Define "Over-Use", Please

by dday

In what is being pitched as a major announcement, health industry groups are vowing to slow the growth of health care costs over the next decade, to accommodate President Obama's reform strategy.

Reporting from Washington -- Leading health industry groups have agreed to slow the explosive growth of healthcare spending, according to administration officials and others knowledgeable about the agreement.

Hospitals, drug makers and doctors, among others, wrote a letter to President Obama outlining their plan, which estimates $2 trillion in savings over the next decade.

The letter lacks much detail but suggests savings could come from simplified billing, restructuring the way hospitals are paid and using more information technology, among other steps.

Obama plans to promote the letter at a White House event today.

Although the agreement does not outline any industry commitments to accept specific reductions in revenue, it does signal continued engagement by powerful healthcare interests in the Obama administration's effort to overhaul the nation's troubled healthcare system [...]

Signatories include the American Medical Assn.; the American Hospital Assn.; the Pharmaceutical Research and Manufacturers of America; the Advanced Medical Technology Assn., which represents device makers; America's Health Insurance Plans, which represents insurers; and the Service Employees International Union, which shepherded the agreement.

Specifically, they want to reduce the annual spending growth rate by 1.5 percent, which translates into $2 trillion in the next decade. Like the article says, the letter is thin on specifics, preferring to instead talk about "encouraging coordinated care" and "addressing cost drivers" and "reducing over-use and under-use of health care." Some of the reforms, like prevention and dealing with obesity and health IT, are familiar.

The positive development here, as Krugman writes, is that health insurers and the medical industry want to be part of a solution instead of committing themselves to blocking one. They believe that reform will happen with them or without them, and so they'd rather be around to influence the outcome. Another plus: in addition to agreeing to work with the Administration on reform, they appear to have accepted the basic economic arguments about how to bend the cost curve in health care.

How are costs to be contained? There are few details, but the industry has clearly been reading Peter Orszag, the budget director.

In his previous job, as the director of the Congressional Budget Office, Mr. Orszag argued that America spends far too much on some types of health care with little or no medical benefit, even as it spends too little on other types of care, like prevention and treatment of chronic conditions. Putting these together, he concluded that “substantial opportunities exist to reduce costs without harming health over all.”

Sure enough, the health industry letter talks of “reducing over-use and under-use of health care by aligning quality and efficiency incentives.” It also picks up a related favorite Orszag theme, calling for “adherence to evidence-based best practices and therapies.” All in all, it’s just what the doctor, er, budget director ordered.

However, I think there's also reason to be skeptical. By committing themselves to lowering costs, these industry leaders are essentially committing themselves to lower profits, which is illogical unless they see that as a best-case scenario. AHIP and some of these other groups have every incentive to guard their profits while rejecting reforms that would cut into them too heavily. For instance, cost control could be a bargain in exchange for killing the public option. The lack of detail in the letter should not go unmentioned, either, and the Administration must make mandatory some changes to reduce costs rather than relying on these former enemies of reform to voluntarily reduce. Because "reducing over-use" of health care can mean a lot of things - denying care, for example, which health insurers are really good at. The White House had better put all this in writing and ensure that the effort is sustained.

I agree that there's an absolute benefit to this, strictly in the sense of optics. Stakeholders are working toward reform rather than pushing against it. The conservative bullshit artists led by the discredited fraud artists Rick Scott, who are trying to demonize the Obama plan, have no friends this time around. But let's verify these changes instead of accepting the industry offer at face value. And on the politics, emphasizing cost controls at the expense of choice and access to treatment in health care is not exactly a people-friendly message.

See also this potentially bigger breakthrough in financing for the health care plan, because these assumed cost controls still don't get the reform out the door, dedicated revenue sources do. Industry-wide savings will not help the White House pay for a health care plan, because they won't be factored into the final cost structure of the bill. More wonkery on this here.