The $80 billion commitment made by America’s pharmaceutical research and biotechnology companies is just one individual component of a larger plan that will – hopefully – eventually allow comprehensive health care reform. By making a concession this large, our companies are helping the federal government avoid the expense of filling the coverage gap itself.

In fact, the White House has said, in both the New York Times and the Wall Street Journal, that roughly $50 billion of the $80 billion will be available to offset the cost of new subsidies that the Administration and the Congress want to provide to the uninsured.

This significant financial commitment will certainly be felt by companies across the sector, especially given the increasingly challenging economy and the high cost of staying competitive in a research-based business. However, the need for health care reform is great, and the $80 billion agreement is our contribution to an important effort that seeks to provide all Americans with access to quality, affordable health care coverage.

The deals with various stakeholders are indeed positive, but we've got to make sure all of these deals are permanant, not voluntary.

But there's more at work here than just the policy. Obama has clearly decided that he wants to keep these large industry players at the table, and he's keeping them there by making these kinds of deals. It's a high-stakes strategy, because these players would just as soon keep the status-quo if they could, but so far it seems to be paying off, seeing as they understand status-quo is dead. Hospitals, drug companies, and insurers are still saying they are pro-reform, and more importantly, they have not poured their huge coffers into paid media advertising against reform. Keeping them at the table means they can't spend a lot of time or money attacking other elements of reform. That's a big deal.

Of course, keeping these people at the table carries the risk that the final product will be influenced by their interests, which makes it more likely the final product won't actually provide quality, affordable health care to everyone. (And indeed, there is an understanding in this deal that the new public option would pay higher than Medicare and Medicaid rates - a win in that hospitals are tacitly agreeing to a public option, but with a caveat.) But, while the industry is spending $1.4 million a day, that money is just barely keeping them in the game. Reform is moving forward, and four of the five committees with control over health care in Congress are supporting a strong public health insurance option, the thing these interests fear most.

I'd agree with Jon Cohn about the big picture:

[Congressional and administration staff] suggested the political upside of these deals was considerable: "The more people are making deals," one Hill staffer told me, "the greater the sense of inevitability that this will happen and the greater the momentum." And while these sources understood the groups could simply walk away from the deals anytime–and declare, in effect, that their pledges of support were null and void–these sources noted that reformers, starting with the president, could do the very same thing.

Keep in mind these are deals with Baucus and, via his proxy, the Senate Finance Committee. But whatever comes out of Senate Finance will eventually have to be combined with the Senate Health, Education, Labor, and Pensions Committee bill. The combination, in turn, will have to be reconciled with whatever comes out of the House. That creates quite a few opportunities for modification–and improvement.

Keeping these people at the table makes reform more likely, and if you can keep them at the table while still writing legislation that lowers cost and gives good health care to everyone - something these groups don't really want to do - more power to you.

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In order for health reform—meaningful health reform—to be successful, everyone must do their part, and that includes America’s hospitals. The framework agreed to by hospitals, the Administration and the Senate Finance Committee includes substantial payment cuts to hospitals linked in part to increasing health coverage to 95 percent of Americans.

Every day in America’s emergency rooms, hospitals see all too well what lack of coverage means for far too many people. We’ve long been committed to expanding coverage to millions of Americans without health insurance, and that’s why we support this historic effort. But make no mistake—hospitals cannot be cut any further without damaging their ability to care for the communities they serve.

This is the first of many steps that remain in a truly herculean task, and America’s hospitals will continue our efforts towards comprehensive health reform that works for patients and families and the hospitals and health care professionals that serve them.

Last week’s announcement that the hospital industry has agreed to do its part in reducing national health expenditures by improving efficiency and realigning incentives is a promising development. For too long, rising hospital costs have contributed to escalating out-of-pocket spending for individuals and families, fueled increases in insurance premiums for American businesses, and placed enormous pressure on the federal budget. The industry commitment to legislative changes will yield genuine and scoreable savings that can be used to finance improved coverage and more far-reaching reform. More importantly, slowing the growth in hospital costs will bring some measure of relief to those struggling to afford health care and bend the curve of national health spending to more sustainable levels.

But more is needed. Work by The Commonwealth Fund demonstrates that fundamental provider payment and delivery system reform is feasible and necessary for everyone who delivers, finances, and receives health care in the United States. Recent estimates of The Commonwealth Fund Commission on a High Performance Health System’s “Path” proposal show that hospital revenues grow to $1.3 trillion dollars in 2020 under a comprehensive reform package, an increase of 68 percent over 2009 levels. If last week’s cost-reduction targets and initiatives are incorporated into larger reform efforts that reward quality and value, ample opportunities for additional revenue growth will exist for innovative facilities.

Many other proposals being debated in Congress and included in the President’s budget blueprint will increase efficiency, improve quality, and bend the health care cost curve. The Office of Management and Budget estimated that reducing hospital readmission rates by bundling payments for hospitalization and 30 days of post-acute care--and paying less to hospital with high rates of readmission--would save the federal government $26.3 billion over 10 years. Meanwhile, expanding the Hospital Quality Improvement Program by linking a portion of Medicare payments to hospital performance on specific quality measures is projected to reduce federal health expenditures $12.1 billion over 10 years. Moving toward accountable care organizations and integrated delivery models is another key strategy that promises to improve outcomes and reduce costs.

Ultimately, the hospital industry announcement, like that of pharmaceutical companies last week and the wider industry commitment in May, is a promising development that reflects a recognition that we simply cannot continue on our current course--and is another important step toward building a high performance health system that works for all Americans.

Ultimately, the hospital industry announcement, like that of pharmaceutical companies last week and the wider industry commitment in May, is a promising development that reflects a recognition that we simply cannot continue on our current course.

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Last week’s hospital industry agreement helps to fulfill two key principles that the Association of American Medical Colleges (AAMC) established for health care reform last year—that all Americans should have health care coverage, and that existing safety net mechanisms be supported and preserved until new ones are in place. Our nation’s teaching hospitals, which provide 71 percent of all hospital-based charity care, are often the only source of specialized services in their communities. The AAMC strongly supports this new agreement and appreciates this thoughtful approach to guarantee the safety net as we transition to a better system.

Specifically, the agreement takes appropriate steps to ensure that new coverage mechanisms are in place before any reductions are made to Disproportionate Share payments. That being said, however, Congress and the Obama Administration will need to continually evaluate the effects of coverage expansion before making any cuts that could jeopardize the safety net for the uninsured and underinsured.

Medical schools and teaching hospitals have made it clear that they stand ready to make the positive changes needed for successful reform and improving the nation’s health. Our institutions are working hard to help expand access to health care while maintaining an environment where clinical care, discovery, and the training of the next generation of health professionals can occur, and will continue to make sacrifices as long as patient care comes first.

Further, while each recent industry agreement constitutes an important step forward, “getting to the finish line” of health care reform will require much more than ensuring coverage for all—as the saying goes, we are in a “marathon,” not a “sprint.” In order for true transformation to occur, we must make fundamental changes to the delivery system that align with these changes in financing. The question is how to evaluate the many interesting models that have been proposed, such as accountable care organizations and medical homes.

Legislation introduced last week by Representative Allyson Schwartz (D-PA), H.R. 3134 offers an important opportunity in this regard. By establishing regional alliances called “healthcare innovation zones” (HIZs), Rep. Schwartz’s bill would help bridge the gap between the conceptualization of new delivery models and the creation of a well-functioning system. Building on the strengths of academic medical centers, and working in partnership with government and other stakeholders, the HIZ program (begun as pilots nationwide) would bring us closer to a system that improves the health of all.

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The idea that health reform is being financed by concessions made by key special interests is a complete illusion. Everyone should remember TANSTAAFL (There Ain’t No Such Thing As A Free Lunch).

At the end of the day, hospitals will collect enough revenue to cover their costs, just as they currently do. Drug companies will earn a rate of return needed to attract capital and it will be among the highest in any industry. Employers – at least those that remain in business – will cover their costs and supply shareholders with their required rate of return.

So who is really going to pay for health reform? Answer: hapless, unsuspecting victims who never participated in any behind-closed-door meetings. The so-called concessions mean that the poor and the elderly will have less access to care, most people will pay higher prices for drugs, and millions of workers will have less take-home pay.

And what worthy goal to be achieved will make all this carnage worthwhile? That‘s hard to say.

When all is said and done, costs will certainly be higher than otherwise and quality of care may actually be lower. Ironically, we may even fail to improve access to care for the currently uninsured.

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Dear Colleagues,

Rather than rewriting our news release from last week, the best contribution we can make is to post it here (below).

Physician Hospitals of America Charges: Hospital Associations Bargain Away $155 Billion in Medicare Funding in Attempt to Destroy Physician Hospitals

(Washington, D.C.) -- Today, the American Hospital Association, Federation of American Hospitals and Catholic Health Association announced an agreement with the White House and Senate Finance Chairman Max Baucus (D-MT) to reduce Medicare hospital spending by $155 billion. Cost savings is an important goal, supported by Physician Hospitals of America (PHA), the national association representing physician owned hospitals. As always, physician hospitals will shoulder their share of cost controls and other responsibilities to see health reform become reality.



However, in a desperate move aimed at reducing competition, garnering control of the entire industry, and eliminating patient choice, these associations have bargained for the destruction of physician owned hospitals as a quid pro quo for the Medicare cost savings.



PHA Executive Director, Molly Sandvig states, "To put this anti-competitive issue into the deal between Administration, Congress and the hospital associations makes no sense and demonstrates the desperation of many hospitals to remove healthcare decisions from the hands of those who should have the biggest say, the physicians and patients. Ownership of a hospital by any party is simply not relevant to ensuring that every American has affordable access to medical care. Including the destruction of physician owned hospitals jeopardizes more than 70,000 American jobs. Given the state of our economy and the latest unemployment figures, we cannot understand why the Administration would agree to this part of the package."



WHAT IS AT STAKE

There are over 220 physician owned hospitals in 32 states. They are an important part of the healthcare system and serve rural and inner city areas, military personnel, and in many cases are an integral part of community hospitals. There are 18 general acute care facilities, 153 multispecialty facilities (children's, women's and multi-specialty surgical hospitals), 19 rehabilitation and long term care hospitals, 19 cardiac hospitals and 13 orthopedic hospitals. Over half are joint ventures with community hospitals and other third parties. On average, more than forty percent of their patients are Medicare beneficiaries. These facilities would wither and die under the deal supported by the Administration and Congress.



In addition, there are 104 new hospitals under development that would not be able to open and the more than $5 billion that has been invested in these projects and more than 20,000 future jobs would be lost.



By the year 2010, physician hospitals will employ over 70,000 Americans. The national payroll currently exceeds $2.4 billion and they spend over $1.9 billion per year on trade payables. As for profit entities, they each pay on average $2,575,000 a year in taxes. More than 27,000 physicians practice in these facilities and the vast majority of them have no investment interest in the hospital.



ONE ILLUSTRATION: THE IOWA-NEBRASKA BORDER

One case in particular, illustrates the problems with the policy to ban physician ownership.

Bellevue Hospital in Bellevue, Nebraska is scheduled to open next year. It will be the only hospital in town and is a joint venture between the University of Nebraska medical center and local physicians.

It will serve 180,000 people in Eastern Nebraska and Western Iowa. Most importantly, however, the hospital will serve the 10,000 men and women stationed at Offutt Air Force Base, 20,000 military dependents and 11,000 military retirees living in the immediate area. The base hospital closed in 2005. Under the hospital associations' proposal, Bellevue will never open and these military personnel will continue to be underserved.


Ms. Sandvig states, "It is time that the hospital associations give more than lip service to issues such as access, quality care, efficiency and patient choice. If the facts are truly considered, physician hospitals will be welcome, and the hospital associations' deal will be seen for what it really is, a ploy to reduce healthy competition in healthcare."

_________________________________

Physician Hospitals of America (PHA) represents 220 American hospitals owned and operated by physicians themselves. PHA is on the web at: www.physicianhospitals.org

To view a brief video about hospitals owned and operated by physicians, click here.

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The fact that the provider community continues to play a positive role in pushing health care reform ahead is positive news. Certainly some of the items under consideration could be done by the industry on their own--reducing adverse events and errors--but others will require legislative action. The best proposals coming forward are those that would reduce both underlying clinical and administrative costs as well as payments. Reducing medical errors through effective automated patient safety programs have reduced both underlying treatment costs and medical malpractice claims. The pharmaceutical industry's decision to agree to deeper brand name drug price discounts is another good example of reforms that will make care more affordable. While the provider-specific approach to generating savings is laudable, more fundamental changes in the delivery system will be required to really slow the rise in spending. About 95% of Medicare spending is linked to chronically ill patients. Today Medicare pays nothing to coordinate the care for these patients, therefore Medicare saves nothing from care coordination. No wonder 20% of patients are re-admitted to the hospital within 3o days! Moreover, rising rates of obesity and chronic disease in the Medicare program are also key drivers of rising costs. To really bend the cost curve in Medicare will require three major cross-cutting changes; investing in care coordination using community based health teams and more traditional medical homes, investing in proven primary prevention strategies to slow the rise in obesity and chronic illness already proven to work, and changes in the finanical incentives (bundling and other approaches) that will provide incentives for more integrated systems of care. While the Congress started down this track early on, they have not yet made the investment in prevention and care coordination in the Medicare program. This investment would provide better quality care and as we have seen in the real world lower costs. As the debate over health reform continues, the Congress and White House will need to show leadership and resolve to transform our delivery and prevention models (those that prevent disease largely) to really make a dent in the long-term growth in spending.

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Last week, the Administration and the American Hospital Association reached an agreement to reduce hospital spending by $155 billion over the next decade. This follows by two weeks an agreement with pharmaceutical companies to reduce payments for prescription drugs by $80 billion. And in the intervening period, Wal-Mart announced its support for an employer mandate. What do all these agreements have in common? They provide the foundation for financing health reform.

Between the savings in hospital spending and the reduction in pharmaceutical spending ($50 billion of which is projected to accrue to the federal government), health reform already has $200 billion lined up. Reducing Medicare Advantage overpayments would save an additional $150 billion and savings in other inpatient sectors and home health care would yield a further $100 billion. The total is about $450 billion in traditional cost savings.

The second source of funds is new revenues. Wal-Mart’s endorsement of an employer mandate legitimizes that source of financing. Employer mandates raise anywhere from $100 to $300 billion over a decade, while simultaneously providing incentives for employers not to drop coverage for their workers. Additional revenue options include taxes on goods that increase medical spending (taxes on cigarettes, alcohol, and sugar-sweetened beverages would raise another $200 billion), and reducing the generosity of the tax code to employer-provided health insurance. All told, new revenues of $400 billion to $500 billion are feasible.

The third source of funds is savings from health care modernization. Modernizing the health care infrastructure through information technology and comparative effectiveness research, reforming the payment system for medical services, and empowering workers to improve performance could lead to a productivity revolution in health care. If health care became even a normal industry in terms of productivity growth, costs would fall by 1.5 percentage points annually, saving the government over $500 billion in the next decade. This amount may not be entirely score-able, but a failsafe option could guarantee that that amount of savings will be realized.

Here, then, are the three buckets for health care financing: traditional programmatic savings, new revenues, and savings from health system modernization. These three sources are roughly equal in their financing capacity -- $400 billion to $500 billion each. And together, they will generate at least $1.2 trillion and as much as $1.5 trillion to finance health care reform.

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