Two ways of looking at today's health care reform news

The White House is making a huge deal out of a commitment to introduce cost-saving measures from “the presidents of Pharma, Advamed (device manufacturers), the American Medical Association (doctors), the American Hospital Association, America’s Health Insurance Plans, and SEIU’s Health Care project.”

The White House arranged an urgent Sunday-afternoon conference call with reporters to break the news, and President Obama went on tv on Monday to talk about it. (Click here for the transcript of Obama’s televised remarks.)

Unlike the 1970s, when stakeholders’ promises to hold down costs derailed legislative action on health care, Obama made clear today that the current agreement on savings is “complementary to and is going to be completely compatible with a strong, aggressive effort to move health care reform through here in Washington [….]”

It’s too early to know how significant today’s announcement will be, so I’m laying out the cases for optimism and pessimism after the jump.

The event that sparked the hoopla is a letter from industry groups agreeing to work toward about $2 trillion in cost savings over the next ten years. Important note: many reports are describing this as an agreement to reduce health care costs by 1.5 percent, but it’s really an agreement to slow the rate of increase of health care costs by 1.5 percent.

Reporters who received early warning about the big “breakthrough” seem to be the most excited about news. That includes Jonathan Cohn of the New Republic, who argues,

The mere sight of these groups standing shoulder-to-shoulder with Obama will give reform additional political momentum, driving an even bigger wedge between health industry groups and their erstwhile allies in the conservative movement […]

The event will also give lawmakers in Congress political cover for proposing bolder changes to the payment and delivery systems–the kind that might make reform seem more affordable, at least in the eyes of the all-important Congressional Budget Office. It’s hard to scream that using evidence-based guidelines would mean destroying the doctor-patient relationship when the American Medical Association makes a public show of endorsing the idea.

The Atlantic’s Marc Ambinder says the “political significance” of the announcement is that “the White House is gonna get health care reform, this year.” (More evidence supporting this prediction: Obama’s budget director Peter Orszag confirmed that the administration still supports a $635 billion fund to pay for health care reform.)

Even The New York Times’ Paul Krugman says this is “some of the best policy news” he’s heard in a long time:

What’s presumably going on here is that key interest groups have realized that health care reform is going to happen no matter what they do, and that aligning themselves with the Party of No will just deny them a seat at the table. (Republicans, after all, still denounce research into which medical procedures are effective and which are not as a dastardly plot to deprive Americans of their freedom to choose.)

I would strongly urge the Obama administration to hang tough in the bargaining ahead. In particular, AHIP will surely try to use the good will created by its stance on cost control to kill an important part of health reform: giving Americans the choice of buying into a public insurance plan as an alternative to private insurers. The administration should not give in on this point.

But let me not be too negative. The fact that the medical-industrial complex is trying to shape health care reform rather than block it is a tremendously good omen. It looks as if America may finally get what every other advanced country already has: a system that guarantees essential health care to all its citizens.

Those less inclined to celebrate today’s news are focusing on a crucial point raised by Krugman. Despite agreeing in principle to help reduce future cost increases, the private insurance industry will still work to defeat a public health insurance option for all Americans. Some reporters on the Sunday conference call wanted to know “whether the healthcare industry was buying something with this concession.” During the call, a White House official denied that there is any quid pro quo to kill the public option. Today someone made sure to leak encouraging news to health care blogger Ezra Klein as well:

A source who I generally trust and who has deep knowledge of these conversations says that she is more confident that a public plan will be included now than she was 48 hours ago.

Nevertheless, Klein is skeptical about today’s news:

But it’s not just the administration that benefits from the optics. It’s the medical industry. The fact that the White House is making a big deal of their support means it would be a big deal if they lost it. And so it’s worth asking what, exactly, the health care industry has committed itself to.

And the answer is: Not much. As one senior administration official said to me, “this is a commitment, not a plan.” The industry coalition has gestured towards various areas of potential savings — among them billing reform, health information technology, and linking payment to outcomes. But they’ve not presented a detailed proposal for attaining them. They have not set down enforcement mechanisms. Put simply, they are, at this juncture, helping the White House with its messaging. But that doesn’t mean they will help the White House with its legislation.

Which gets to my skepticism: This is one of those moments when new words are being used to drown out ongoing actions. A major source of potential savings, at least in the administration’s estimation, will come from comparative effectiveness review. But the pharmaceutical industry and the device industry — both of which are represented here — fought violently against CER when the Obama administration sought to include it in the stimulus. By the end, they had managed to win legislative language stating that comparative effectiveness studies wouldn’t include cost-effectiveness and wouldn’t be used to make coverage decisions. Another source of potential savings is the public plan, which can marry best practices with federal bargaining power to push down costs. The insurance industry has gone to war against this provision.

What we have, in other words, are promises of future cost containment that exist alongside concrete and continued opposition to the cost containment ideas that are actually on the table. And for good reason. A 1.5 percentage point decrease in health spending is a 1.5 percentage point decrease in medical industry profits. This commitment doesn’t contain any examples of concessions that will reduce a participant’s revenue streams. Conversely, every time legislators have proposed a reform that will actually cut industry profits — and thus cut health spending — the industry has howled in pain and anger. It’s hard to sync that with promises to cut spending by $2 trillion over the next 10 years by implementing a set of unspecified reforms.

Until corporate interests stop fighting the specific proposals that will hold down costs, I am not going to get excited about a vague promise they made to the president–especially since they are only promising to slow the rate of increase in health care costs.

Not only that, but when reporters on the Sunday conference call asked “what mechanisms were in place for making sure [industry] promises are kept,” the answer was there aren’t any.

At Daily Kos, nyceve doesn’t think much of the cost containment promises either, and is worried that the White House is giving industry leverage to kill the public health insurance option.

I agree with Klein and with the question asked by Jason Rosenbaum of Health Care for America Now:

when Obama and Congress asks the insurance industry to put its money where its mouth is and support legislation that makes these cost controls a reality – payment reform, industry regulation, competition in the form of a public health insurance option – will they still be on board?

That’s the true test of the industry’s commitment to cost control.

I will say, though, that David Waldman is absolutely right to suggest that this gesture by industry groups probably wouldn’t be happening if the Obama administration had not signaled that it was willing to use the budget reconciliation process to pass health care reform if necessary. Starting with the stick, rather than with carrots, was a good negotiating stance for the White House.

Share your opinions on today’s news or health care reform generally in this thread.

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