Recently, flanked by trade groups representing medical technology companies, doctors, pharmaceuticals, hospitals and labor, President Obama pledged to find nearly $2 trillion in savings throughout the healthcare system.

By all accounts, those in attendance -- Advanced Medical Technology Association, the American Medical Association, Pharmaceutical Research and Manufacturers of America, the American Hospital Association, the Service Employees International Union and Association of Health Insurance Plans -- can identify where the “costs” are in the system. After all, with hospital care, physician services and prescription drugs accounting for more than 60 percent of all healthcare spending, these profitable industries are well-acquainted with finding the money.

Unfortunately, trusting those who are most readily identified with healthcare spending to find savings is a little like asking the fox to design a security system to guard the hen house. Somehow, the strategy just doesn’t work out so well for the hen.

Last week’s stage show might have been more believable if any of these groups had come armed with substantive plans to lower costs. But instead of spreadsheets, they brought sound bytes that were loud on rhetoric and deaf on details.

In 1993, healthcare expenditures were approximately $900 billion a year. In 2007, healthcare expenditures were nearly $2.2 trillion. As healthcare costs grow, those increases hinder affordability of care, often limiting care altogether. A 2009 Kaiser Family Foundation report affirms that “as healthcare costs increase, it becomes increasingly difficult for families and businesses to purchase coverage because the price of coverage (the premium) typically increases.”

This is especially true for small businesses that have seen premium increases of 113 percent in the last 10 years. The high cost of health insurance is the No. 1 concern of those employers offering insurance, and is the most common explanation for why small employers do not purchase insurance. With no relief in sight, the high cost of care is one of the fastest growing and most unpredictable costs of doing business – a reality that is of particular concern during these tough economic times.

There is no doubt that the groups at last week’s White House event can make a real difference by coming forward with real proposals that temper costs while delivering quality, value-driven care. But unless these groups are accountable to deliver the savings they promised, then Monday’s pledge will hold the same value as a check written in disappearing ink – none at all.

President Obama has said that the time for healthcare reform is now. Small business agrees. The photo opportunity is over and the clock is ticking. Now is the time for these groups to prove that actions speak louder than words, and “show us the money.” The country is waiting and watching, and so is small business.

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The pledge by leading health-care groups earlier this week to reduce spending by $2 trillion signifies an enormous change. In the 1990s, when I worked on the Clinton administration’s failed health campaign, the overall mood was negative and skeptical. Now, there is a tremendous sense of momentum. People don't want to give up on the possibility of achieving comprehensive health reform. These meetings have helped keep industry groups engaged, rather than fomenting opposition.

However, it’s important to recognize that to actually achieve reform the details will matter. The key question is will the federal government be able to measure and count the savings against the increased costs associated with health reform?

As we consider ways to rein in costs, fighting chronic disease needs to be a main focus of reform. The 2009 Almanac of Chronic Disease, released today (http://www.fightchronicdisease.org/media/statements/pfcd/AlmanacRelease.cfm)

explains in clear terms the link between disease prevention and cutting costs in health care.

Some have dismissed the letter and offer to reduce cost growth from industry trade associations on Monday. I have no doubt this event was not about altruism. But I also doubt it was entirely about public relations. In fact, I think this event is important, maybe even catalytic.

Essentially, industry spokespersons – whose job is usually defined as “just saying no” –sanctioned a level of savings that many of us (myself included) have long argued is achievable despite skepticism from others. In today’s tight budget times, this level of savings may actually be necessary for us to afford coverage expansion. Leaders in Congress should feel emboldened to ask far more from providers than they have so far to achieve our shared goals.

Industry leaders have agreed substantial savings are possible, now it is up to experts – like those who are part of the Center for Payment Reform – and those who actually do business in our health system – like the group we’ve helped organize, Health CEOs for Health Reform – to add payment and delivery system reform specifics to this promise. Stay tuned.

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Responding to the question related to clearing up fraud and abuse in Medicare...

Eliminating fraud and waste is always welcome, and should be pursued. However, there is more that needs to be done to increase the benefit of Medicare; primarily, we must reconfigure Medicare to pay for value.

Overutilization of services is a critical part of the issue, even if it doesn't rise to the level of fraud. Billions of dollars are wasted each year because Medicare pays the most to providers and geographic areas of the country that provide the lowest quality care at the highest costs. The fee-for-service reimbursement model used by Medicare provides the incentive for providers to order more tests, do more procedures, and provide more care than may be medically necessary. According to the Dartmouth Atlas, Medicare could save $50 billion over five years if the program reimbursed providers for safe, efficient, high-quality care in just the last six months of life. Imagine the savings if Medicare changed its fee-for-service model and instead reimbursed for efficient, coordinated care that produces better outcomes for patients.

Several providers around the country are models for efficient, effective care; Medicare has identified these providers and could work with them to develop strategies to spread many best practices across the country.

There are clear steps to cutting the costs in Medicare while improving the access and care for patients. These include creating a high-value care delivery system for chronic conditions -- one that bundles costs and pays more for better outcomes; encouraging the use of a common medical record; and piloting sustainable care coordination models at the local level with care coordinators who can assist patients and families with navigating the health care system.

Medicare should look at value as better safety, better service and better outcomes compared to the cost of care over time -- and should change the reimbursement mode to pay for better value.

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Dr. Nielsen is out of the country attending the World Medical Association meeting this week. Dr. Rohack, AMA president-elect, offered the following comment on the AMA’s commitment to help achieve greater value from our nation’s health-care spending:

The need for health reform that provides coverage and high quality, affordable health care for all Americans is clear. Rising health-care costs strain individual, business and government budgets, and projected increases in health spending are not sustainable. The AMA is committed to action to help achieve greater value from our nation’s health-care spending. We want to help bend the spending curve and move forward on health reform.

The AMA-convened Physician Consortium for Performance Improvement, with the efforts of more than 100 state and national medical specialty societies, continues to develop measures to improve health-care quality and value. The medical profession is working to address appropriateness of care, overutilization of some services and avoidable hospital readmissions.

The AMA has also initiated an important program to improve medication reconciliation. Patients with multiple conditions often see several physicians. Every physician that comes in contact with a patient needs to be aware of all the drugs the patient takes to avoid drug interactions and eliminate unnecessary prescriptions.

Defensive medicine continues to be a major factor in rising costs. We need medical liability reforms that help physicians provide the best care without needing to order additional services to guard against possible lawsuits.

All Americans can help in the effort to keep health-care costs down. The combination of large-scale national initiatives and efforts by individual patients to engage in prevention and wellness efforts is key to reducing spiraling health costs, preventing chronic disease and keeping America healthy.

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Some very good suggestions on how to stop Medicare and Medicaid fraud are in Jim Frogue’s Testimony before U.S. Senate Special Committee on Aging.

Also discuss at my blog.

There isn't much left to say that hasn't already been said by Uwe Reinhardt, Karen Davis, and Reps. Dingell and Engel.

Health Care for America Now looks forward to holding the providers who met with President Obama to their promises, and helping President Obama and Congress write and pass legislation that does this. As Senator Schumer said, “This commitment to cost-cutting is a good-faith gesture by the health care industry, but it does not mitigate the need for a public plan option in the upcoming reform bill.”

In fact, this development further makes the case for the necessity of a public health insurance option. We need a way to hold these stakeholders accountable to their word, and we need to give everyone in America another choice if these stakeholders don't live up to their promise.

There’s no doubt saving $2 trillion in health care costs would be a move in the right direction. When the White House and the industry put concrete proposals on paper and get a score from the Congressional Budget Office, then we’ll know if the suggestions really achieve that kind of savings, and it’ll be big news. For health care budgeting purposes, CBO’s word is the only one that counts.

The news from the White House marks a significant breakthrough in the work on comprehensive health reform. President Obama’s leadership moves us closer to a real positive change for American families, and I applaud his work as well as that of the stakeholders who joined him. While many of the stakeholders present today opposed our efforts to reform the nation’s health care system in the past, they have committed to work in a constructive manner this time around. I appreciate them coming to the table today and look forward to learning more about the details of today’s announcement.

While slowing the growth rate of health care costs is a very important piece of the health reform puzzle, however, there are a host of other important pieces. I look forward to working with these stakeholders on their ideas, and hope they will work with me on mine – including a fair, viable public health insurance option. I will continue to work with President Obama, my colleagues in the Congress, and health care stakeholders on a plan that will let Americans keep the freedom to choose their own doctors, while ensure all Americans have access to quality, affordable health care.

This is a promising first step along the path towards substantial health care reform. Unlike the situation in the mid-1990s, the health care industry is not preparing for battle, rather they are working with Congress and the Obama Administration to try and develop a plan that works for all Americans. It is notable that they see health care reform as a likely outcome this year and want to have a voice in crafting the plan.

The bottom line for Americans is clear – by having hospitals, insurance and pharmaceutical companies and doctors voluntarily work to implement policies that will slow their rate increases, the 47 million-and-growing Americans currently living without health insurance will have a better chance of getting coverage sooner rather than later. I am particularly pleased that the Greater New York Hospital Association had a seat at the table at the White House event and has been an active participant in Administration discussions regarding the promotion of quality, affordable health care coverage and access for all New Yorkers.

As an original sponsor of HR 676 - The United States National Health Insurance Act - I am a strong supporter of providing health care to all Americans. This announcement is not the final answer to the health care question, but it takes us a bit closer to finding a real solution. I will continue to work with our health care providers and the Obama Administration over the coming weeks and months to find a plan that works for everyone. Our system needs to be reformed and we must work together on our shared goal to provide comprehensive health care for all Americans.

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President Obama yesterday responded to industry groups who said they would voluntarily undertake efforts to lower costs with excitement, but promised it would not affect his health care reform efforts moving forward. Indeed, he said the two efforts were compatible.

Here is what George Condon of CongressDaily wrote yesterday:

In the past, some of these groups have pledged to reduce healthcare costs but saw that as a tactic to avert any kind of reform. But he contended it is different this time. "What they're doing is complementary to and is going to be completely compatible with a strong, aggressive effort to move healthcare reform through here in Washington." Obama said costs could be cut by focusing on prevention and treatment, offering incentives for efficiency and working to standardize quality care.

Republicans in Congress reacted with caution and warned of the high costs of comprehensive reform. House Minority Leader Boehner insisted Republicans want to work with Obama on the issue. But he said today's announcement left many unanswered questions. "We support some of the voluntary reforms announced today, including increasing the use of modern information technologies to lower healthcare costs, and we hope they move forward," said Boehner. But he added, "The administration has yet to answer the fundamental question of how to pay for its massive multitrillion health care plan." He said questions included whether the administration will "raise taxes on families and small businesses; will it ration care so that families and seniors face long waits for medical treatment?"

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I am not sure whether this comment should be addressed to the issue of fraud or to today’s happening in the White House concerning the pledge of $2 trillion in “savings” on health spending, or both. Let me say a bit about both.

In connection with fraud in the Medicare program, the question can be asked whether $2.7 billion is a lot of money, worth all that much attention. Assuming the $311 million extra spending on fraud detection is annual and the $2.7 billion is annual as well, the rate of return on investment would be stunning. So as an investment proposition it is a big deal.

As a percent of total Medicare spending, however, the $2.7 billion savings would be only about 0.50%. As a percent of national health spending it would be about 0.12%. To policy makers in other countries these would appear as small numbers. They might reason that it’s better to countenance this bit of fraud, rather than annoying doctors and hospitals with newly empowered fraud-detection legionnaires. I know Canada tends to think and work that way.

I would bet that there is less outright fraud in Medicare than in private insurance for one simple reason: Medicare scares the h… out of providers, which is why every hospital now has a VP of Compliance with a dozen or so staff and every hospital Board has a Compliance Committee. Providers are not nearly as scared of private insurers, because the latter can’t visit nearly the punishment on providers that Medicare can visit on them.

As to the mellow White House happening today on the much heralded stakeholder letter to the President, I would not say that it was a historic moment in the history of American health policy. Thinking as a businessman would think about it, I would like to see a column of currently projected (baseline) health spending, next to it the “budget” proposed by the stakeholders ($2 trillion lower for the next 10 years) and the promised annual savings relative to the original baseline. There should then be an annual review on whether these savings actually materialized—just the way business does it.

If not, then what?

This is what puzzles me. None of the people at the White House, except perhaps George Halvorson of Kaiser, would have any authority to impose the agreed upon budget on anyone of their members. In fact, is there even a sectoral breakdown of these budgeted savings? In other words, how would any such proposed budget be enforced? Could the President of the AHA kick the posterior of a particular hospital executive who was out of line?

In the end, the supply side here merely promised not to oppose in organized fashion a number of cost control mechanism now on the drawing board. These cost control mechanism are described in the letter in extremely vague terms—terms we have heard many times before. The demand (payment) side of the health sector most likely will shove a good number of these cost control measures down the throat of the supply side anyhow in the coming decade. Our sluggish GDP growth will impel the demand side to do so.

So what is it that the supply side actually promised to give away, so to speak, at mellow the White House meeting?

To illustrate, I hereby promise to contribute to Princeton University my expected salary increase for the next year. I find it easy to do so, especially after the Dean of the Faculty froze everyone’s salary for next year a month ago anyhow.

In my view, the letter to the President was written in the same spirit. The stakeholders simply promised not to oppose what they probably could not oppose anyhow. They see the Mene Tekel on the wall. As the late Alex McMahon once advised me: “Pray to the Lord, never stand between a lamp and a dog, and exploit the inevitable.” Why do I recall that advice just now?

One of the proposed mechanisms for cost control is “bundled payment for clinically integrated health care,” the new, new thing in payment reform. I favor it, as do most policy wonks. But I wish I could put the White House to a road test on this one, so to speak. Let them show us their moxie by bundling Medicare payments to radiologists, anesthesiologists and pathologist (the RAPs) into the DRGs paid hospitals, as once was proposed by the PPRC or MedPac. If even that simple bundling proves elusive, what makes us think the wholesale bundling of payments will be easy and quick, with all the redistribution of economic and professional power it implies?

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Here is a copy of the full letter that health care industry groups sent today to President Obama, promising to work together voluntarily to lower costs by 1.5 percentage points annually over the next decade. How big a deal is this voluntary commitment. Will it, or should it, change the way that Washington proceeds this year?

Dear Mr. President:

We believe that all Americans should have access to affordable, high quality health care services.

Thus, we applaud your strong commitment to reforming our nation’s health care system. The times demand and the nation expects that we, as health care leaders, work with you to reform the health care system.

The annual growth in national health expenditures—including public and private spending—is projected by government actuaries to average 6.2% through the next decade. At that rate, the percent of gross domestic product spent on health care would increase from 17.6% this year to 20.3% in 2018—higher than any other country in the world.

We are determined to work together to provide quality, affordable coverage and access for every American. It is critical, however, that health reform also enhance quality, improve the overall health of the population, and reduce cost growth. We believe that the proper approach to achieve and sustain reduced cost growth is one that will: improve the population's health; continuously improve quality; encourage the advancement of medical treatments, approaches, and science; streamline administration; and encourage efficient care delivery based on evidence and best practice.

To achieve all of these goals, we have joined together in an unprecedented effort, as private sector stakeholders—physicians, hospitals, other health care workers, payors, suppliers, manufacturers, and organized labor—to offer concrete initiatives that will transform the health care system. As restructuring takes hold and the population's health improves over the coming decade, we will do our part to achieve your Administration’s goal of decreasing by 1.5 percentage points the annual health care spending growth rate—saving $2 trillion or more. This represents more than a 20% reduction in the projected rate of growth. We believe this approach can be highly successful and can help the nation to achieve the reform goals we all share.

To respond to this challenge, we are developing consensus proposals to reduce the rate of increase in future health and insurance costs through changes made in all sectors of the health care system.

We are committed to taking action in public-private partnership to create a more stable and sustainable health care system that will achieve billions in savings through:

•

Implementing proposals in all sectors of the health care system, focusing on administrative simplification, standardization, and transparency that supports effective markets;

Reducing over-use and under-use of health care by aligning quality and efficiency incentives among providers across the continuum of care so that physicians, hospitals, and other health care providers are encouraged and enabled to work together towards the highest standards of quality and efficiency;

Encouraging coordinated care, both in the public and private sectors, and adherence to evidence-based best practices and therapies that reduce hospitalization, manage chronic disease more efficiently and effectively, and implement proven clinical prevention strategies; and,

Reducing the cost of doing business by addressing cost drivers in each sector and through common sense improvements in care delivery models, health information technology, workforce deployment and development, and regulatory reforms.

These and other reforms will make our health care system stronger and more sustainable. However, there are many important factors driving health care costs that are beyond the control of the delivery system alone. Billions in savings can be achieved through a large-scale national effort of health promotion and disease prevention to reduce the prevalence of chronic disease and poor health status, which leads to unnecessary sickness and higher health costs. Reform should include a specific focus on obesity prevention commensurate with the scale of the problem. These initiatives are crucial to transform health care in America and to achieve our goal of reducing the rate of growth in health costs.

We, as stakeholder representatives, are committed to doing our part to make reform a reality in order to make the system more affordable and effective for patients and purchasers. We stand ready to work with you to accomplish this goal.

Sincerely,

Stephen J. Ubl

President and CEO

Advanced Medical Technology Association

Karen Ignagni

President and CEO

America’s Health Insurance Plans

Rich Umbdenstock

President and CEO

American Hospital Association

J. James Rohack, MD

President-elect

American Medical Association

Billy Tauzin

President and CEO

Pharmaceutical Research and Manufacturers of America

Dennis Rivera

Chair, SEIU Healthcare

Service Employees International Union

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Health care industry groups should be applauded for their commitment to reducing the growth in health care costs by 1.5 percentage points annually over the next decade. If successful, limiting cost increases will bring some measure of relief to the millions of American families struggling to afford rising health insurance premiums, access needed care, and manage medical debt and bill problems. Reining in health care cost growth will also reduce the burden on American businesses, strengthen the foundation of our nation’s economy, and place federal and state governments on a more sustainable fiscal path.

While a 1.5 percentage point annual reduction may sound modest, the industry estimates that reducing the annual growth in national health expenditures from a projected 6.2 percent to 4.7 percent will yield $2 trillion in savings by 2019. Total national health expenditures would fall from a projected 21 percent of gross domestic product in 2019 to 18 percent, with significant savings accruing to households, businesses, and federal and state government. This is clearly a step in the right direction.

The industry announcement reflects an understanding that comprehensive health system reform is both a workable and necessary commitment for business groups and health care providers. As several analysts have pointed out, reducing the annual growth rate in national health expenditures by 1.5 percent means that the entire health care industry can still expect sustained revenue increases over the coming decade. Moreover, if cost reduction targets are incorporated into larger reform efforts that reward quality and value, ample opportunities for revenue growth will exist for efficient and innovative insurers and providers.

While the announcement is reason for cautious optimism, it is also important to remember that voluntary efforts have failed in the past and a more formal mechanism will likely be needed to ensure that savings targets are actually achieved. For example, the hospital industry’s Voluntary Effort response to President Carter’s cost containment proposal dissipated within two years of its initial roll-out in 1980 and had no lasting impact on rising hospital expenditures. To avoid similar shortcomings, policymakers should examine health reform mechanisms such as incorporating the promised expenditure targets in Medicare and a public health insurance plan within a national health insurance exchange. This would ensure that the industry’s commitment is realized and ensure that needed savings are realized.

Ultimately, it is heartening that industry groups have committed to bending the health care cost curve. Our current course is simply unsustainable, and families, employers, and government have been struggling under the weight of rising health care costs for far too long. A commitment from business and industry to limit these increases is an important initial step as we work together to build a high performance health system that works for all Americans. What is needed next is a concrete plan for ensuring that these goals are met.

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Think of the irony here. On the one hand, we are told how wonderful it is that Medicare's administrative costs are so low. On the other hand, we are told how awful it is that there is so much fraud.

Do you think there could be a connection?

Fraud is rampant in the Medicare and Medicaid programs, so the investment the President suggests is a welcome one. It is likely that the investment will achieve savings in the $2.7 billion range. It is worth noting that the amount the President is requesting is $113 million above the level requested by President Bush--a request that both the Republican and Democrat led Congresses ignored. (The recent omnibus appropriations bill finally included the amount requested by President Bush.) It remains an open question as to whether or not the Congress will agree to the increase.

So, "why not," isn't this "no-brainer?" The amount for anti-fraud activities was fixed in 1996. To increase that amount requires an act of Congress and a journey through the one of the most bone headed provisions in the Federal budget.

Under the Federal budget rules, the savings generated by anti-fraud activities are not recognized in the budget. Indeed, the budget treats anti-fraud investments as pure expenditures. Rather than rationalizing the budget rules, President Obama, like President Bush before him, proposes a tortured budget strategy of asking the Appropriations Committee to appropriate the dollars as a discretionary expenditure to safeguard a mandatory program.

Quoting from the President’s Budget Appendix: “To ensure full funding of the new enforcement investments, the Administration proposes to employ a budget enforcement mechanism that allows for an adjustment by the Budget Committees to the section 302(a) allocation to the Appropriations Committees found in the concurrent resolution on the budget. These adjustments would only be permissible if the use of these funds was clearly restricted to the specified purpose. The maximum allowable adjustment to the 302(a) allocation would be $311 million for 2010.”

For those who aren’t budget experts, this means, “We’d like the Appropriations Committee to give us this money. We recognize if we just asked for it, the Appropriations Committee would spend it somewhere else. So, we are asking for it in a way that if they appropriate this money, specifically for this purpose, it won’t take away from other investments, nor can it be used for anything else.”

Clearly, this is the wrong way to fund anti-fraud activities. The Senate Finance Committee, the House Ways and Means Committee, and the House Energy and Commerce Committee have jurisdiction and oversight over the Medicare and Medicaid programs. The budget should make it their responsibility to authorize and fund appropriate anti-fraud measures. Likewise, the budget rules should be changed to recognize that anti-fraud measures more than pay for themselves. Until these changes are made, fraud will continue to be a substantial problem in Medicare and Medicaid.

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