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Addressing Healthcare Spending: “Cowardice” Or Bravery?

In assessing the “best and worst” of the recommendations from the National Commission on Fiscal Responsibility, Washington Post blogger Ezra Klein accuses the Commission of “cowardice” in addressing healthcare spending:

“The plan’s healthcare savings largely consist of hoping the cost controls . . . and various demonstration projects in the new healthcare law work and expanding their power and reach. . . In the event that more savings are needed, they throw out a grab bag of liberal and conservative policies . . . but don’t really put their weight behind any. . .[their] decision to hide from the big questions here is quite disappointing . . . ”

Pretty harsh words, considering that in other respects Klein gives the Commission high marks. But I think there is a lot more to the Commission’s recommendations on healthcare spending than meet’s (Klein’s) eyes, even though I have my own doubts about the advisability and political acceptability of many of them.

Such as:

Medicare SGR cuts: Give the Commission credit for acknowledging the truth: the Medicare SGR cuts to doctors are “phantom savings . . . from . . . cuts that will never materialize.” The Commission proposes to eliminate the SGR and its deep scheduled cuts; instead, payments to physicians would be frozen at the current (2010) level through 2013 and cut by one percent in 2014.

I don’t think physicians will welcome a multi-year freeze followed by a “small” cut that will result in Medicare payments not keeping pace with their costs. Non-primary care physicians in particular are likely to balk. Although not mentioned by the Commission, most primary care physicians would implicitly be protected from having their Medicare payments fall below overhead costs because of the Primary Care Incentive Program created by the Affordable Care Act (ACA). Under this program, most primary care physicians will see their Medicare payments for office visits and other designated visits increased by 10%, starting in 2011, and continuing each year for the next five years — through 2015.

New physician payment system: The Commission would require that CMS “develop an improved physician payment formula that encourages care coordination across multiple providers and settings and pays doctors based on quality instead of quantity of services.” The proposal “would reinstate the SGR formula in 2015 . . . until CMS develops a revised physician payment system” that would cost less than spending under the SGR. In other words, fee-for-service would be replaced with payment for quality and care coordination, or the SGR (and its deep cuts) would come back.

Expanded pilot-programs: The basis for the new payment system would likely come out of accelerated adoption of pilots created by the ACA “to test delivery system reforms which have the potential to reduce costs without harming quality of care” like accountable care organizations, patient-centered medical homes, and bundled payments. Medicare would be directed to “implement any pilot projects that have shown success in controlling costs without harming the quality of care by 2015.”

Cuts to teaching hospitals: The federal government would save $60 billion over the next ten years by bringing GME and IME payments “in line with the costs of medical education by limiting hospitals’ direct GME payments to 120 percent of the national average salary paid to residents in 2010 and updated annually thereafter by chained CPI and by reducing the IME adjustment from 5.5 percent to 2.2 percent.” I find it interesting that the Commission not only doesn’t allow for any increased funding for residency programs facing shortages (like general internal medicine) but would cut spending across the board.

Medical liability: The Commission recommends adoption of reforms to reduce the costs of defensive medicine, including creation of “specialized ‘health courts’ for medical malpractice lawsuits, an approach that ACP believes has promise. It stops short of recommending caps on awards; instead calling on Congress to “consider” and “evaluate” caps.

Other cost controls: The Commission would limit the amount of an employer’s contribution to health insurance that is treated as tax free-income, establish a “global” health care budget that would limit spending increases to the GDP plus one percent with an automatic enforcement mechanism if spending exceeds the budget (starting in 2020 and subsequent years); cut hundreds of billions out of “discretionary spending” including health programs funded out of appropriations; and give more power to the Independent Payment Advisory Board established by the ACA; and pilot-test converting Medicare to a premium support program.

Whether you agree with the Commission’s recommendations or not, I think they are a serious — and bold — effort to put on the table ideas to reduce healthcare spending. The likelihood is that the Commission’s report won’t go anywhere — for now. It may not even get the required of 14 out of 18 members for Congress to take it up. I expect, though, that many of its ideas may get serious attention later, because the U.S. will have no choice but to tackle the challenge of rising deficits and debt, with healthcare spending being the single largest threat to fiscal solvency.

Today’s question: What is your reaction to the Commission’s recommendations on healthcare spending?

*This blog post was originally published at The ACP Advocate Blog by Bob Doherty*

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