Cost

HEALTH REFORM: Four Goals for "Dysfunctional, Disorganized and Wasteful" System

Joanne Kenen — Tue, 24 Nov 2009 18:20:00 -0500

Dr. Jack Wennberg, the father of the Dartmouth Atlas, and Shannon Brownlee, the author of Overtreated and a New America colleague, recently posted on the Health Affairs blog, recapping four major goals for repairing the "dysfunctional, disorganized, and wasteful delivery system."

1. Improve the science of health care delivery.

The stimulus package boosted comparative effectiveness research, and the health reform bills in Congress would build on that. But studying effectiveness of treatments, in isolation, isn't enough, they argue. We also need to develop a "science of health care delivery" which they call a "black box." Patients with similar conditions are treated in very different ways and we aren't doing the necessary research into how to best to allocate resources and deliver the most effective care.

2. Foster the expansion of organized systems of care.

These new systems, often described as Accountable Care Organizations, would reward providers that show they can be efficient and use resources judiciously -- while delivering high quality care. Shared savings (giving providers a portion of the savings during a transition period) gives the providers an incentive to bring down costs.

3. Informed patient choice (rather than informed consent) should become the standard of care.

Patients facing elective surgeries, tests, and procedures often don't understand exactly what they are consenting to -- or what options they may have.This can lead to higher costs when they get treatment that they may not have chosen (ie surgery instead of giving physical therapy a chance), and it may encourage malpractice suits. Shared decisionmaking could reduce unwanted care, they write, but to make this the norm providers need to be paid for the time and tools they employ. (Medical homes, the authors write, are a good payment fit for informed choice.)

4. Constraining the undisciplined growth in health care capacity and spending.

The health reform bills get most of their CBO-scored savings from cutting provider payments. But Wennberg and Brownlee content that these equal-opportunity cuts (no distinction between high quality efficient hospitals and the most wasteful ones) is a lost opportunity. They would like to see Medicare's payment clout employed to "encourage slower spending growth and greater accountability." Those who demonstrate high quality and cost accountability should be eligible for bonuses, and those that fail to restrain excess spending should face penalties (nick the payment "updates"). That would save some money in the near term but "but more importantly, it would serve as a signal that Medicare is serious about reducing future spending growth." Alternatively, payment updates could be reduced in a high-cost growth region, discouraging the "local medical arms races" that add to excess utilization and skyrocketing costs.They write:

Either way, reducing updates to high-growth regions or specific providers should discourage the easy flow of money from bond and equity markets for hospital expansion, and could spur the most inefficient providers to participate in ACOs and other shared savings programs. The key here is encouraging local providers to consider how to slow -- or even reduce -- local spending on unnecessary care. Some communities that have successfully held down costs did so by merging hospitals and eliminating unneeded capacity.

Wennberg et al also weighed in on the controversy (some emanating from University of Pennsylvania's Richard Cooper) over whether the vast Dartmouth Atlas research into geographic variation in Medicare spending adequately took health status into account, ie did the "high spending" hospitals spend more because their patients were poorer and sicker, or because they were less efficient. Wennberg and Brownlee post data showing that even in apples-to-apples comparisons (ie looking at academic medical centers in poor, urban, black communities, or even at two academic medical centers in the same community) the variations persist. Kaiser Health News recently wrote about Cooper, the controversy he engenders, and other health policy experts' assessment.

HEALTH REFORM: Polls Holding Steady Into Thanksgiving Break

Meredith Hughes — Tue, 24 Nov 2009 18:10:00 -0500

The latest Kaiser Health Tracking Poll is in, and the health care reform approval numbers are holding pretty steady. Slightly more people than last month, 54 percent, believe the country will be better off if health reform passes. And 42 percent -- an improvement from earlier this year -- believe that health reform will personally benefit them or their families.

The number who believe health reform will hurt them (24 percent) or the country (27 percent) is down slightly from last month. Roughly the same one-in-four don't think health reform will affect them. Democrats and Independents are more likely than Republicans to view health reform as positive. However, when asked about specific provisions in the health care bills, a majority ranked as "extremely" or "very" important these components of reform: affordable, available health insurance, coverage for people with pre-existing conditions, providing subsidies to help the uninsured purchase coverage, requiring all Americans to have health insurance, filling the Medicare donut hole, and not adding to the U.S. budget deficit.

The Robert Wood Johnson Foundation Health Care Consumer Confidence Index (RWJF Index) found that Americans' confidence in their health insurance coverage and access to care increased in October, from 96.6 in September to 104.4 points.

The Kaiser tracking poll also asked Americans about health reform financing options, including a tax on high income earners, or a "Cadillac tax" on high value health plans. A near majority of Americans, 47 percent, strongly favor the tax increase for high income individuals and families (like the one found in the House bill), while 29 percent strongly support the Cadillac tax.

The poll also revealed the ongoing problems Americans face in accessing affordable care during economic hard times. In the past year, a majority of Americans (53 percent) reported putting off care because of cost. According to the RWJF index, 20.6 percent of Americans reported difficulty in paying their health care bills.

For more detailed analysis of what polling data means for health reform, check out our earlier posts.

HEALTH REFORM: Dialysis Done Right

Allison Levy — Mon, 23 Nov 2009 21:30:00 -0500

Medicare hasn't put the finishing touches on its new dialysis reimbursement policy quite yet (you have until December 16 to get your comments in) -- but has decided to invest in educating the public on various dialysis treatment options. It's part of a longer term effort to give patients more of a say in managing their chronic diseases, and in changing some of the inefficient ways Medicare pays for kidney care.

More than 350,000 Medicare patients with end stage renal disease undergo dialysis. Most patients undergo out-patient treatment three times per week at either an independent or hospital based facility -- in the United States, fewer than a tenth are treated at home. (Rita Rubin of USA Today notes that three treatments per week is the standard not necessarily because it is "optimal but because that's the way it has been done for nearly four decades.")

But Medicare's education campaign will help patients make more informed decisions about where and how often they are treated.

"These education sessions will provide patients with chronic kidney disease information they need to understand their treatment options and participate in better management of their own care," Dr. James Sloand, senior medical direct of Baxter's North American renal business, told the Chicago Tribune recently. "This program empowers individuals to take measures to slow the progression of their kidney failure."

One option, as Bruce Japsen explained in that Tribune story, is for more patients to get dialysis at home. It's less expensive -- and research suggests that it is more effective as patients can "dialyze" more frequently, for longer periods of time and on their own schedule.

As Japsen explains, reimbursement for dialysis is complicated by Medicare's current payment structure, a "prospective payment system known as the basic case-mix adjusted composite payment system." In case you need a translation -- dialysis outpatient facilities bill Medicare for the routine dialysis service separately from some injectable medications and non-routine laboratory tests. These separately billable items account for 40 percent of total Medicare payment per dialysis treatment -- and are billed on a fee-for-service basis.

But, in September, the Centers for Medicare and Medicaid Services released a proposed rule to change that. Beginning January 1 of 2011, Medicare will "bundle" all the routine dialysis outpatient care -- the dialysis itself, the drugs and those lab tests -- into a single base payment (around $200 but adjusted for location and patient characteristics). (Look at this presentation for more specific details.)

Since 1972, the government has financed dialysis treatment regardless of the ESRD patient's age -- it cost an annual $10,000 per dialysis patient then, and more than $73,000 now. But Medicare believes that by bundling the payment, unnecessary medications will be eliminated and patients will receive efficient, quality and patient-centered care.

"Combining a fully bundled prospective payment system with required performance standards would encourage facilities to operate more efficiently and ensure that beneficiaries receive high quality care, while saving dollars for both beneficiaries and the Medicare program," said Jonathan Blum, director of the agency's Center for Medicare Management. (Here is another recent post about another form of bundled payment.) Not only will patients receive efficient and high quality care -- but they will be able to make an informed choice concerning the treatment option that works best for them.

HEALTH REFORM: The Cost of Doing Nothing... Part 984,039,825

Allison Levy — Fri, 20 Nov 2009 21:49:00 -0500

As we have discussed several times, doing nothing is simply not an option. We need to reform our health care system -- not despite our economic crisis, but because of the significant impact health care has on U.S. workers and businesses.

In an article for the Washington Post this morning, Peter Orszag, Director of the Office of Management and Budget, stresses that "as we enter the homestretch, the greatest risk we run is not completing health reform and letting this chance to lay a new foundation for our economy and our country pass us by."

He states that if we do not do anything to slow the rising cost of health care, the federal government will end up spending more on Medicare and Medicaid than all other government programs combined. And our country could not afford to let that happen.

We have established that the cost of doing nothing is high, yet, as Orszag notes, some still have their reserves. These are the people wondering whether it is truly possible to achieve comprehensive health reform in a fiscally responsible and sustainable manner.

But just in time for the Senate vote, Orszag takes the time to explain why in fact we do not need to fear the fiscal impact of health reform.

First, he emphasizes that the nonpartisan Congressional Budget Office has concluded that both the House and Senate bill would reduce the nation's deficit over the next ten years (and by more in the following decade). And the CBO's analyses, he stresses, are "based on hard, tangible savings -- not on the harder-to-quantify, yet very real steps that hold the most promise of transforming health care." This is good news.

What should also come as good news is this letter to President Obama. And the fact that the four elements that this group of 23 economists (consisting of Republicans, Democrats, former Bush administration officials and Nobel laureates) believe are absolutely critical to keeping the cost of health care under control -- can all be found within the pages of the legislation currently being reviewed.

The economists argue that responsible health reform legislation must include deficit neutrality, an excise tax on high-cost insurance plans, an independent Medicare commission and delivery system reforms:

Including these four elements ... will reduce long-term deficits, improve the quality of care, and put the nation on a firm fiscal footing. It will help transform the health care system from delivering too much care, to a system that consistently delivers higher-quality, high-value care. The projected increases in federal budget deficits, along with concerns about the value of the health care that Americans receive, make it particularly important to enact fiscally responsible and quality improving health reform now.

To all of you losing sleep over the impact of health reform on our budget -- rest easy tonight.

QUALITY: Dying Well Beats Dying Badly. And Expensively

Joanne Kenen — Fri, 20 Nov 2009 14:01:00 -0500

As we've written a lot on end of life care, we notice when others do the same. NPR's Joseph Shapiro this week reported on La Crosse, WI where 96 percent of the adults who die have an advanced directive. That extraordinarily high figure arises from the innovations and commitment from Gundersen Lutheran hospital. Careful, sensitive discussions by trained doctors and nurses -- they use a 12 page guide -- is time consuming. Medicare doesn't reimburse them for that time, A provision in the House health care bill would change that -- the provision that was caricaturized as a "death panel." The Senate bill doesn't contain it.

Shapiro's thoughtful piece shows many aspects of end of life decision-making, but one element we liked in particular was that it shows these decisions are not static. People can reflect, and can change. That's the beauty of advanced directives or advanced care planning. Joe Hauser, one of the patients profiled in the NPR piece, initially declined dialysis for his failing kidneys. His wife Janice begged him to reconsider. So he gathered more information and spoke to a nurse. He and his wife were trying to decide whether to visit a dialysis center, and a support group. He learned that if he tried dialysis, he would always have the option of stopping. When Shapiro last spoke to him, Hauser was still leaning against dialysis. But he wasn't sure:

There's a surprise. He extends his left arm across the kitchen table. He wants to show what he calls his "buzzer." It's a spot at his wrist where you can feel the vibration from an artery and a vein that a surgeon has joined together.

It turns out that Joe Hauser's decided to be ready, if he changes his mind. And if he decides he wants dialysis, then the needle of the dialysis machine can slip right in to that spot -- the fistula -- that the surgeon has prepared at his wrist.

We should point out that the Washington Post.'s Alec MacGillis also had a fine story about LaCrosse earlier this fall. Don't think we linked to it at the time. MacGillis looked at both the economics of end of life care, and some of the local cultural traits of La Crosse. The population is full of people of German or Scandinavian descent who seem to have a pretty pragmatic view of aging and dying. And the local doctors and nurses have a culture, too, that values communicating with patients, and respecting their wishes. People in LaCrosse spend far fewer days in the hospital in their final weeks and months of life than people elsewhere in the country. Not because the Wisconsin community doesn't want to spend the money, but because that's what the people who live there, and die there, choose.

This coming Sunday (Nov 22) 60 Minutes will do a piece on end of life, featuring our occasional guest blogger Dr. Ira Byock (read his posts here and here). The short preview on the CBS website focuses a lot on costs; we suspect the televised segment will tell a moving story about quality of care, and patient choice. Because we too have accompanied Dr. Byock in that ICU, and sat in on his team meetings, and we know that quality -- and care -- is what motivates them.

One last relevant link -- Oregon Democrat Rep. Earl Blumenauer, who authored the House provision on end of life conversations, wrote an op-ed in the New York Times this week, describing how a measure that had long and deep bipartisan roots turned into political poison: "The battle lines were being drawn. Little did I know how deep the trenches would be dug, nor how truth would be one of the first, and most obvious, casualties." Live and learn.

WORLDVIEW: Assume There's Morality

Joanne Kenen — Thu, 19 Nov 2009 21:16:00 -0500

Not many health writers -- not many writers of any ilk, for that matter -- can match T.R. Reid's ability to bring a light, witty touch to really serious topics. Like health policy around the globe.

Tom (that's what the "T" in "T.R." stands for) was the featured speaker at the Peterson Institute of International Economics today. Not the usual venue for the book tour for his best-seller, "Healing of America: A Global Quest for Better, Cheaper and Fairer Health Care." Before his talk, he told me he was planning to stress the moral case for covering everyone. Not the approach, perhaps, that this particular crowd was used to hearing. Go ahead, I told him. It is, after all, a roomful of economists eating a free lunch.

And that's what he did.

Every rich western democracy (and a few of the not so rich and not so democratic ones), he said, covers everyone. We don't.

None of their systems are perfect. Like us, they wrestle with the rising price of pharmaceuticals and medical technology, and with the needs of an aging population. But they all cover everyone. It's time, he said, for us to do the same. It's been time for a long time.

Reid argued that health care is a basic human right -- a controversial notion in the United States, but received wisdom elsewhere. He threw in some economic lingo as well. Covering everyone (and everyone, he said, means everyone) also brings about efficiencie that make the system work better. He talked about "distributional ethics." Every American -- both Bill Gates and the guy who mows his lawn -- each have one vote. But they don't each have one yacht. Health care, he said, should be more like a vote than a yacht.

Nor does he believe (as some Americans seem to, judging from decibel level of our national health reform debate) that expanding coverage is a zero sum game. I get more, you get less. He argues that we can all get more. More efficiency. More morality. If we find the will, other wealthy industrialized countries can show us a plethora of ways.

Two New America colleagues have reviewed his book. Phil Longman in the Washington Post called the book " a service to his nation," Shannon Brownlee in the Washington Monthly wished he had written more on the lack of evidence behind some of the treatments widely used in the U.S. We liked the film Reid did for Frontline last year, "Sick Around the World" and we liked the book, a readable account of different national health systems interspersed with his own amusing but enlightening global search for a fix for his bum shoulder. How can you not like a book that has sentences like:

France [is] a mirror image of the United States when it comes to health care: Americans strongly dislike their national health care system but haven't found the political will to change it; the French are highly satisfied with theirs but change it all the time."

Or, after having his shoulder treated (quite successfully) by traditional healers in India, when he wrote:

When the front office at the Arya Vaidya Chikitsalayam handed me a detailed accounting -- dozens and dozens of pages listing every navarakizhi, every poojah, and ever ancient herbal medication I had experienced -- I realized instantly that my U.S. insurance company was never going to pay this bill.

He didn't care. His shoulder was better -- and he had lost nine pounds.

Reid's message is not always wry or witty. Far from it. At the beginning of his book, and again near the end, he writes about Nikki White. She died of lupus at age 32. Not because her disease was so severe or untreatable. But because once she became too sick to work, she lost her insurance. And once she lost her insurance, she got sicker. She could not get the treatment she needed until she was so sick that it was too late.

"No other rich country would have tolerated the inequality that left Nikki White dead," he wrote. Designing a health system is an economic question, a medical question, a political question, he acknowledged. But in the end, he concluded, " the primary decision to be made is a moral one."

COVERAGE: Evaluating the Public Plan, Man

Paul Testa — Thu, 19 Nov 2009 20:23:00 -0500

Slate's Timothy Noah provides a thoughtful overview of the intellectual origins and political evolution of the public option's place in health reform.

It's a complicated case, the public option. Lotta ins. Lotta outs. But Timothy Noah is the Big Lebowski of health writers, and is the man for the job to keep all these strands together. (Yes, we know we've made that joke before, but like our living room rug it really ties the blog together.)

Noah's goal was to understand why the CBO and others estimated that premiums for a so-called level playing field public option would cost more than private plans. Noah spoke with New America's Len Nichols, whose paper with John Bertko helped outline how a public option with negotiated payment rates could compete on a level playing field with private plans.

At the heart of Noah's question are the assumptions these estimates make about the nature of the public option and the potential for adverse selection between insurers (in this case more sick people choosing the public option over private plans). Noah nicely illustrates the intricacies of this debate, and we'd like to add a few more points to consider.

First, we would argue the fears that a public option will necessarily attract a less healthy (higher cost) population are overblown. Health reform legislation encompasses new insurance market regulations (community rating, affordability standards tied to actuarial values, guaranteed issue and renewal). Coupling those new rules with the requirement that all Americans purchase health insurance removes much of the ability and incentive for private insurers to engage in the kind of cherry picking and lemon dropping that the Slate article addresses. Insurers will still try to attract healthier customers through advertising and marketing, but their ability to actively select customers based on health status and other risk factors would be limited. Risk adjustment will further address variation that might arise through this sort of "soft" risk selection.

Second, it seems unlikely that sicker individuals will drop existing coverage and flock to the public option. If they're offered coverage through an employer and that coverage is deemed affordable relative to their income, they're ineligible for the exchange. Furthermore the transition costs of switching plans when you've already set up a network of providers to care for your conditions are such that if you like what you have, you will probably prefer to keep it.

Finally, there is the question of how a public option would operate -- specifically, how would it employ methods of utilization management. Utilization management is ungainly jargon even for health policy. It should not be conflated with the cherry picking and lemon dropping of risk selection. When practiced correctly, utilization management is about delivering value for our health care dollar. It's about paying for what works, reducing unnecessary tests and procedures, and encouraging healthy behaviors. It's about avoiding the MRI when an X-ray will do, or making it easier for a diabetic to manage her blood sugar and avoid crises and complications that could send her to the ER -- or the OR. Or the ICU.

There are many real world examples where utilization management done right both saves money and improves patient care. But the CBO and others in their estimates basically assume that a public option would ignore the examples of plans like Group Health or Kaiser, and keep paying providers along the lines of fee-for-service Medicare. Why would the Secretary of HHS design a public option to perpetuate broken payment models, when it could be a driver for innovation in payment and delivery system reform? So for all the hand wringing over a public option, when it comes to estimates of adverse selection and utilization, remember, that "yeah, well, you know, that's just, like, your opinion, man." Cost estimates are important, but implementation is what really matters.

COST: The Price is Right for Health Reform

Paul Testa — Thu, 19 Nov 2009 18:50:00 -0500

After weeks of anticipation and speculation, Senate Majority Leader Harry Reid has unveiled the legislation that will bring health reform to the Senate floor in the coming weeks.

While waiting for the details of the bill to come out Wednesday, we created a little office pool, called the Price is Right for Health Reform. In an office-wide email, we asked our peers to guess the CBO's estimates of the gross costs of the bill. Showcase Showdown rules (closest without going over) applied. We were intentionally vague in our question because estimating the true costs of the bill is inherently a difficult process.

The number we were looking for was $848 billion. The CBO's estimate of the gross cost of the bill is essentially the total cost of coverage provisions over the next 10-years. This is the number most frequently reported in the media as the "cost" of the various health reform bills being discussed. But is this really the best indicator of the true costs of health reform? Maybe not. First, timing matters: $848 billion over ten years is a lot different than a $787 stimulus bill where 90 percent of the money is spent within the first 3 years. So do deficits. How much does a bill cost if it's fully paid for and in fact reduces the deficit as is the case for both the House ($109 billion) and Senate ($130 billion) bills?

We received plenty of calls from our co-workers asking just these questions. We tried to stay quiet, because we were interested in what the educated, non-health policy wonks think about the cost of reform. True to our think tank's "post-partisan roots" we got a range of answers from "too little" to "$600 trillion, Obama lies." We got a couple of "$1" which we assume was a reference to the bill's deficit neutrality, and $90 billion which seems like a reasonable estimate of yearly costs. But the majority of the answers clustered within the $800-$900 billion range, surprisingly close to the final answer. Few people seemed willing to go above $900 billion, suggesting the power of the official price tag President Obama put on reform during his September address to a Joint Session of Congress. So who won? The answer after this non-commercial break:

Marc Goldwein, the Policy Director, Committee for a Responsible Federal Budget and Policy, took home the prize for his guess of $845 billion. Lisa Guernsey, the Director, Early Education Initiative, came agonizingly close with pick of $850 billion. New America's President Steve Coll, was the next closest with a prediction of $837 billion.

Marc's prize potentially includes a Dodge Neon from 1996, a natural wood-like dinette set from 1982, or more likely a beer and some wings from the re-opened Black Rooster Pub (take that Peace Corps!). We suspect he'll also want us to plug the excellent work he and his colleagues do on all things budget. Congratulations Marc. Help control the pet population. Have your pets spayed or neutered.

As a side bet, we also asked contestants to name which current Senator looks most like Bob Barker. What do you think?

HEALTH REFORM: Highlights from the Senate Bill

Elizabeth Carpenter — Thu, 19 Nov 2009 16:04:00 -0500

The latest version of Senate health care legislation (pdf available here) crafted by Majority Leader Harry Reid is making its rounds. There is a lot to review, but an initial read shows the bill is close to the legislation approved by the Senate Finance Committee in early October with a few notable changes: more generous subsidies, a higher threshold for the excise tax on insurers who offer high-cost plans, an increase in the Medicare payroll tax for Americans making over $250,000, and the addition of a long-term care insurance program for people with disabilities.

While this legislation also delays the implementation of insurance market reforms and subsidies (when compared to the Senate Finance legislation) there are a number of provisions that would start helping Americans immediately. In particular, the legislation:

Provides $5 billion to enact a temporary insurance program for those who have been uninsured for several months and have a pre-existing condition. Financial assistance would be available for the purchase of such coverage until the exchanges (or new insurance marketplaces) are established.
Prohibits insurers from selling insurance products that have lifetime or annual caps on benefits and from rescinding coverage except in the case of fraud or misrepresentation.
Requires health insurance companies to report publicly the percentage of total premium revenue spent on patient care and quality versus administrative costs. Health insurance companies will be required to refund enrollees if costs not related to patient care exceed a certain threshold.
Establishes small business tax credits to help small employers afford coverage for their workers starting in 2011.
Extends dependent coverage to require all insurers to allow young adults to remain on their parents' insurance until the age of 26.

The fiscal picture of the legislation should also give moderates a lot to cheer about. CBO not only says the legislation would reduce the deficit by $130 billion over the next decade, but it also expects that:

Medicare spending under the bill would increase at an average annual rate of roughly 6 percent during the next two decades -- well below the roughly 8 percent annual growth rate of the past two decades...Adjusting for inflation, Medicare spending per beneficiary under the bill would increase at an average annual rate of roughly 2 percent during the next two decades -- much less than the roughly 4 percent annual growth rate of the past two decades.

In other words...curve benders rejoice!

COSTS: The Price of Pessimism -- What the CMS Actuaries Missed

Len Nichols — Tue, 17 Nov 2009 21:24:00 -0500

Last week, Medicare's chief actuary (formally known as the Office of the Actuary, or OACT) released an analysis of the financial impact of the health reform legislation recently approved by the House of Representatives (H.R. 3962). Here are a few thoughts:

Get familiar with the source. Remember their history. The Medicare and Medicaid actuarial team's job is to track and understand Medicare spending patterns. By design, it is also their job -- and their historical pattern -- to be skeptical about proposals for change. Just for context, the office's estimate of the cost of the Medicare Modernization Act in 2003 (the bill that created the Medicare prescription drug program, Part D) was $100 billion, or 25 percent, more than the Congressional Budget Office's (and CBO is also conservative by nature and design). Last year CMS's Chief Actuary testified to Congress that the 10-year cost of the Medicare drug benefit is 37 percent lower than originally projected in 2003, and 17 percent lower than the previous year's updated projections. Don't get me wrong. We need conservative estimators to prevent Pollyanna policy from being enacted into law. But we should take that conservatism for what it is: a useful check on the naturally optimistic expectations of reformers.

Incentives can change behavior. The actuary's office loathes predicting behavioral changes. It therefore underestimates the private sector's ability to adapt to new incentives. This is why the only real savings they score are direct and unambiguous price changes, like the House bill's reductions to yearly market basket updates. They discount and ignore the impact of the Center for Medicare and Medicaid Innovation, which is charged with implementing every reasonable payment reform pilot imaginable, including: accountable care organizations, medical homes, and bundled payments that give clinicians across organizations incentives to coordinate and improve patient care.

Further, the CMS actuaries express worry that the profitability of hospitals, skilled nursing facilities, and home health agencies would be so grievously harmed by the proposed payment cuts that they would cease to accept Medicare's business. This reflects a pessimistic belief that providers could not become more efficient. A recent McKinsey memo, described by Jonathan Cohn in The New Republic (subscription required), concludes the opposite.

"McKinsey seems convinced that this entire package of reforms will influence behavior," Cohn says. "McKinsey's analysis suggests that -- as long as they adjust to the new incentives -- doctors, hospitals, and insurers will be just fine."

The McKinsey memo also suggests that both CBO and the CMS actuary underestimate the ability and self-interested drive of providers to respond to incentive changes. That leads to these overly pessimistic estimates about the effectiveness (or ineffectiveness) of reform legislation. Now I ask you, dear reader: Who knows the health industry and their clients best -- McKinsey or the well-intentioned but relatively cloistered actuaries for Medicare?

Finally, when compared to the CBO, the CMS actuaries predict 5 million fewer people will get coverage and twice as much revenue will be raised from the individual mandate penalty under the House bill. This is another example of the CMS skepticism about behavioral effects. I think it is fair to say that CBO analysts spend a lot more time than do Medicare's actuaries thinking about people under 65 and their potential responses to changing insurance prices. I have to give more weight to CBO's estimate here.

Reducing overpayments will not deprive Medicare beneficiaries. The CMS actuary's memo states that the Medicare Advantage (MA) overpayment reductions in the House bill would mean fewer benefits in most MA plans. It neglects to mention, however, that it would not reduce benefits below the statutory benefit package guaranteed to our nation's seniors. In addition, the CMS actuary memo fails to mention that current Medicare Advantage payment levels overcompensate plans by quite a bit (14 to 18 percent, according to most independent analysts). Only some of this extra compensation translates into additional benefits for some of the one-fourth of Medicare beneficiaries enrolled in Medicare Advantage plans. In short, this analysis is overblown, especially since it does not mention that the competitive bidding approach to changing Medicare Advantage plan payment in the Senate Finance bill would preserve the incentive to provide extra benefits made possible by the efficiencies of some plans.

Small growth in National Health Expenditures is a good deal. The CMS actuaries estimate that after all is said and done, national health spending will claim 0.3 percent more of GDP in 2019 than under current baseline trajectories. They come to this conclusion despite being pessimistic about behavioral responses to delivery system reforms and despite assuming we will be covering 34 million more Americans by that time. In other words, even analysts who are pessimistic about savings assert that we can just about pay for covering most of the uninsured out of savings from elsewhere in the health system. Even a little more success than they project (far less than the percentage they were wrong about the Medicare Drug Benefit) and we will be covering the uninsured at lower cost than we would have spent without reform.

In sum, there are some fine analysts at OACT, and Rick Foster and his team serve our nation well as actuaries of the Medicare program. When it comes to knowledge of the delivery system and the under-65 population, however, they are perhaps less up to speed than McKinsey or CBO. People should not get hung up on their judgments about the potential for delivery system change. People should notice, however, that they estimate the savings provisions in the House legislation will generate $20 billion more over 10 years than CBO estimates. This is their area of relative expertise. Predicting behavioral responses, of hospital CEOs or of uninsured individuals, is not.