The ACP Advocate Blog

by Bob Doherty

Tuesday, July 7, 2009

Hospitals to Obama: Deal us in!

The hospitals are the latest to strike a cost-cutting deal with the White House, according to the Washington Post. While the details have not yet been released, the hospitals reportedly have agreed to a $155 billion cut over ten years, mainly from phasing down extra payments for indigent patients (called disproportionate share payments) as coverage is expanded to the uninsured. Last month, the pharmaceutical industry struck a similar deal to trim Medicare Part D expenditures by $80 billion over the same time frame, bringing the combined savings from the hospitals and drug companies to some $335 billion, or about a third of the estimated trillion dollars required to fund pending health care reform legislation. The Wall Street Journal reports that the insurance industry is poised to chip in another $100 billion in savings.

Opposition to cuts that adversely affect their members is part of the DNA of these powerful health care sectors. Why are they now agreeing to cuts? What's in it for them?

One is that such deals may ward off even bigger cuts, like the $200 billion in cuts to hospitals that Obama proposed in his budget. It also gives the industry groups more leverage over other elements - for instance, the hospitals reportedly received assurances that the public plan option will not be based on Medicare rates.

Not everyone in Congress is pleased with such deals. Politico reports that some powerful House Democrats are stewing because the agreement with drug companies could deny them access to the "tens of billions of dollars that House Democrats would argue were given away to drug manufacturers as part of the bargaining in the Republican-backed Medicare prescription drug."

Despite the rumblings in some quarters in Congress, the White House clearly welcomes agreements with industry that would cut the costs of health care reform. Especially if such deals keeps industry from launching "Harry and Louise" style attack ads.

Notably absent (at least so far) from such deal-making are physicians as represented by the American Medical Association. The AMA was part of the "bending the curve" group that promised to trim the rate of growth in health care expenditures, but to my knowledge, the AMA is not making promises to the White House that lock in a certain level of savings or cuts from physicians.

This underscores that fact that physicians are in an unusual place in the health care reform debate. Congress is planning to spend more money on doctors, and even more on primary care doctors - the only question being how much more - while other sectors are being asked to agree to trim spending by hundreds of billions. Because of Medicare's sustainable growth rate (SGR) formula, physicians are facing a 21 percent payment cut next year, and unless Congress scraps the SGR, such cuts will continue, year-after-year-after-year. It will take hundreds of billions of dollars in increased spending on physicians just to wipe out the accumulated SGR cuts.

One simply can't expect a lot of savings from doctors when they already are facing deep cuts, and when they have not seen their Medicare fee updates keep pace with inflation for at least the past seven years. Also, initiatives that could generate long-term savings, such as payment reforms designed to align physician payment incentives with the value of care provided, are going to take years to roll out and not likely to achieve immediate budget savings.

Congress and the White House may not ask physicians to pony up more savings, but they do expect that physicians will recognize and support their efforts to wipe out the accumulated Medicare pay cuts and raise primary care fees, and that doctors ultimately will be on board in support of health reform.

Today's question: What do you think about the deals being made with industry? Should the medical profession itself be offering its own savings?

3 Comments :

Blogger Jay Larson MD said...

The $64,000 question is how will these industries reduce costs? Will it be from further bureaucracy place on the backs of primary care physicians? When will the different industries learn that squeezing the primary care docs only result in increased costs in the long haul? As it has been said...Common sense is not common.

The medical savings that physicians should offer is the benefit of improved patient care. Saving money for the sake of saving money may result in patient harm. Physicians should think before ordering tests... is this test really necessary? Will the test results affect the treatment plan? When prescribing medications...is the name brand really more effective than the generic? Are medications prescribed for long term use the same as those in the medicine sample cabinent? The next time a pharm rep is in the office, remember this...Advertizing is the science of arresting human intelligence long enough to get money from it.

If physicians are true to their patients, profession, and ethics, the cost savings can be enormous.

July 7, 2009 at 6:27 PM  
Blogger Steve Lucas said...

From the business side these industries are based in marketing, and in marketing, you tell the customer what they want to hear, delivering the product, welllll that is a different topic. This is all smoke and mirrors until concrete initiatives are in place.

Jay's comments hit the mark.

Steve Lucas

July 8, 2009 at 9:50 AM  
Blogger PCP said...

Having screwed the american public for the better past of 2 decades, these special interests(Insurers, Big Pharma, Hospitals, DME suppliers, etc etc.........the usual suspects) are now promising to screw us all a tiny bit less over the next 10 yrs. Yeah right!
300 billion over 10 yrs is about 30 billion a year. Given that the 3 biggest players in this (Big Pharma, Insurers and Hospitals) probably account for something like 60-70% of the cost equation, ie about 1500 billion annually out of a 2.3 trillion system. Can someone say rounding error. Ah come on, they can do better than 2%?
Furthermore, in exchange for that 2% cut, they will get a 20% revenue bump(50million currently uninsured added to 250 million insured) due to increase in volume, which is apparently guaranteed to be paid better than medicare. Hmmm!
Doctors have had virtually a fee freeze since 1997. Over this time inflation has averaged about 3%. That would mean a decrease of about 40% in inflation adjusted terms.
There are about 600K actively practicing physicians in the USA. Since the average income for PCPs is in the 160-170K range and that for Specialists about 400K a year, Lets call the mean Doctors income in the USA at somewhere between 250-300K. 275K multiplied by 600K comes up to 165 Billion. We spend about 2300 Billion a year in health care in this country annually. Even if I were off by a 30% margin in this calculation, Physician incomes account for less than 10% of costs.
Numbers don’t lie.
Additionally it is the goodwill and direction of these 600K folks that we need to set the system right and control costs in that other 90% costs in the system. It strikes me as a far better strategy for lawmakers to work with Doctors and have us help us solve this, than to trim our salaries by 30% and cut health care costs by a whopping 3%.
If we want meaningful change and costs reduction, we will need something along the lines of SGR for these 3 special interests for the next decade.
The luminaries in DC expect us to believe they are extracting huge cost savings from the system? Who do they think they fooling? This is nothing but a political gimmick.

July 8, 2009 at 8:56 PM  

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About the Author

Bob Doherty is Senior Vice President, American College of Physicians Government Affairs and Public Policy; Author of the ACP Advocate Blog

Email Bob Doherty: TheACPAdvocateblog@acponline.org.

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