While the Senate Finance Committee has made progress, the Committee’s proposal in its present form fails to meet the challenges posed by the health system cost crisis facing both government and the private sector.

Individuals, families and businesses large and small, as well as the public sector, would continue to face skyrocketing yearly health care cost increases. Short-term and long-term cost containment measures must be added to assure the sustainability of a new health system law. In addition, the bill falls far short of providing quality, affordable coverage for all America. Absent full coverage, successful health system reform is unachievable.

We look forward to working further with Chairman Baucus and all Congressional Democrats and Republicans to achieve responsible system-wide, systemic health care reform in 2009. But this job is far from done.

Two points:

1. Baucus 2.0 would cost $2 trillion or more, not $829 billion.
2. Baucus 2.0 would increase the deficit, not reduce it.

1. The actual cost. The $829 figure everyone heralds as the Congressional Budget Office’s preliminary cost estimate ignores another $108 billion in government spending under Baucus 2.0.

The $829 billion figure is actually only the CBO’s estimate of new federal spending on health insurance. Former CBO director Donald Marron finds $75 billion of additional new federal spending. The bill would also impose unfunded mandates on state governments, which the CBO projects would increase state-government spending by $33 billion. Voila: $937 billion of new government spending.

But even that ignores the private-sector mandates.

Baucus 2.0 would require most Americans to purchase health insurance. That mandate would force people to spend their money in ways they otherwise would not. Those mandated payments (to private insurers) are part of the cost of the bill.

Massachusetts enacted a similar health care overhaul in 2006. The Massachusetts Taxpayers Foundation estimates that the private-sector mandates account for 60 percent of total costs.

If the ratio of private-sector mandates to new government spending is similar, then the total cost of Baucus 2.0 is actually north of $2 trillion ($937 billion times 2.5).

2. A budget-buster. The CBO estimated that Baucus 2.0 would reduce the deficit by $81 billion. Yet the bill only achieves that feat by assuming about $234 billion in spending cuts that everyone knows ain’t gonna happen.

Baucus 2.0 assumes that in 2012 Congress will permit the very Medicare cuts that Congress has blocked over and over again since 2003. So yes, Baucus 2.0 would reduce the deficit – conditional on something as likely as, say, the sun rising in the West.

But rather than, say, scrutinize the actions of an elected official, the media have crowned Baucus the king of Deficit-Reduction Land.

All of which leads me to a third point:

1. The media have completely botched this story.

Providing provider incentives that encourage the development of accountable care organizations is an important strategy for not only achieving improved quality and better outcomes, but also for slowing the growth in health care spending--a key health reform goal. By integrating delivery of health services, accountable care organizations will make it easier for many providers to provide efficient, coordinated care—and payers will reward those providers for it. Savings generated by integrated care would be shared by providers, payers, and patients. It is a win-win for many stakeholders.

Although any such forecast is a composite of guestimates, it was made under strict rules and we must take it at face value.

It will sorely disappoint the people who broke out the folks who broke out the champaign when Chicago lost the Olympic bid, it must be gratifying to the hardworking Senate Finance Committee members and staff--well, most of them anyways--and to the White House.

All the more so in comparison with the fiscal impact of the MMA 03 which will add close to $1 trillion to the deficit over 2010-19--more if one includes the $170 billion or so of extra subsidies to the Medicare Advantage plans.

Which must be kept in mind to counter the predictable howl of people who will wail about the Medicare "cuts" that will finance part of the subsidies to younger uninsured Americans. These "cuts" of course are not actual cuts, but merely reductions of increases.

Senate Finance Committee Ranking Republican Chuck Grassley, R-Iowa, said in a statement today that he didn't want colleagues to focus only on the deficit-neutral piece of CBO's assessment, and not on new taxes.

"A celebration of the deficit effects masks who pays the bills. This package includes hundreds of billions of dollars in new taxes and fees. Most Americans with health insurance will see their premiums increase. That's according to CBO and JCT, the non-partisan experts. Premiums would increase as early as 2010, before most of the health reforms, including tax credits to help people pay for health insurance, take effect. Uninsured individuals would pay a tax for not obtaining government-approved health insurance. Employers who already offer health insurance would face a penalty if their workers choose subsidy-eligible insurance. With all of this, the bill spends nearly a $1 trillion and still leaves 25 million people without health insurance. That's not much bang for the buck. When people have been laid off or are worried about getting laid off, the idea of new taxes on employers and individuals should concern all of us. I'd like to see Congress insure more Americans with less stress on the weakest economy, including family finances, in decades."

Here's the best paragraph in the CBO document:

The proposed co-ops had very little effect on the estimates of total enrollment in the exchanges or federal costs because, as they are described in the specifications, they seem unlikely to establish a significant market presence in many areas of the country or to noticeably affect federal subsidy payments. As a result, CBO estimates that of the $6 billion in federal funds that would be made available, about $3 billion would be spent over the 2010–2019 period.

Co-ops are so ineffective you can't even give away the start-up money. As our ads said, the co-op idea doesn't work.

Igor at Think Progress has more on the CBO score that's worth reading.

The CBO score of the Senate Finance Committee's proposal augurs well for the passage of health care reform in the Senate -- even securing the 60 votes needed to stop a filibuster. The fact that the Senate Finance Committee's proposal reduces the deficit in the first ten years by $81 billion; that its cost is estimated to be $829 billion; and that it increases health coverage from 83 percent to 94 percent of legal residents will make the proposal very appealing to Senators as it is merged with the Senate HELP Committee's bill. This happy development offers new opportunities to strengthen the final bill. As Senator Baucus and other leaders have said, one area that needs continuous attention as the bill moves forward is the affordability of health coverage for America's low-, moderate-, and middle-income families. Although America's families may not be able to decipher the real difference between a bill that costs $829 billion or $929 billion or more than $1 trillion over ten years, they certainly will feel the difference if they receive subsidy relief that reduces their premium and other out-of-pocket burden by $500 or $1,000. Indeed, this "pocketbook effect" will be the key test for America's families as they appraise the health reform legislation. Thankfully, CBO's score of the Senate Finance Committee's proposal now provides fiscal opportunities to strengthen the subsidy help that is provided to America's families. The Senate Finance Committee proposal is well below the approximate $900 billion benchmark set by the President, and the $81 billion in savings can be used to ensure that subsidies are more adequate so that families increasingly find coverage and care affordable and fewer families are at risk of being penalized by the individual mandate. Congressional leaders and the President would be wise to use this opportunity to strengthen the bill's affordability protections. This will not only make the final bill much more helpful, it will also improve health reform's stability because it will have even greater support from Americans across the country.

CBO Director Douglas Elmendorf has released an assessment of Senate Finance Committee Chairman Max Baucus's health care reform plan, and here is Elmendorf's comment on his Director's blog on the CBO web site.

Preliminary Analysis of the Senate Finance Committee Chairman’s Mark As Amended

CBO and the staff of the Joint Committee on Taxation (JCT) have just issued a preliminary analysis of the Senate Finance Committee Chairman’s mark for the America’s Healthy Future Act of 2009, incorporating the amendments that have been adopted to date by the committee. That analysis reflects the specifications posted on the committee’s Web site on October 2, 2009, corrections posted on October 5, and additional clarifications provided by the staff of the committee through October 6. CBO and JCT’s analysis is preliminary in large part because the Chairman’s mark, as amended, has not yet been embodied in legislative language.

Among other things, the Chairman’s mark, as amended, would establish a mandate for most legal residents of the United States to obtain health insurance; set up insurance “exchanges” through which certain individuals and families could receive federal subsidies to substantially reduce the cost of purchasing that coverage; significantly expand eligibility for Medicaid; substantially reduce the growth of Medicare’s payment rates for most services (relative to the growth rates projected under current law); impose an excise tax on insurance plans with relatively high premiums; and make various other changes to the Medicaid and Medicare programs and the federal tax code.

According to CBO and JCT’s assessment, enacting the Chairman’s mark, as amended, would result in a net reduction in federal budget deficits of $81 billion over the 2010–2019 period. The estimate includes a projected net cost of $518 billion over 10 years for the proposed expansions in insurance coverage. That net cost itself reflects a gross total of $829 billion in credits and subsidies provided through the exchanges, increased net outlays for Medicaid and the Children’s Health Insurance Program (CHIP), and tax credits for small employers; those costs are partly offset by $201 billion in revenues from the excise tax on high-premium insurance plans and $110 billion in net savings from other sources. The net cost of the coverage expansions would be more than offset by the combination of other spending changes that CBO estimates would save $404 billion over the 10 years and other provisions that JCT and CBO estimate would increase federal revenues by $196 billion over the same period. In subsequent years, the collective effect of those provisions would probably be continued reductions in federal budget deficits. Those estimates are all subject to substantial uncertainty.

By 2019, CBO and JCT estimate, the number of nonelderly people who are uninsured would be reduced by about 29 million, leaving about 25 million nonelderly residents uninsured (about one-third of whom would be unauthorized immigrants). Under the proposal, the share of legal nonelderly residents with insurance coverage would rise from about 83 percent currently to about 94 percent. Roughly 23 million people would purchase their own coverage through the new insurance exchanges, and there would be roughly 14 million more enrollees in Medicaid and CHIP than is projected under current law. Relative to currently projected levels, the number of people either purchasing individual coverage outside the exchanges or obtaining coverage through employers would decline by several million.

Although CBO does not generally provide cost estimates beyond the 10 year budget projection period (2010 through 2019 currently), Senate rules require some information about the budgetary impact of legislation in subsequent decades, and many Members have requested CBO analyses of the long-term budgetary impact of broad changes in the nation’s health care and health insurance systems. However, a detailed year-by-year projection, like those that CBO prepares for the 10-year budget window, would not be meaningful because the uncertainties involved are simply too great. CBO has therefore developed a rough outlook for the decade following the 10-year budget window by grouping the elements of the proposal into broad categories and assessing the rate at which the budgetary impact of each of those broad categories is likely to increase over time.

All told, the proposal would reduce the federal deficit by $12 billion in 2019, CBO and JCT estimate. After that, the added revenues and cost savings are projected to grow more rapidly than the cost of the coverage expansion. Consequently, CBO expects that the proposal, if enacted, would reduce federal budget deficits over the ensuing decade relative to those projected under current law—with a total effect during that decade that is in a broad range between one-quarter percent and one-half percent of GDP. The imprecision of that calculation reflects the even greater degree of uncertainty that attends to it, compared with CBO’s 10-year budget estimates.

These projections assume that the proposals are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation. For example, the sustainable growth rate (SGR) mechanism governing Medicare’s payments to physicians has frequently been modified (either through legislation or administrative action) to avoid reductions in those payments. The projected savings for the proposal reflect the cumulative impact of a number of specifications that would constrain payment rates for providers of Medicare services. The long-term budgetary impact could be quite different if those provisions were ultimately changed or not fully implemented. (If those changes arose from future legislation, CBO would estimate their costs when that legislation was being considered by the Congress.)

I am most inspired by the vision of President Obama with respect to health system reform, and his principles for effecting needed changes to America’s health care system.

I believe the principles he has provided to this conversation are in full alignment with the principles developed by the College during the past year. I firmly believe the President has taken a pragmatic approach that will bring persons on both sides of the aisle together to get reform passed this year. His concern and desire to address the flawed SGR payment formula and to work with Secretary Sebelius to reduce defensive medicine through achievable tort reforms is also most welcome to all physicians. It is essential that the nation move forward in 2009 with a meaningful and historic health reform proposal.

We look forward to working with the President, Secretary Sebelius, and the Administration to help move legislation through Congress this year and then to work on the process of implementation over the coming years.

In every other area of our economy, we have straightforward way to separate the good ideas from the bad ones with respect to low-cost, high-quality production. It’s called a competitive marketplace. People with the best ideas succeed and make profits. People with the worst ideas fail and go out of business.

I can think of only one other field where we invite people who are not actually in the trade (including politicians) to tell the producers how to produce: Education.

Nonteachers have teen telling teachers how to teach for 25 years. How well has it worked? About as well as nondoctors telling doctors how to practice medicine is likely to work.

It's hard to know what the future holds in the long-term, but for now the real question we need to answer is: What lessons can be learned from the experience of large, integrated groups and applied to individual and small group practices to help physicians provide optimal and more efficient patient care?

Physicians are committed to improving patient care, and health reform should help them take advantage of proven strategies to improve quality and to participate in pilot projects for new models of care, such as ACOs. Pilot programs for ACOs will need to be flexible enough to allow different types of practices to become engaged in this new model to see if it really does work to improve quality and reduce growth in costs. ACOs could facilitate "shared savings" arrangements, where participating physicians agree to work together to manage and coordinate care for patients and qualify for bonus payments if the organization as a whole meets certain quality and spending benchmarks.

To truly make systematic changes in medical practice that will benefit all patients, updates in antitrust and other laws will be critical to ensuring the flexibility and collaboration necessary to pursue these innovations. Removing the antitrust barriers that restrict physicians' ability to work together to create efficiencies, improve quality, and advocate on behalf of their patients must be done to advance this reform and vastly improve the health care system as a whole.

Accountable care organizations (ACOs) are one example of the tools that have been proposed to improve health care financing and delivery. By assigning a group of physicians the responsibility for patient care quality and overall annual Medicare spending, ACOs seek to better integrate traditionally "silo-ed" providers.

But, like other promising tools (such as the medical home), ACOs have yet to be well defined, implemented, and widely tested in real world settings. In short, there is a knowledge gap between conceptualizing these tools and actually creating a care delivery system that works. What is needed today is the ability to test a variety of innovative models in different settings across the nation--community by community--based on the unique needs of diverse patient populations and providers. And, for communities to succeed, they need "safe harbors" to innovate free from some of the regulatory framework that impedes providers' ability to work with one another to benefit their patients.

The Health Care Innovation Zone (HIZ) Pilot Act of 2009 (H.R. 3664) provides the opportunity to do just that. Introduced by Congresswoman Allyson Schwartz (D-Pa), the bill provides planning grants for regional alliances that contain a teaching hospital, physicians, and other clinical entities to provide the full spectrum of health care services to a defined population of patients. The bill inherently recognizes that in a nation as diverse as ours, health care needs vary widely from community to community, and that when it comes to innovation, there is no such thing as a "one-size-fits-all" approach. It also recognizes that some communities will be able to go much further than others when trying to integrate the health care system, but it allows them to build those systems from the "ground up" rather than attempt to fit into a single, defined approach.

To the extent that institutions such as the Mayo Clinic, the Cleveland Clinic, and others already have emerged as success stories, it is due largely to their unique position geographically and demographically (for example, their ability to leverage existing health care spending for large populations in defined geographic areas). This enables them to support systems that better align benefits, delivery, and information, and to test innovative business tools such as ACOs.

The question is, "How do we introduce such disruptive innovation to other communities and begin to generate new success stories?"

By creating a variety of health care innovation zones, we will be able to test the effectiveness and feasibility of various models, and discover which are generalizable to other parts of the country. In turn, this testing will help us develop even more effective tools to provide to other communities and spur innovation on a wider scale.

Inducing physicians to leave small practices is not the key challenge for getting more integrated delivery through accountable care organizations (ACO). Physicians appear to shifting to larger practices at an increasing rate. Many hospitals are employing physicians or setting up affiliated groups because they see a need to “offer a salaried platform” for young physicians looking to concentrate on clinical work and seeking control over their work hours. Many physicians already in small practices are seeking to affiliate with hospitals or larger medical groups to gain access to higher payment rates from insurers through leverage.

These trends provide hospitals an opportunity to create integrated delivery systems. But I doubt that many will take that initiative without major reform in the provider payment system. Much of today’s alignment from the hospital perspective is motivated by the longstanding strategy of gaining the allegiance of physicians who can be admitters of patients to the hospital. Hospitals learned a painful lesson about what can happen when employed physicians have no incentives during the early 1990s, so many employment contracts today have a series of incentives designed to simulate those in small practices. So many of today’s employed physicians are motivated to generate additional volume. Pairing this with higher rates from hospital leverage with health plans is a much more attractive business model today than creating truly integrated delivery systems that focus on the health of populations.

A final point is that small practices may not be a barrier to integrated delivery. Advances in health information technology offer a platform to a hospital system or larger group to bring smaller practices into its delivery system. Geisinger appears to have been successful in bringing many small practices in small towns into its system through contracts rather than through ownership.

I believe that the key challenge to succeed with ACOs is to develop a payment system that sets up the right incentives. This will involve fixing the distortions in the fee-for-service system because this will play a large role in ACO payment, at least during a transitional phase. It also will take involving patients, something leaders have been reluctant to address.

If we are to significantly reform health care in the United States to deliver better value (better outcomes, safety and service to patients at a lower cost), it is imperative that the health care delivery system change to become integrated and coordinated. That means that physicians, nurses, hospitals will need to change the way we all practice.

There are many ways to achieve the integration and coordination that result in better outcomes, better safety, better service and lower costs. One is to organize into a integrated clinic systems like Scott White in Texas, Lahey in Massachusetts, Aurora in Wisconsin, Ochsner in Louisiana, Geisinger in Pennsylvania, Marshfield and Gunderson in Wisconsin, Virginia Mason in Washington state, Intermountain in Utah, Cleveland in Ohio and Mayo in Minnesota, to name a few -- but it is not the only way. Physicians in small group or individual practices can organize in real and virtual ways with others in their communities, regions and across the country by creating learning organizations supported by electronic information and knowledge systems. The communities of Grand Junction, Colorado; Cedar Rapids, Iowa; and Appleton, Wisconsin are examples of communities in which physicians and other health care providers have already found creative solutions to coordinating care and providing better outcomes at lower costs. Furthermore, integrated clinics, like those listed above, have already started to coordinate with other providers in their regions and in the country so patients can be sure of safe, appropriate, affordable care regardless of what provider they see in any location.

Accountable care organizations and bundled payments help facilitate the change that is necessary to incentivizing all types of health care providers to communicate better, integrate and coordinate care, and provide better outcomes cost effectively.