Independent Payment Advisory Board becomes somewhat Orwellian.
The point of having such a board — and here I can perhaps speak with some authority, as I was present at the creation — is to create a process for tweaking our evolving payment system in response to incoming data and experience, a process that is more facile and dynamic than turning to Congress for legislation.
In particular, as Medicare experiments with accountable care organizations, bundled payments and other new strategies, the agency will inevitably need to make adjustments. Questions will come up, such as: How should the payments to doctors, hospitals and other providers be changed to reflect what is learned about the quality of care they provide? How much should the penalties or bonuses be? Is it better to have hospitals face all the costs associated with patient (as in an accountable care organization) or only the costs incurred during a specific episode of care (as in bundled payments)?
Medical malpractice in America remains a thorny and contentious issue, made no less so by its virtual exclusion from the Affordable Care Act (ACA, or Obamacare) governing healthcare reform in America.
Which is why I was glad to see the former head of President Obama’s Office of Management and Budget, Peter Orszag, now with the liberal Center for American Progress, cite it as his second top priority for gaining control of our out-sized medical spending – an implicit criticism of its omission from Obamacare.
Although speaking in the context of criticizing Rep. Paul Ryan’s (R-WI) plan to offer vouchers so Medicare enrollees could purchase private health insurance, his comments about the need to address malpractice reform are a departure from the liberal talking points on Obamacare. Here’s what he had to say…
Former Obama Budget Head Challenges Paul Ryan To Demonstrate How His Budget Would Lower Health Costs
“Rep. Paul Ryan’s (R-WI) proposals to control health care spending by slashing the federal government’s contribution to Medicare and Medicaid and shifting that spending on to future retirees or the states, has dominated Washington’s conversation about entitlement reform. But…a group of health care economists and former Obama administration officials laid out an alternative approach that could achieve health savings by encouraging providers to deliver care more efficiently…
“‘Mr. Ryan has had too much running room to go out with proposals that neither will reduce overall health care costs nor will help individual beneficiaries simply because there has not been enough of an alternative put forward by those who believe that we really need to focus on the incentives and information for providers…If I had to pick out two or three things to do immediately, I would pick the accelerated (trend) towards bundled payments and non fee-for-service payment…
While Washington wonks continue to bicker over health policy, positive change is occurring outside the Beltway.
Last week, the Altarum Institute, a research organization based in Ann Arbor, Michigan, reported that the moderation in the growth of health-care costs we have seen over the past few years is continuing: Total health spending rose by less than 4 percent from February 2011 to February 2012. And it’s encouraging to see the progress that doctors, hospitals and other providers are making to improve the value of care — by cutting back on unnecessary procedures, for example, expanding their use of information technology, and switching from fee-for- service to compensation schemes aimed at maximizing the quality of treatment.
Instead of examining these changes and finding ways to encourage them, the Washington policy discussion continues to demonstrate its ability to, well, it’s not clear exactly what it does. The most senseless bloviating recently came from Charles Blahous, a senior research fellow at George Mason University, in Arlington, Virginia, and a former official in the George W. Bush White House. He claims to have shown that the 2010 health-care reform act will substantially increase the budget deficit, despite official estimates to the contrary. The Washington Post decided this warranted prominent coverage.
What Blahous actually did was play a trick. His analysis begins with the observation that Medicare Part A, which covers hospital inpatient care, is prohibited from making benefit payments in excess of incoming revenue once its trust fund is exhausted. He therefore argues that the health reform act is best compared to a world in which any benefit costs above incoming revenue are simply cut off after the trust-fund exhaustion date. Then, he argues that since the health-care reform act extends the life of the trust fund, it allows more Medicare benefits to be paid in the future. Presto, the law increases the deficit by raising Medicare benefits.
Former Office of Management and Budget (OMB) Director Peter Orszag is sounding a pretty serious alarm about American health care expenses lately. In the current issue of Foreign Affairs, he writes:
“The Congressional Budget Office (CBO) projects that between now and 2050, Medicare, Medicaid, and other federal spending on health care will rise from 5.5 percent of GDP [gross domestic product] to more than 12 percent. … It is no exaggeration to say that the United States’ standing in the world depends on its success in constraining this health-care cost explosion; unless it does, the country will eventually face a severe fiscal crisis or a crippling inability to invest in other areas.”
Are health care costs going to cripple America’s economy? Or could the polar opposite be true – that they are they really the overlooked engine of job growth for America’s 21st-century economy?
Consider China, a country transitioning into a modern economy, led by manufacturing. Manufacturing as a percentage of the Chinese economy today dwarfs the percentage from even 20 years ago. At this rate, manufacturing by 2050 will have all but consumed the Chinese economy, crippling its ability to invest in other areas.
It’s not outrageous to say a parallel can be drawn here with American health care.