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CMS: House bill great on coverage, weak on cost controls

The weekend's big health-care reform news was that the Centers for Medicare and Medicaid Services released their analysis (pdf) of the House's health-care reform bill. What they found depends on who you ask. Republicans saw a mortal blow to health-care reform. "This is a stark warning to every Republican, Democrat and independent worried about the financial future of this nation," said Rep. Dave Camp. Democrats saw a confirmation of their promises. "By 2019, an additional 34 million U.S. citizens and other legal residents would have health insurance coverage," said CMS.

In reality, the CMS report isn't terribly relevant in the tussle between House Republicans and Democrats. After all, the bill has already passed the House, and won't come back for another vote until after it's merged with the Senate's legislation, at which point it will be a radically different bill. But the report may prove very important in the coming negotiations between the House and the Senate.

The report found that the House bill does an excellent job on coverage and an insufficient job on cost control. As promised, the House bill covers 34 million people at a cost of about $900 billion. It also raises national health expenditures by about 1 percent compared with where they'd otherwise be, which isn't all that bad given that we're covering another 10 percent of the population, but isn't exactly "bending the curve."

But the big news, and the big talking point, is that CMS is skeptical about the $500 billion in savings that come from Medicare.

H.R. 3962 would introduce permanent annual productivity adjustments to price updates for institutional providers (such as acute care hospitals, skilled nursing facilities, and home health agencies), using a 10-year moving average of economy-wide productivity gains. While such payment update reductions would provide a strong incentive for institutional providers to maximize efficiency, it is doubtful that many could improve their own productivity to the degree achieved by the economy at large.

Over time, a sustained reduction in payment updates, based on productivity expectations that are difficult to attain, would cause Medicare payment rates to grow more slowly than, and in a way that was unrelated to, the providers’ costs of furnishing services to beneficiaries. Thus, providers for whom Medicare constitutes a substantive portion of their business could find it difficult to remain profitable and might end their participation in the program (possibly jeopardizing access to care for beneficiaries). While this policy could be monitored over time to avoid such an outcome, so doing would likely result in significantly smaller actual savings than shown here for these provisions.

In other words, the proposed payment reductions in Medicare could squeeze providers, which could mean they stop treating Medicare patients. It's unclear whether this would happen at all, and if it did, how many people it could affect. CMS, due to the high level of uncertainty in this estimate, declined to offer specifics. But it's worth being concerned about.

On the bright side, cutting payment such that providers flee the program isn't very likely. As the report notes, these problems would be easy to spot, and Congress could ease the cuts. Democrats aren't going to let Medicare flounder. Seniors aren't going to get kicked off the Medicare rolls. But if Congress revisits the cuts, the bill doesn't save as much money as is currently being projected.

There are a couple of things to say about this. The first is that CMS admits that this is good policy. The "payment update reductions would provide a strong incentive for institutional providers to maximize efficiency," the agency concludes. In other words, the health-care system will be more efficient and less costly in the presence of these cuts than in their absence. That's a good thing.

Second, Medicare will become unaffordable whether or not this bill is passed, and these cuts are implemented. Eventually, we are going to have to pay providers less money than they currently expect to be paid, and our health-care system will have to adapt. Otherwise, the government goes bankrupt. Indeed, CMS finds that the bill actually lengthens Medicare's period of solvency by five years.

Put those two findings together, and it seems like the smart path forward is to give these cuts a credible shot, and if they don't work, either ease the cuts or reform Medicare to save money in other ways, perhaps by going after fee-for-service more aggressively.

But Medicare cuts are a crude tool. The more damning conclusion from the CMS report is that the House bill has little else to control costs, and that's largely accurate. This report shouldn't lead reformers to abandon efforts to trim Medicare, but it should convince them that the bill can do more on the cost control front.

The Senate now has the advantage of reading this report, questioning CMS about its methodologies and tweaking its bill to ensure a better verdict. But it's already part of the way there. The Senate Finance Committee's bill has two cost-control measures the House simple doesn't: Super MedPac and the excise tax. Alongside that, it has a much more aggressive package of delivery-system reforms. But more on all that later.

By Ezra Klein  |  November 16, 2009; 8:37 AM ET
Categories:  Health Reform  
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Eventually, we are going to have to pay providers less money than they currently expect to be paid, and our health-care system will have to adapt.

Which is absolutely why you shouldn't advocate for the "doc fix" as that just exascerbates the problem further. Stop kicking the can down the road.

On top of this CBO was given 10 years of revenues (taxes) and 6 years of expenditures (exchange/PO) Nice shell game.

Posted by: visionbrkr | November 16, 2009 9:40 AM | Report abuse

Ezra - I think you underplay the negative consequences of this report. my take is that this report says 2 important things and neither is good for the prospects of HC reform

1) Vs. current law the House bill increases health care spendning by $300 B over 10 years. So much for reform lowering spending.

2) Proposed Medicare cuts could cause some doctors and hospitals to stop taking Medicare patients. This is EXACTLY what seniors fear and CMS says that it's a possible consequence of the House bill. This plays right into Repub hands. Why should seniors support this bill? Look for Florida Dems to get even more nervouse about voting for reform.

Posted by: MBP2 | November 16, 2009 9:51 AM | Report abuse

Both comments by MBP2 (above) are valid concerns, but aren't new, which causes me to question the timing of the CMS report or of the House vote: why wait until after a health care reform proposal has passed in the House to begin to relate real numbers to the legislation?

Certainly, concealing the truth was important to passage: those with the simple goal of enlarging the welfare state are less able to do so in light of reality. But the effect of Pascal's query (noted last week) remains: doing nothing results in a known bad effect, so believing in a positive effect, even if mythical, is, in practice, no worse.

What if the ultimate solution is that some people -- a great number of poor people -- must endure sickness? I'm not offering that solution; however, it does come to mind that reduction in wellness programs for some might make curative programs available for others. Call it what you will, but rationing has to re-emerge as part of the discussion before there's nothing left to ration.

Posted by: rmgregory | November 16, 2009 10:15 AM | Report abuse

What we need is delivery system reform. Without it, the minimal cost control proposed will be reversed as CMS and you note.

"Alongside that, it has a much more aggressive package of delivery-system reforms."

It may be "more aggressive" than the House, but it is a failure overall. That's pretty universally agreed to by all experts. Whether its "the best we can do politically" is a related point, which again speaks to the foolishness of the public option being one of the few policy points that Obama has personally backed, versus using his political capital on more meaningful delivery system reform.

Posted by: wisewon | November 16, 2009 11:25 AM | Report abuse

"But more on all that later."

Yay! Sooner than later, yeah?

Posted by: eRobin1 | November 16, 2009 11:38 AM | Report abuse

Ezra, you are undermining negativity of this report. I am not sure whether you are looking at the other report also which pointed out the waste in Medicare and Medicaid ($47B + $18B per year); enough to finance two third of Obama HCR.

You are also personally responsible for neglecting (or not insisting enough) the cost control measure and 'fee schedules' early on. For over year now, it has been all about coverage and bills are geared towards that.

I think we have reached a point in the debate where for more and more people 'meaninglessness' of these reforms is becoming clear. These are not reforms, these are simply entitlement expansion which are going to make this country bankrupt. You saying Medicare in any case still going to make us bankrupt is self serving.

In the end, Pelosi's of the world will be able to take revenge and will be able to force wrong law / HCR on Americans which will speed our true journey - journey towards a broke nation.

Posted by: umesh409 | November 16, 2009 11:51 AM | Report abuse

The CMS shows that the House reform bill needs to a) include the cap on the exclusion of health insurance from wages, which is in the Senate Finance bill and b) include the demonstration program on bundled payments that's in the Finance bill.

Of course, the House and Senate could also include a public plan paying Medicare rates and open to all (not just people in the Exchanges).

Posted by: weiwentg | November 16, 2009 12:14 PM | Report abuse

The CMS conclusion is really no surprise. Given the constrained negotiating position and the fact that the leverage remains at the interface of the encounter, the public option is not a great fiscal tool. And given the CBO's estimate that only 6 million Americans will opt for the public option, and in the face of the potential 21% Medicare reimbursement cuts, of course opting out by providers is a threat. This is a toothless bill. Hoping that the Senate will do better -- awaiting further information from you, Ezra.

You can see more of my reasoning here:

Posted by: murzee | November 16, 2009 12:24 PM | Report abuse

Ezra, you say

"The "payment update reductions would provide a strong incentive for institutional providers to maximize efficiency," the agency concludes."

This is wishfully hoping for blood from a turnip. Providers (with a few exceptions) are already maximizing efficiency for their Medicare and Medicaid patients, for a simple reason: those patients are a net loss for providers. (e.g.: and

If (since? I can't read the fool thing!) the House bill hopes for Medicare to provide its net savings, we might as well fold tents right now.

Posted by: TheotherJeff | November 16, 2009 1:50 PM | Report abuse

I don't see why it's so unclear to you that payment reductions wouldn't squeeze providers in such a way as to cause providers to stop participating in the program. Not only is that just self-evidently very likely, but it's also happening right now (whether or not you find it so easy to spot). Here in Massachusetts, all but one of the primary care offices in my area do not accept CommonwealthCare or Mass Health patients, because the reimbursement is lower than the cost of providing care. So that directly runs counter to the goal of universal access. As far as cost--I believe I've heard it reported already that emergency room visits for office-appropriate care has risen, not dropped, since the inception of our reforms here a few years ago.

Sure, overall, providers will need to learn to accept less than what they currently expect. But some serious delivery system reforms are needed first.

Posted by: epreisin | November 16, 2009 2:27 PM | Report abuse

I would have gone with an alternative headline: "non-universal coverage costs A LOT of money"

Posted by: dummypants | November 16, 2009 9:54 PM | Report abuse

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