Economists Growing More Wary of the Senate Health Bill

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A few weeks back, the White House was jubilant when 23 prominent economists sent a letter to President Obama endorsing key elements of the Senate health care bill. Today, nearly all of those same economists and a few others–among this group, Nobel prize winners, former presidents of the American Economic Association and former directors of the Congressional Budget Office–sent another letter.

This one, to Senate Majority Leader Harry Reid, has a more wary tone. The language is somewhat difficult to decipher. (This, after all, is a letter written by a committee of economists.) But set against the context of the way politics are being practiced with regard to health care policy, it carries an unmistakable warning: The legislative process is grinding away some of the most important promised reforms in the health care system–and the promise that this legislation will deliver better health care to Americans at lower cost.

Specifically, it zeroes in on recent changes that have been made in the fine print of the legislation (some of which I wrote about in this week’s edition of TIME and in this Swampland post). The recent revisions reflect the pressure that the Senate has been under from a wide array of interest groups, including senior citizens advocates and the health care industry.

The letter does not directly chastise Reid, but asks that he “strengthen” the bill by undoing some of those changes. First off, it asks him to put the teeth back into a proposed independent commission to oversee Medicare spending. Under the current version of the bill, doctors, hospitals and hospices would be exempt from commission recommendations until 2019.

Even worse, in the view of many health economists, is a more recent revision by Reid that would allow the commission to act only when Medicare spending growth exceeds the rate at which overall health spending is rising. That is something that rarely happens–which means the commission would effectively be put out of business before it even begins. (The Finance Committee’s original language would have required the commission to act whenever Medicare spending per capita rises faster than overall economic growth, which has been happening every year.)

Here’s what the economists wrote:

The Independent Medicare Advisory Board can help Congress modernize Medicare. The Board will offer proposals to improve the quality, efficiency, and financial viability of the Medicare program. Yet the Board’s effectiveness will be diminished by restrictions that the draft bill places on the circumstances under which the Board’s recommendations will receive “fast track” status in Congress. One restriction is on the breadth of recommendations the Board can make. Physician and hospital payments, which account for more than half of Medicare expenditures, are excluded until 2019 – two years after the 2009 Medicare Trustees Report projects that the Hospital Insurance Trust Fund will be exhausted. The Board’s recommendations should encompass diverse aspects of Medicare , including changes to payments affecting physicians and hospitals, and all of its recommendations should be considered for “fast track” action in Congress.

Even after 2019 Congress will only “fast track” the Board’s recommendations if Medicare spending per person rises more than overall health care spending per person. We do not believe that this will be enough to constrain excess growth in health care spending. The Board’s recommendations should receive “fast track” status even if spending thresholds are not exceeded. These changes will enable the Board more effectively to do its part to ensure Medicare’s long-term viability and to improve the quality of care Medicare beneficiaries receive.

The economists also expressed concern that the bill does little more than give lip service to the idea that hospitals must do better on lowering their rates of readmission and the largely avoidable infections that are estimated to kill as many as 20,000 people a year:

For example, the draft bill imposes a financial penalty on hospitals that readmit patients for complications of hospitalization, but the penalty applies to just 3 conditions and is too small. It does not start until 2013, and even then the penalty will be limited to 1%, rising to only 3% two years later. The penalties for hospital-acquired infections are even smaller and delayed longer. The Senate Finance Committee recommendations do more to reward doctors and hospitals for providing better health rather than more services.

Finally, the economists expressed concern that the bill is rigged so that some of the most important reforms (and ones that are likely to draw the most opposition from the health care industry) will never make it beyond the “pilot project” stage. (This has been a problem with pilot projects in the past; even the ones that show promise end up going nowhere.) The economists are concerned that these pilot projects are too limited in scope, and would require congressional authorization before being rolled out nationally. They recommended that the approval process be reversed. Instead of requiring an act of Congress to okay the expansion of pilot projects once the HHS Secretary determines they have proven their value, lawmakers should instead be required to block the ones they don’t like.

Here’s what they wrote about one of these ideas:

Furthermore, despite the great interest in bundling payments for medical services, the draft bill calls for bundling only in a limited set of circumstances, mainly concerning hospitalization. The impact of the payment changes would be greater if they allowed bundled payments for chronic conditions such as congestive heart failure and diabetes over an entire year. After all, care for these chronic conditions accounts for more than half of all health care spending and avoidable services. The Secretary should be authorized to implement pilots that improve the quality of care and lower its cost on a national scale unless legislation is specifically enacted that prohibits the Secretary from doing so.

The economists concluded with a word of encouragement to fix the bill and stop the erosion of its reforms:

You and your colleagues should be applauded for including the four essential elements of a successful, fiscally responsible reform strategy. Much more could be achieved if the Senate strengthens the Medicare Commission and the delivery system reforms. Doing so would help to ensure that health reform both improves the health care that Americans receive and slows the growth of spending. We are ready to work with you to achieve these goals.

UPDATE: Ezra Klein tells us that a group of freshman Senators are starting to think like economists on this issue of bundling payments:

Though there haven’t been any impressive coalitions of Republicans and conservative Democrats coming together to improve the bill’s cost savings, Sen. Mark Warner (D-Va.) has rallied his fellow freshmen behind a set of common-sense improvements to the delivery system side of things. You can download the full list Frosh Package Section-by-Section (12-6-09).pdf (pdf), but I want to focus on Section 10004: “Revisions to National Pilot Program on Payment Bundling.”

This section would modify the new CMS pilot on Medicare bundled payments created by the Patient Protection and Affordable Care Act. It would expand the number of health conditions tested under the pilot and give the Secretary authority to expand the duration or scope of the pilot after January 1, 2016 if the CMS Chief Actuary determines it would reduce Medicare program spending while maintaining or improving the quality of care.

In other words, this helps the Medicare bundling pilot become a policy. And that’s a big deal: The bundling efforts might be the most unjustly neglected element of health-care reform. The graphic above comes from the New England Journal of Medicine (pdf), and shows the consensus of most experts I’ve spoken to: Bundling has more potential to lower costs and improve care than any other delivery-system reform in the bill.

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