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The Education of a Cost Cutter (or How Peter Orszag Stopped Worrying and Learned to Bypass Congress)

PH2009062203130.jpgAs told to the Wall Street Journal's Laura Meckler:

The battle heated up in June, when Mr. Orszag visited Capitol Hill to discuss health care with a small group of House Democrats. The meeting started well, with one lawmaker after another echoing his message that spending controls were critical to any health-care overhaul, according to two administration officials.

Then one member said her top priority was winning higher payments for oxygen suppliers, the officials say. Mr. Orszag was taken aback. Officials had been trying for years to cut payments to suppliers of oxygen and other medical equipment, which critics say are inflated. Yet when a new competitive bidding process was set to take effect last year, industry supporters in Congress were able to delay the plan. They are still fighting to block changes.

"One of the reasons we currently have such disjointed and skewed incentives is that we have an excessively political process," Mr. Orszag said in an interview.

Orszag's big idea right now is to depoliticize the process a bit by taking decisions about payment for oxygen out of the hands of individual members of Congress and putting them into the hands of an independent panel of experts modeled off of MedPAC. But note something important about it: It's not an idea meant to solve a particular policy problem. It's meant to solve a particular political problem.

The problem with Congress is that it's not well-suited to, well, anything, but it's particularly ill-suited to small, technical decisions. If Congressperson X has an oxygen manufacturer in his or her district and decides that helping that oxygen manufacturer is his or her top priority, no one else really has an incentive to push back. After all, other congresspeople will have their own pet projects and constituencies. And it's not like oxygen reimbursements are, on their own, a particularly big deal. But put 435 congresspeople all doing things like raising oxygen payments together, and it's a big deal indeed.

Photo credit: Harry Hamburg -- Associated Press Photo.

By Ezra Klein  |  July 24, 2009; 11:04 AM ET
Categories:  Health Reform  
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Comments

There is a reason why something like this hasn't been done with medicare in the past and its the same reason I see no chance at all that our political system would be able to contain the costs of healthcare. All the incentives are pointing in the direction of increasing costs because people are spending other people's money. Lets see how well MedPAC can control costs for the 15% of the population the government already covers and then we can discuss how well that would scale to cover the other 85% of the population.

Posted by: spotatl | July 24, 2009 11:12 AM | Report abuse

As I've written before, MedPac is an honest attempt at addressing the problem. But its wholly unrealistic that its sustainable. People aren't going to defer to an unaccountable, independent body on some of the most important decisions in their lives. Cutting waste on oxygen manufacturers isn't really that controversial. Addressing the 30% of Medicare dollars on end-of-life care is. The latter is the biggie, the former isn't going to solve the cost problem.

People are going to want a say in their health care. MedPac is a solution for cutting costs that should be low-hanging fruit, but politicians get in the way. But that still doesn't address the ultimate problem: People want access to the best technology and technology utilization is our primary cost driver. Its fashionable to talk about the waste in the system. The tricky part is that one man's waste (as determined by population-based clinical effectiveness) is another man's hope for treatment (based on their individual patient characteristics). MedPac, as being described, is not a sustainably feasible way of addressing these fundamental core issues to cost growth.

Posted by: wisewon | July 24, 2009 11:39 AM | Report abuse

PS To be a little more productive-- what would be better than MedPac as being proposed? Introduce smart cost-sharing into Medicare. The cost-sharing could be based on MedPac-type recommendations (these treatments are less proven/lower value so they should have co-pays, etc.), but its an absolute must.

And you know what? Introducing cost-sharing into Medicare isn't going to be implemented based on MedPac's recommendation and be "automatically" put into place. Its something will require politicians to actively make a change to the Medicare system. That's what real cost control as part of a health care reform package would look like. No doubt its politically more challenging, but let's not pretend that we've got all of the good ideas on cost control in the current legislation. We're avoiding some big ones, for obvious reasons. Real cost control isn't the legislative priority, Obama has decided to instead use his political capital on passing a $1 trillion dollar expenditure to cover the uninsured. We can argue about what should be done first (or more likely a little of both), but he's clearly made coverage a priority over cost control. We've got to stop fooling ourselves (read: Ezra) that this isn't the case.

Posted by: wisewon | July 24, 2009 11:49 AM | Report abuse

Ezra and you all guys are forgetting - this is simply 'corruption'.

Why is Orszag not liable to name that Representative? Since when official, top priority of a representative becomes to secure highest bidding price for a supplier (probably from her constituency) than to be a guardian of taxes paid by her voters? Should not our system 'shame and prosecute' these representatives?

If it means war on such representatives (and likes of Murtha) so be the case. Once and for we got to get these elected representatives from the 'cocaine' of 'doling out favors of other people's tax money'. If all they do is that, then they all are corrupt (including respected Boxer and Feinstein who slavishly supported to continue the funding of Raptor plane program). Their job must be to make policy and to make laws. It is cannot be doling out favors. Of course, I know that 'Budget' is the fundamental responsibility of the Congress. But the whole point is to keep it at the level of policy directions and block agency level grants. Then onwards it needs to be agencies and Administration to work out the details. These guys must be pulled out from individual grants. Otherwise it is not just Medicare fees, there will be n number of other things which will keep coming where they will get opportunities to play corruption.

By the way, shame on Boxer and Feinstein. Both will at least loose one vote next time. I suspect many more Dems will feel the same way and we will not be surprised that California has GOP dominated Sacramento pretty soon also. GOP also does corruption and that needs to stop. But we voters have no choice other than keep kicking out incumbents until:
- rulers stop corrupt ways and
- until what David Brooks of NYT says, stop over interpreting their mandates.

Posted by: umesh409 | July 24, 2009 12:02 PM | Report abuse

PPS A specific type of legislative example?

IOM/HHS/MedPac has to identify the 20% in annual public spending (which is $200 billion in 2013) that is deemed low value by 2013. That $200 billion will be subject to cost-sharing that would reduce its utilization to $150 billion (i.e. 25% of the time, cost-sharing discourages its use). Those savings over a five year period would equal $300 billion+ in savings. And that's limiting this proposal to the worst 20% of Medicare spend, and looking to add very modest cost-sharing that would cut only one quarter of it out. (I'd have to look at some RAND stuff, but I think co-pays that we would deem standard should likely be sufficient.)

That's what real change would look like. That's (scoreable) cost control. No doubt that seems like a pipe dream politically, but there's nothing remotely on the table like this. Just saying the words "cost sharing" in conjunction with "Medicare" would be a start.

Posted by: wisewon | July 24, 2009 12:02 PM | Report abuse

Please reconcile this post with your support for a public plan. The public plan will not be a Pure Plan competing on a level playing field with rationally set prices. It will be subsidized and will face enormous direct and indirect political pressures to set prices according to the whims of Congress.

Posted by: ostap666 | July 24, 2009 12:09 PM | Report abuse

@ostap666

Actually, it fits right in with the public plan, which will be administered by an independent body in a corporate manner and have a mandate to control costs. The version of a strong public plan that's looking most likely here will not be subsidized and will not be subject to Congressional control over pricing. Sure there's indirect pressure from Congress to increase coverage and lower costs, but that's a good thing, given that all the plan's expenditures will have to be internally covered with premiums.

@wisewon
Very good points, but I'd just like to emphasize that MEDPAC is one of those many "necessary, but not sufficient" elements for bending the curve on cost. Cost sharing might work, but there are some structural problems there with transparency, pricing, etc., that make me doubt whether it will actually work. I'd be more optimistic about cost sharing if there were a way to place some of the incentive onto doctors.

Posted by: etdean1 | July 24, 2009 1:14 PM | Report abuse

Yeah, can we go back to just calling this corruption?

Posted by: chrismealy | July 24, 2009 3:36 PM | Report abuse

Erza - You have got to be kidding. The Journal piece about Orszag suggested he was surprised that a member of Congress would want to increase oxygen payments in Medicare. An increase? The irony is that the fervent wish of the oxygen community is to simply end 10 years of cuts. Oxygen has been cut 27 percent -- so far -- in 2009 alone, required by the Deficit Reduction Act of 2005 and the Medicare Improvement for Patients and Providers Act of 2008 provisions. The Medicare Modernization Act of 2003 cut oxygen as well.

Oxygen payments are about half of what they were 10 years ago. How can Orszag or anyone be worried about higher rates for oxygen?

The facts demonstrate the exact opposite of the point Orszag thought he was making. The HME sector is low-hanging fruit for cuts, representing politically easy reductions in Medicare reimbursements, illustrated by the numerous cuts over many years. What other sector has been cut more? The entire home medical sector (oxygen, wheelchairs, etc) represents about 1.7 percent of Medicare spending and spending growth in the HME sector was 0.75 percent (2006 to 2007 National Health Expenditures data).

Moreover the article and your blog fail to mention, with respect to competitive bidding, that the home medical equipment community accepted a 9.5 percent cut beginning in January of 2009 that pays for every dollar of the approximately one billion that the bid program was projected to have saved taxpayers during the delay. The program is still designed to put most providers out of business, even if they agree to new competitively bid rates.

So it's discouraging to see no context or history or figures in the Journal’s discussion of oxygen and bidding – if the topic is controlling healthcare spending in Medicare. Homecare is not the problem in healthcare by any stretch of the imagination. Do some research next time.

Yes I work for this sector. www.aahomecare.org

Posted by: MichaelReinemer1 | July 25, 2009 10:33 AM | Report abuse

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