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CBO Spending Forecast: Silver Lining Hard to Glimpse Amid Storm Clouds

By John Reichard, CQ HealthBeat Editor

June 18, 2009 -- Proposals to expand health insurance coverage through a program of subsidies to lower-income Americans to help them buy policies could permanently boost the government's budgetary commitments to health care by about 10 percent, according to a letter released this week by the Congressional Budget Office (CBO).

"Improving the long-term budget outlook would require addressing that added cost in addition to the budgetary strains anticipated under current law," CBO Director Douglas Elmendorf wrote in his blog on the agency's Web site in releasing the letter.

Provisions to make an overhaul budget-neutral over 10 years carry only so much weight with the CBO, which takes a skeptical look in the report at most of the approaches that lawmakers are talking about to bend down the nation's health spending curve.

"Health care legislation might include provisions that would make it budget neutral over the first 10 years, but such legislation might nevertheless add to budget deficits in later years," Elmendorf blogged.

Released June 16, the letter responded to a request from Senate Budget Committee Chairman Kent Conrad, D-N.D., and ranking member Judd Gregg, R-N.H., seeking the best ideas of the budget office for controlling long-term health spending growth.

CBO's letter "shows that it will not be enough to simply offset the cost of health reform over the next 10 years," the committee leaders said in a statement. "We must also ensure that reform bends the cost curve on health care over the long term."

"We have a tremendous opportunity to adopt health care reform that will expand coverage, preserve choice, and improve quality," they added. "But we should not enact any health care reform that does not also reduce federal spending over the long term compared to our current unsustainable course."

Elmendorf's predecessor Peter Orszag, now director of the White House Office of Management and Budget, has talked about potentially powerful ways to lower long-term spending growth, such as evening out geographic variations in the practice of medicine. But the CBO report suggests that the potential savings on that front, while major, aren't as big as some think.

Dartmouth College researchers have estimated that Medicare spending could be reduced by almost 30 percent if outlays in medium and high-spending parts of the country were reduced to the average level in the lowest-spending areas, the CBO report notes. "CBO's own informal comparison of per capita Medicare spending in metropolitan areas, controlling for both the health status of individuals and the prices of health care inputs, implies that the savings. . .might be roughly half of the estimate by the Dartmouth researchers," the report says.

The analysis notes that "many experts think that transformational changes in health care financing and delivery could reduce the federal budgetary commitment to health by more than the 10 percent increase that would result from a large-scale expansion of insurance coverage. Achieving substantial and lasting savings, however, would require fundamental changes in the organization and delivery of health care."

Many analysts point hopefully to tightly organized systems of care such as the Geisinger Health System in Pennsylvania and the Marshfield Clinic in Wisconsin as a way to bend down the spending growth curve. "Examples of efficient care certainly exist today," the report acknowledges, "with many individual health care providers and groups of providers offering both high quality and relatively low cost. Yet applying the methods of those efficient providers through the health care system cannot be accomplished through fiat or good intentions."

The report adds that considerable consensus exists among experts that moving away from today's fee-for-service care – described by some as paying based on "piecework"—would make care more efficient. Measures to do this include paying doctors and hospitals more for better performance. Another way to make care more efficient is to give doctors and patients better information on what treatments work best. "Unfortunately, little reliable evidence exists about exactly how to implement those types of changes—especially at the level of specificity required for legislation."

The report notes current interest in creating incentives for providers to work together more efficiently through the creation of accountable care organizations, or "ACOs" Under this model, "providers would receive bonuses if they held down the total cost of the services their patients received during a year while also meeting requirements for the quality of the care; some versions would also impose penalties on doctors who did not meet those targets." But evidence of savings through such attempts at better coordination is "mixed," according to CBO. "Moreover, expanding this approach to physicians who are not already in an integrated system and may be reluctant to join one raises further issues," such as whether the government would have to offer financial inducements to participate.

"Although many experts agree that this approach should be vigorously pursued, several rounds of successive and significant changes and refinements in Medicare's rules would probably be necessary to yield substantial budgetary savings."
Lowering payment increases to spur greater productivity isn't a sure thing, the study said. Although it would create pressure to find more efficient ways to deliver treatment, it also would "create risks for providers and patients if the efficiency gains were not achieved" – presumably because finances could be strained and care suffer as a result.

Despite its tone of uncertainty about cost control approaches, the report isn't devoid of approaches to pursue—it simply says they are unproven. And in some spots it even sounds a bit optimistic, while warning that much hard work will be involved.

"Experts generally agree that changes in government policy have the potential to produce substantial savings in both national and federal spending on health care without harming health," it notes. "However, turning that potential into reality in a sector that accounts for one-sixth of the U.S. economy is likely to be a prolonged and difficult process."

It refers to capping the exclusion of employer paid premiums exempt from taxation as a "powerful policy lever." Changes in the exclusion "can affect the efficiency of health care financed by the private sector, by giving workers stronger incentives to seek lower-cost health insurance plans. Those steps would well have spillover effects on Medicare."

It refers without comment to a Commonwealth Fund estimate that aggressive "bundling" of services under a single payment could save $200 billion over a 10-year period. And CBO notes that having more information about which treatments work best would still allow doctors and patients to choose the treatment they preferred, an implicit response to criticisms that comparative effectiveness research is a flawed approach that would lead to rationing. Medicare could create payment incentives for doctors and patients to use the most effective treatments without taking them off the table, the report suggests.

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