Health-Care Costs: A Pledge to Obama


Hospitals, doctors, drugmakers, and insurers to promise President Obama greater efficiency in a bid to slow the pace of rising health-care costs

Powerful medical industry groups representing hospitals, doctors, drugmakers, and health insurers will meet with President Barack Obama on May 11 to pledge that they will work to reduce the rising costs of health care, with a goal of chopping $2 trillion from the nation's medical bills over the next 10 years.

The plan would not lower health-care costs. Rather, it is intended to slow the rate at which health-care costs are expected to increase by about 1.5 percentage points a year. Health-care costs are currently expected to continue rising at about 6% to 7% a year without significant changes to the system.

Still, slowing the pace of that climb would be significant. Health care, which will consume 17% of the nation's GDP this year, is expected to jump to a crippling 20% by 2017 if current spending trends continue unabated. The Administration estimates the measures to be laid out on Monday would save a family of four as much as $500 in the first year and $2,500 or more each year after the fifth year, compared with what would be expected without the changes. As a result, over 10 years, the rise in health-care costs would be 20% below what is currently expected, saving some $2 trillion by industry estimates, senior Administration officials said.

"I don't think there could be a more significant step to help struggling families," said one Administration official, who was made available on condition that his name not be used. "Achieving a slowdown in the rate at which [health-care costs] continue to increase would be a huge achievement."

Administration officials didn't offer details about how the savings might be achieved other than to refer to broad principles such as bundling payments for greater efficiency and offering incentives for better care rather than more care. They also said there would be no new federal enforcement of the cost savings other than public pressure. Some of the proposals would require new legislation along the lines of various health-care reform proposals circulating on Capitol Hill.

enough savings to fund wider coverage?

"It makes it clearer than ever that health-care reform will now happen in Congress," another senior Administration official said. The six groups making the proposal—which include the American Medical Assn., the American Hospital Assn., America's Health Insurance Plans, and the Pharmaceutical Research & Manufacturers of America—"understand that all of this has to be done within the context of comprehensive health reform."

Indeed, Monday's announcement comes as Congress moves to complete a health-care reform bill in June. In February, Obama laid out a broad set of principles in his budget, calling on Congress to come up with a system by the end of this year that guarantees Americans a choice of health-care plans and doctors, extends coverage to the estimated 48 million people who don't now have it, and lets workers take coverage with them if they change jobs.

Providing coverage on that scale could cost $1 trillion or more over 10 years, experts estimate; Obama's initial budget sought $634 billion as a down payment. An Administration official said Sunday that if the measures promised by the health industry groups are realized, their savings would dwarf the cost of a health-care reform measure. "There is no plausible scenario under which expanded coverage comes anywhere close to increasing national health-care expenditures" enough to wipe out those savings, he said.

For all the ambitions of the trade groups' proposal, big questions remain: Will public scrutiny be enough to persuade hospitals, drugmakers, doctors, and health insurers to reduce costs as much as promised? And who will reap the benefits of increased efficiency—will cost savings from more efficient health insurers, for instance, flow to consumers and taxpayers, or to the insurers' shareholders?

conflicting agendas

Finally, it remains to be seen whether the industry effort will become a rallying point for major health-care reform—as the Administration seems to hope—or a foundation for opposing major changes to the system. Employers are far more interested in holding down health-care costs than expanding access, so the Administration must appear serious on the cost side if it wants their support for a universal-coverage bill.

On the other hand, to the extent that health industry officials argue that the goals in this proposal can be achieved with only modest legislative changes, it could become an argument against the kind of sweeping overhaul Democrats are seeking.

Indeed, the six organizations meeting with Obama have divergent interests: The hospital groups (American Hospital Assn., California and New York hospital associations) generally want to lower costs for hospitals, which currently absorb the bulk of the burden of caring for the uninsured and underinsured. AHIP wants to avoid seeing its members cut out of any successful health-care reform package. PhRMA, the drug industry trade group, would like to avoid significant restrictions on drug prescribing by doctors.

Health insurers in particular are worried about the Administration's proposal to create a public health-care plan as an alternative to private health insurance. But one of the Administration officials who spoke Sunday said that issue was not discussed in talks over the industry proposal. "The President likes the public plan," the official said, and it remains "part of his campaign plan."

Francis is a correspondent in BusinessWeek's Washington bureau.

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