Our real deficit problem…and why the President's Independent Patient's Advisory Board is the most serious proposal on the table to address it

James Suroweicki, who authors the New Yorker's  "Financial Page," wrote recently that "strange as it may sound, the federal government does not have a spending problem per se."  This assertion may seem crazy in the context of current deficit hysterics, but it's true.  Rather than a deficit problem, Suroweicki continues, what we have is "a health-care problem."

The cost of most budget items typically rises at a reasonable rate, if at all, but the cost of Medicare, Medicaid, and the tax subsidy for employer-provided insurance has been rising much faster than everything else…

Liberal economist Paul Krugman concurs:

We have to do something about health care costs, which means that we have to find a way to start saying no. In particular, given continuing medical innovation, we can’t maintain a system in which Medicare essentially pays for anything a doctor recommends. And that’s especially true when that blank-check approach is combined with a system that gives doctors and hospitals — who aren’t saints — a strong financial incentive to engage in excessive care.

In a study entitled "Keeping Heatlh Care Afloat", Princeton economist Uwe Reinhardt cites several studies that show where a large part of the excess cost in America's health care system has been going:

(I)n 1990 Americans used $390 less in real medical resources per person than Germans did, but spent $737 more on higher prices, $360 more on administration, and $256 more on other forms of overhead…in 1999 the U.S. system consumed $1,059 per person in administrative costs, compared with just $307 in Canada…from 1969 to 1999 the fraction of the total health care labor force accounted for by administrative workers grew 18 to 27 percent in the United States, but only from 16 to 19 percent in Canada.

These numbers may be somewhat dated, but there is nothing in health care industry inflation over this last decade to indicate the problem of administrative overhead has gotten anything but worse. What can be done?

In his recent budget speech President Obama made the most serious long-term deficit reduction proposal on the table that involves controlling spending. The President advocates increasing the power of the Affordable Care Act's Independent Patient Advisory Board as a means of constraining Medicare spending by the federal government.  The response in Congress has not been encouraging.

"The Health Care Blog" described the reaction:

It didn’t take long for the fireworks to start. The New York Times reported… that politicians from both sides of the aisle are lining up not only to deep-six the president’s latest IPAB proposal, but to get rid of it entirely. Republicans like Paul Ryan of Wisconsin cried rationing. Democrats like Pete Stark of California said such decisions are better left in the hands of Congress.

So Congress, which has demonstrated an acute inability to control health care spending, is pushing back against the President. It's not surprising that the GOP would reject anything the President proposed, since their agenda is essentially to kill Medicare and kill health insurance reform under the ACA.  But the negative response includes some Congressional Democrats, who want to maintain their current prerogative to control Medicare spending.

For starters, in trying to unravel the issues, let's look at how the Independent Patients Advisory Board actually works.  Here the official White House formulation:

15 experts including doctors and patient advocates would be nominated by the President and confirmed by the Senate to serve on IPAB.

 IPAB would recommend policies to Congress to help Medicare provide better care at lower costs.  This could include ideas on coordinating care, getting rid of waste in the system, incentivizing best practices, and prioritizing primary care.

 IPAB is specifically prohibited by law from recommending any policies that ration care, raise taxes, increase premiums or cost-sharing, restrict benefits or modify who is eligible for Medicare.

 Congress then has the power to accept or reject these recommendations. If Congress rejects the recommendations, and Medicare spending exceeds specific targets, Congress must either enact policies that achieve equivalent savings or let the Secretary of Health and Human Services follow IPAB’s recommendations.

IPAB is a backstop – it would only take effect if Medicare costs grow too fast.  We’re already implementing a series of reforms that will improve the quality of care and reduce costs. In fact, according to Congressional Budget Office projections, Medicare spending won’t hit the targets that would cause IPAB’s recommendations to take effect in the next decade. But independent experts agree that IPAB will offer constructive ideas and help keep Medicare cost growth per enrollee affordable in the long run…

Under the President’s framework, seniors will have their guaranteed Medicare benefits. People on Medicare won’t be saddled with thousands of dollars in additional health care costs. And Medicare beneficiaries will be able to choose the health care plan and doctor that work for them.

According to The New Yorker's Suroweicki, the IPAB "trims more than four hundred billion dollars from Medicare spending, and contains a host of initiatives designed to make the health-care system more efficient and effective"

In line with that, it creates a body called the Independent Payment Advisory Board, which determines how much Medicare will spend annually. The American health-care system is riddled with waste and unnecessary and ineffective procedures. Relative to every other industrialized nation, we spend more and our health outcomes are no better (and often worse). In American medicine, supply often creates its own demand, and paying doctors on a fee-for-service basis encourages more high-cost procedures. The I.P.A.B., in conjunction with other cost-cutting provisions in the bill, would look to fix the skewed incentives that lead to overtreatment, bargain for better prices, and insure that we’re spending our money more effectively. The Affordable Care Act is far from a perfect law, but the C.B.O. estimates that, if implemented as planned, it could cut the long-term deficit by more than a trillion dollars.

We've posted graphs projecting just how health care inflation will eat up increasing amounts of GDP in coming decades, no matter who is paying the tab.  Neither shifting the burden of health care payments from the government to individuals, which is the GOP's free-market-faith-based "magic bullet" nor, conversely, just shifting payment from private insurers to the government, as proponents of "Medicare for all" single payer advocate (which DOES offer savings in overhead and insurance company profiteering), is an adequate solution to the long-term problem. Based on the record of health industry inflation and how that projects in coming decades, even single-payer solutions run into cost problems.

Changes in how funding for treatment is allocated are needed, based on best practices and expert evaluation of outcomes.  Too much health care spending is driven by providers getting payments for various treatments simply "because they can."  And - outside of Medicare - there is no incentive to streamline administration or keep pure profit-driven decision-making in check.

The IPAB isn't an easy answer to all of the complex issues involved in cost constraint moving forward. But it establishes a process to begin addressing the difficult questions. It offers a framework - and one that's based in transparency and aggregation of the most complete data possible. It brings the process of budgeting, planning and proposing constraints on the least effective and most costly practices into the daylight. It places this critical decision-making - and inevitable debates - into the public sphere and out of the hands of folks invested in those aspects of our health care system that have brought least benefit to patients while maximizing industry profits.  The tangled political processes of Congress - any Congress controlled by any party - cannot be relied upon to effectively manage this essential and complex task.  IPAB doesn't strip Congress of any responsibilities or engagement. It's not a dictatorial board and certainly not a "death panel."  But the principle and process mandating the Independent Patients Advisory Board doesn't rest on the assumption that politicians can effect what they clearly cannot.

As noted on The Health Care Blog, "One of the reasons Medicare costs are out of control is that every effort to rein in spending in one Congress is usually overturned by subsequent Congresses."

Ezra Klein further makes the case that the essential component of deficit reduction - an effective strategy to constrain health care costs - is dependent on Congress acting responsibly rather than demagogically:

The single truest thing you can say about the Affordable Care Act’s potential to control costs is that the law will be about as effective as Congress wants it to be. With the backing of an attentive and supportive Congress, the law is a powerful and flexibile vehicle for cost control. Against the resistance of a divided Congress where a substantial portion of the members don’t want the law to succeed, cost control will be a lot more difficult.

Deficit reduction is a real issue, but most of the issues marking the deficit debate in our current Congress aren't serious or real.  It's a great idea to have a serious debate about how best to enact health insurance reform that broadens coverage, guarantees quality care and begins to control costs.  It can be done.  But - in the current parlance of our "serious" commentariat - it requires adults in the room and an admission of where out-of-control spending actually exists over the long term.

Unhinged ideology, special interest agendas and turf wars seem to govern the rhetoric and actions of too many legislators.  Serious and adult voters will have take our own measures in 2012 to address the inability of our current Congressional majority to even begin to get serious or act like adults.  The President has made a significant step forward.  But he'll need a lot of help to make the IPAB actually work.