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CBO Points the Way

Posted by Peter Orszag on June 17, 2009 at 08:24 AM EDT
As I have written here before, the Administration is committed to the principle that health care reform must be deficit neutral over the next decade (as well as being deficit neutral in the tenth year alone).  That means that every dollar spent must be paid for with real savings or revenue proposals that can be scored by the Congressional Budget Office (CBO).  I have also written here that in addition to these scoreable offsets, we need to embrace a set of initiatives that will help transform health care: "game-changers" that are critical to the sustainability of health care reform and containing cost growth over the longer term.
 
Reforms that meet long-term objectives but are not scored as delivering immediate savings are often viewed with an understandable amount of uncertainty and even suspicion. That’s why it was very helpful for CBO to release a letter yesterday afternoon walking through not only some of the challenges of financing major health legislation but also the pathways to a higher-quality, lower-cost health care system over time — the proposals that could help to "bend the curve" on cost growth over the long term.
 
In a section entitled "Policy Options that Could Produce Budgetary Savings in the Long Run," the CBO letter highlights a number of options, nearly all of which were included in the President’s Budget or have been subsequently included as part of his health reform package, that hold promise for reducing costs over the long term.  Some examples of these are listed below.
  • Create Accountable Care Organizations.  As CBO notes, "One prominent example of a structure that may function better would be accountable care organizations formed by physicians and other health care providers." The Administration has proposed a similar approach, which we call Bonus Eligible Organizations.
  • Bundle Payments to Hospitals and Other Providers. "CBO’s Budget Options volume included an option that would have hospitals receive a single bundled payment from Medicare for both the hospital services they provide and the care that their patients receive in a post-acute setting…this arrangement would provide hospitals with an new incentive to coordinate the care their patients receive after they are discharged and to economize in the use of post-acute care." The Administration also has a proposal to promote efficient provision of acute care through bundled Medicare payments covering hospital and post-acute setting.
  • Provide Additional Information About Treatment’s Effectiveness. CBO’s letter notes that "Many analysts believe that, because of the broad benefits that additional information could provide, the federal government should fund research on the effectiveness of treatments and should help disseminate the results to doctors and patients." The Administration strongly supports this position; this is why we provided $1.1 billion in the Recovery Act to develop and disseminate information on effective medical interventions.
  • Expand the Use of Preventative and Wellness Services and Primary Care. As CBO describes, "Many proposals to modify the health insurance system include provisions to expand the use of preventative and wellness services and the use of primary care. Those changes could improve people’s health and the quality of care they receive." In the Recovery Act, the President devoted $1 billion to prevention and wellness interventions to dramatically expand community-based interventions proven to reduce chronic disease. 
  • Reduce Annual Updates in Medicare’s Payments to Reflect Expected Productivity Gains. CBO states "To the extent that providers increase their productivity over time…payment updates overstate the actual increase in costs. Indeed, the Medicare Payment Advisory Council (MedPAC) often recommends that updates be set equal to changes in market-based indexes less overall productivity growth in the economy (as long as access to care and other measures meet appropriate standards)." Just last weekend, the President included a proposal to incorporate productivity adjustments into Medicare payment updates as part of a second set of cost savers to fully fund health reform over a five to ten-year horizon.
  • Combine increased discretion to change Medicare with a fallback if savings were not obtained.  CBO’s letter highlights that "Another way to ensure significant savings in Medicare would be to give the Secretary of Health and Human Services, the Administrator of the Centers for Medicare and Medicaid Services, or some government entity broad discretion to make changes in Medicare to produce savings — but also to impose an across-the-board reductions in payments to providers if sufficient savings were not achieved in other ways." The Administration is considering similar options to provide broader authority to MedPAC or a MedPAC-like body to make changes to produce savings in Medicare.
The goal is to move toward a more efficient health care system (through the game changers) in addition to expanding coverage in a fiscally responsible way.  The Administration is eager to consider all options that will strengthen this two-pronged approach, and I’m glad to see that that the list of serious options discussed by CBO is a near match to our own proposals.
 
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