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Orszag Takes on Health Care Spending Issues with Authority

By John Reichard, CQ HealthBeat Editor

June 21, 2007 -- Congressional Budget Office Director Peter R. Orszag may not yet have ascended to guru status on the issue of growing health care costs, but that wasn't necessarily apparent from persistent questioning he got from members of the Senate Budget Committee at a hearing Thursday on soaring health care spending.

As worries grow on Capitol Hill about spiraling health costs, lawmakers are turning more and more to Orszag for answers on a wide range of policy questions dealing with the problem. The razor-sharp Orszag isn't shying away from the challenge of taking on that role—he regards climbing health care spending as the top fiscal threat facing the nation, and is remolding CBO to address the issue. "We're increasingly becoming the congressional health office—and we need to," Orszag told Rhode Island Democrat Sheldon Whitehouse at the hearing.

The news on Thursday seemed not so much what Orszag said—he has said much of it before—but how intently lawmakers are listening. Panel Chairman Kent Conrad's, D-N.D., focus was particularly sharp on the issue of high levels of payment to Medicare Advantage plans, the private health plans in Medicare. And he seemed particularly enthused about Orszag's suggestions about the potentially huge savings that could be achieved by eliminating regional variations in the practice of medicine in the United States.

Indeed, the Senate budget panel appears to taking the issue far more seriously, with its top Republican, Judd Gregg of New Hampshire, challenging Conrad's leadership on the issue, and Conrad himself launching a series of hearings to consider health system changes. "We know what we need to do," Gregg told Conrad before the hearing. "The problem is that we do not have, as a Congress, the courage to do this."

Perhaps the key statistic Orszag offered on Thursday was that at current rates of spending growth, Medicare and Medicaid will make up 20 percent of the Gross Domestic Product 40 years from now, "roughly the share of the economy now accounted for by the entire federal budget." In response to Conrad's query about whether the Medicare Advantage program is exacerbating the problem, Orszag responded with an unequivocal "yes."

"We've got a runaway train here," Conrad said. "Nineteen percent of Medicare enrollments are now in Medicare Advantage—that's up from 13 percent in 2004—what do you see as the implications for the cost of Medicare, the future of Medicare?" Conrad asked.

"Senator, if over the next couple of years the rate of growth that we have experienced recently in Medicare Advantage were to continue, I think the result would be a fundamental change in the nature of the Medicare system that may then be hard to reverse," Orszag said. The more rapid that growth under current law, "the more fundamental the change in the current nature of the Medicare system, and the higher the cost of system," he said.

"It may become even more of a challenge to get all this under control, am I hearing you correctly?" Conrad responded.

"Yes you are, senator," Orszag replied.

He continued, "The rate at which health care costs grow relative to income is the most important determinant of the long-term fiscal balance; it exerts a significantly larger influence on the budget over the long term than other commonly cited factors, such as the aging of the population." The CBO director suggested that evening out regional variations in the way health care is practiced could produce savings in health care spending of up to 30 percent, based on findings by Dartmouth College researchers that areas of the country with lower spending have health care quality as good or better than areas with higher spending.

Conrad calculated those findings meant savings of $600 billion a year "if we had the practices that already are pursued in large parts of the country." Orszag didn't disagree, but said much more data is needed on what works in medicine to make that happen and that doctors and hospitals then must be given economic incentives to pursue "value care rather than just churning high-cost" forms of care not shown to have value.

But Orszag was more cautious about projecting savings from other reforms favored by lawmakers, such as better preventive care, and "wellness" programs to maintain good health. "Although proposals that encourage more prevention and healthy living can help to promote better health outcomes, their effects on federal and total health spending are uncertain," he said.

In his comments, Gregg chided Conrad for not pursuing budget cuts favored by the Bush administration to make Medicare payments to providers more "accurate" and to charge higher premiums to wealthier Medicare beneficiaries. That would have been a real first step toward addressing the fiscal challenge, Gregg said.

Meanwhile, lawmakers can expect to hear more from Orszag in coming months. He noted in his testimony that his office is coming out with new reports estimating the savings potential of health information technology and ranking the various factors that contribute to health care spending growth. One such report on the potential of research comparing the effectiveness of health care treatments is due shortly.

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