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Lobbies, White House, Try to Smooth Over Flap on Cost Cuts

By Jane Norman, CQ HealthBeat Associate Editor

May 15, 2009 --Health industry leaders and the White House attempted Friday to smooth over a misunderstanding about just what a coalition of health groups pledged earlier this week at what was billed as a "historic" meeting at the White House.

The problem appears to be over differing interpretations of when a major cost-cutting drive by hospitals, drugmakers, medical device manufacturers, and insurers would kick into effect.

While President Obama used the phrase "each year" to describe when a 1.5 percentage point reduction in health spending would be achieved, the industry coalition apparently did not understand it as a specific, immediate year-by-year target, sending their members into a spin.

Peter R. Orszag, director of the White House Office of Management and Budget, said in a post on his office blog Friday that the six groups have clarified that they need to "ramp up" to the 1.5 percentage point reduction in the growth rate, "which is understandable."

The health industry heavyweights issued a new statement Friday in which they restated their commitment to bending the health care cost curve, and did not retract their prior promise of $2 trillion in savings over 10 years.

"Our organizations are currently engaged in an intensive process to develop proposals to reduce the rate of increase in future health care costs," they said in the statement. "And to be successful, we must take action in public–private partnership. We look forward to offering cost-savings recommendations in the weeks ahead." The administration has asked for specifics by June 1.

The groups are the Advanced Medical Technology Association, America's Health Insurance Plans, the American Hospital Association, the American Medical Association, the Pharmaceutical Research and Manufacturers of America, and the Service Employees International Union.

The cost pledge was first revealed on Monday, when the groups met with President Obama and issued a letter in which they promised to offer concrete initiatives to transform the health system.

"As restructuring takes hold and the population's health improves over the coming decade, we will do our part to achieve your administration's goal of decreasing by 1.5 percentage points the annual health care spending growth rate—saving $2 trillion or more," they wrote.

The meeting drew wide publicity as well as some skepticism about the groups' motives, and apparently it also touched off confusion among the groups' members across the country.

The New York Times reported that as the week went on, some leaders said that the president had substantially overstated their promise. "There's been a lot of misunderstanding that has caused a lot of consternation among our members," Richard J. Umbdenstock, president of the American Hospital Association (AHA), said, according to the Times.

The executive vice president of the AHA sent out a bulletin to members stating that "the groups did not support reducing the rate of health spending by 1.5 percentage points annually" and that the promise was that the annual rate of growth eventually would be 1.5 percentage points lower, the Times said.

The publication Modern Healthcare reported that the hospital lobby said the overall intent of the coalition was "spun away from its original intent" and that the White House, Congress, and the media misrepresented the letter. Umbdenstock conducted a conference call with more than 230 member organizations to say the financial data was "spun or misunderstood," the publication said.

Orszag said on his blog that "a media report this morning makes a mountain out of a molehill," referring to the Times story, and that allowing the groups time to ramp up to the 1.5 percentage point cut in growth does not change the fundamental point.

"The groups have committed to significant reductions in the growth rate, thereby recognizing that substantial efficiencies can be captured in the health system," he wrote. "Some ramp-up time also does not materially affect the long-term impact from reducing the growth rate, on either national health expenditures or the federal budget."

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