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Orszag Rejects Criticism That Overhaul Bill Is Too Lax on Costs

By John Reichard, CQ HealthBeat Editor

December 2, 2009 -- Like a goalie deflecting pucks at hockey practice, White House Office of Management and Budget Director Peter Orszag shrugged off a wide array of criticisms Wednesday that the Senate health care overhaul bill misses a historic opportunity to get at the roots of rising health costs.

Rather than taking a blunt approach to cutting costs, the proposal (HR 3590) would create new mechanisms to streamline the health care delivery system and to tackle soaring Medicare entitlement spending, Orszag insisted in an hourlong meeting with reporters sponsored by the policy journal Health Affairs.

Orszag outlined—and rejected—two main and self-contradictory lines of attack on the bill: that it's too timid in terms of cost control and that its Medicare cuts are too deep to be politically realistic. "It would have been easier just to do a blunt savings and coverage expansion bill – that is not what is happening here," he said.

Even with the Congressional Budget Office declining to score big savings from "delivery system reforms," congressional budget analysts estimate the bill would reduce the deficit by $130 billion after a decade and by more than $500 billion in the second decade, Orszag noted.

But he said the measure paves the way for more fundamental change through new types of payment that involve compensation for a "bundle" of services rather than paying for individual components of care, as is the case now. Other examples include "accountable care organizations" that receive payment incentives to coordinate doctor and hospital care more efficiently; payment penalties for hospital readmissions that occur because of sloppy care; and incentives to prevent costly infections acquired in the hospital, Orszag said.

Critics deride the provisions as a bunch of pilot programs that lack real teeth. But the OMB chief said that criticism overlooks the need to test new approaches and provisions in the bill before moving them into widespread use if they pan out.

"Given the lack of attention to this key problem—rising health care costs and inadequate attention to quality in the past—we don't know enough to move to scale immediately," he said.

"We don't know exactly how to create the proper financial incentives to reduce unnecessary hospital readmissions, or to bundle payments—exactly which conditions should be covered, how should the payment structure work. Or with regard to accountable care organizations, exactly the parameters that should apply.

"Even if we knew a lot now, you would want a system in which you're trying things and then you have a mechanism in place to move to scale as you're learning what works and what doesn't. The existence of the Innovation Center and the Medicare Commission in the Senate bill gives you that mechanism, where you can go out and try bundled payments, you can try incentives for quality and a whole variety of other things," Orszag said.

The center would test new payment approaches through pilot programs and the commission would have the power to make payment recommendations that lawmakers could not easily block from taking effect.

Critics who say the bill makes cuts that lawmakers would erase in the future often cite the "SGR"—the Medicare "sustainable growth rate" payment formula—as an example, Orszag also noted. The formula requires cuts that Congress has blocked repeatedly in recent years. But the comparison isn't apt, Orszag said, because the bill addresses underlying "drivers" that raise costs not only through delivery system changes but also through a "continuous feedback loop."

The loop's components include "digitizing" medical data, funding research to identify "what works" in medicine, and payment incentives to reward higher quality care, he said. Health information technology and research comparing medical treatments—both of which are funded by the economic stimulus law—will help build knowledge of which treatments are most effective, churning out a continuous stream of data to educate doctors about the findings and reduce medical errors and inefficient types of care, he suggested.

Orszag went on to say the criticism also overlooks the fact that Congress has made large cuts in Medicare spending in the past that have largely remained in effect, citing the 1997 balanced budget law.

In addition, the new Medicare commission "provides a strong counterweight to any forces to loosen" payment curbs in the future. The commission "is always going to be putting forward proposals to improve quality and reduce costs over time." In addition, "we now have pay-go provisions that are in force and that are being obeyed in the House and Senate. If you wanted to undo legislation that was enacted this year in the future, under the pay-go rules you would have to offset the cost of doing so."

Orszag also addressed criticism that the bill doesn't do much about the deficit, saying those critics typically cite CBO estimates and when pinned down on what more should be done, cite medical liability revisions and the ability to buy coverage across state lines. But to be consistent, one should look at CBO scoring of those provisions as well—and they do not show large savings, he said.

Insurers say penalty provisions in the bill are too weak to ensure that young people who are good insurance risks will enter insurance exchanges, providing premium dollars that make coverage more affordable to older and sicker enrollees. But Orszag said "the Econ 101 approach . . . is just wrong" in predicting human behavior simply based on financial terms.

Penalties in Massachusetts for failing to buy coverage have worked because they've helped create a "social norm" in the state that one should have insurance, Orszag said, predicting a similar pattern nationally if the Senate bill passes.

He also brushed aside doubts about controlling costs through justifying treatments based on research of medical evidence. Some analysts say the recent furor over mammography recommendations by the U.S. Preventive Services Task Force show that science-based recommendations to limit care won't fly.

But Orszag said that while there are areas in which evidence on treatment practices exists but is "ambiguous," the bigger problem is "there's lots of areas and too much health spending where we simply have no evidence whatsoever about whether what's being done is beneficial."

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