Last week, centrist Blue Dog Democrats and House Energy and Commerce Chairman Henry Waxman emerged from the White House with an agreement on giving an independent panel of physicians, rather than Congress, the ability to rein in Medicare spending. The agreement was heralded as a breakthrough for reform. It would set a model for reducing profiteering in our health care system, while insisting on care that provides the greatest benefit for patients.
But then, on Saturday, Congressional Budget Office Director Douglas L. Elmendorf rolled a small hand grenade down the corridors of power, writing a letter to House Majority Leader Steny Hoyer that said, in part: “In CBO’s judgment, the probability is high that no savings would be realized. There is also a chance that substantial savings might be realized. Looking beyond the 10-year budget window, CBO expects that this proposal would generate larger but still modest savings on the same probabilistic basis."
If you are confused, you should be. Notice how the statement see-saws back and forth; “probability is high that no savings. . . also a chance that substantial savings . . . . but still modest savings.” His analysis is muddled, in part because he is trying to talk simultaneously about short-term and long-term savings, in part because he is only guessing.
Befuddled, the media seized upon what appeared to be a solid number: the panel would save “2 billion” over 10 years, a “drop in the bucket compared to the bill’s $1 trillion price tag,” with all of the savings coming between 2016 and 2019.
But as health care expert Timothy Stoltzfus Jost, a law professor at Washington and Lee University pointed out on Politico.com’s Arena: “a moment's reflection would lead one to realize that the CBO's guess that the proposal would save $2 billion is about as worthless as an estimate that a loaf of bread will cost $5.65 in 2019, or a gallon of gasoline $4.73. Indeed, the CBO admits as much, stating that it actually believed the proposal would save nothing, but 'there is also a chance that substantial savings might be realized.'"
Moreover, Jost notes, the proposal would not fully go into effect until 2016, “thus only savings between then and 2019 can now be scored— and the real savings from the proposal would come beyond the 10 year time frame. . . . The CBO report reveals once again the problems that attend letting the decision of whether or not to adopt health care reform legislation turn on CBO’s ten year cost estimates.”
Just Who is Douglas L. Elmendorf?
This is not the first time that Elmendorf has torpedoed the Democrats’ plan to restructure the health care system. This makes me wonder: Just who is Douglas L. Elmendorf, and why is he throwing cold water on reform?
Elmendorf’s resume paints a bright picture: an ambitious young man with a knack for being in the right place at the right time climbs the ladder. After growing up in Poughkeepsie, New York, he made his way to Princeton, and then to Harvard, where he earned a Ph.D. in economics. There, his mentor was economics professor Martin Feldstein, the director of the Council of Economic Advisers (CEA) under President Ronald Reagan.
The LA Times recently referred to Feldstein as the “dean of the country’s conservative economists.” Feldstein, a Republican, surprised many by supporting President Obama’s fiscal stimulus plan; Obama has appointed him to his Economic Advisory Panel. But since then, Feldstein has spoken out sharply against the president’s plans to increase taxes for the wealthy (in part to fund health care reform) and has slammed Obama’s cap and trade plan to limit global warming, calling it “all cost, no benefit.”
After training with Feldstein, Elmendorf made his way to Washington and, in 1993, landed at CBO. There, he worked on a team that examined President Bill Clinton's health reform package –and concluded that it would cost much more than originally thought. The analysis helped doom Clinton's attempt to reform health care. This, no doubt, was Elmendorf’s first taste of real power.
Elmendorf spent only a year at CBO before moving to the Federal Reserve where he worked under Fed Chairman Alan Greenspan. He then found a job in the Clinton Treasury Department, where Larry Summers ran the shop.
When George W. Bush took office, Elmendorf, always flexible, moved back to the Fed as a senior economist. In 2002, he earned a promotion to chief of the macro-economic analysis team, leading a group of 30 economists and researchers as they forecasted inflation rates and labor markets. Unfortunately, the Fed failed to forecast the massive job losses that were just around the corner. They didn’t quite recognize where the economic policies of the Greenspan era (See No Evil, Hear No Evil) and the free-spending Bush administration were heading.
Meanwhile, in 2007, Elmendorf began working for the liberal Brookings Institution, co-editing the yearly publication “Brookings Papers on Economic Activity.” His move was pragmatic and well-timed. By then, it was clear to Republicans as well as Democrats that the Bush administration had put the Republican Party on a fast-track to defeat. Within two years, a progressive Democrat would move into the White House. Elmendorf’s job at Brookings served him in good stead, putting him in the right place to be appointed CBO director. (One does wonder, who made the decision to make him head of CBO? Did anyone think about the role Elmendorf played in “marking up” the Clinton plan? My guess is that Elmendorf was seen as a bipartisan choice who would please both sides of the aisle. )
As an economist, Elmendorf leans to the right: debt reduction is a major theme in the academic papers that he has written. (For the record: I, too, believe that reducing debt is important. But it is not always the top priority.)
Nevertheless, Elmendorf’s initial training with a conservative economist may help explain why he takes such a gloomy view of health care reform, consistently insisting that the bills drafted by Democrats in both the House and the Senate do not offer "the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount.”
I disagree. I have detailed some of the money-saving structural changes that the House bill proposes in an earlier post. As I explained there, the House bill would achieve significant savings by changing how health care is delivered, how Medicare pays for care, and what Medicare pays for. The public insurance option that becomes available in 2013 would incorporate what Medicare has learned about reducing costs while lifting the quality of care—and in the years ahead the public plan would continue to absorb the lessons that flow from Medicare reform. Very likely, private insurers would follow suit—especially if they are competing with a public plan.
When I read Elmendorf’s testimony suggesting that the bill wouldn’t bend the trajectory of federal health spending, I couldn’t help but wonder: Did he understand how the proposals in the 1,018 page bill dove-tailed with the excellent recommendations that the Medicare Payment Advisory Commission (MedPac) has made in recent years? Has Elmendorf read the lengthy MedPac reports?
White House budget director Orszag replied to criticisms of the House and Senate bills on his blog, explaining that the House bill is a work-in-progress and that White House reformers plan to “bend the health care cost growth curve down in years to come” by “empowering an independent, non-partisan body of doctors and other health experts to make recommendation about Medicare payment rates and other reforms.” That panel might be the Medicare Payment Advisory Commission (MedPac) (as proposed in Senator Jay Rockefeller’s legislation) or a new Independent Medicare Advisory Commission (IMAC) .
Orszag explained that the “Independent Medicare Advisory Council (IMAC) would be an independent, non-partisan body of doctors and other health experts." Last week, I described how such a panel would be shielded from meddling by lobbyists and politicians.
The panel’s goal: to adjust Medicar
e fees to reflect how much a treatment benefits a patient. Fees for primary care would be lifted while fees for some very lucrative procedures that provide little or no benefit for many patients would be sliced, discouraging over-treatment. I have written about what it would mean if MedPac (or IMAC) had the power to implement its recommendations here. Following MedPac’s advice would be, as Orszag has said, a “game-changer.”
In most quarters, the response to Orszag’s proposal was enthusiastic. The Mayo Clinic issued a statement: “We applaud the direction of this proposal. We view favorably the concept of an independent body that can move Medicare to a ‘value- based payment’ model. An independent Medicare advisory commission focused on defining value, measuring it, and finding ways to pay for value could have significant, positive impact on health care for the long term. This, and other, bold concepts have the potential to 'bend the cost curve' in U.S. health spending without compromising health.”
“We didn’t see this proposal until Monday,” a spokesperson for Mayo told me last week. “Together with the House bill, this initiative makes the difference.”
Then, on Saturday, Elmendorf weighed in with his dismal $2 billion estimate, complaining that the draft legislation “does not explicitly direct the Council to reduce” Medicare spending, “nor does it establish any target for such reductions.”
Of course the legislation does not simply charge the panel with reducing spending: we don’t want to take an ax to Medicare. The goal is to eliminate waste, while providing financial incentives for care that over the long run, will lead to higher quality care at a lower cost. Some fees should be raised, others should be cut. MedPac has written about this, in detail, explaining how to target expensive and unnecessary treatment while rewarding care that keeps a patient out of the hospital.
We know, for example, that healthcare in Europe is less expensive because patients receive much more of their care from primary care doctors. We also know that in the U.S., in a community like LaCrosse , Wisconsin, where there are more than twice as many primary care physicians as there are specialists, healthcare spending is far lower than in most of the nation. (Last week I learned about LaCrosse at a conference sponsored by the Institute for Health Care Improvement that analyzed ten U.S. communities that have managed to achieve high quality healthcare at a very low price. The symposium was titled “How Do They Do That?” I’ll be posting about the conference later this week. )
My point is that we have solid evidence, here in the U.S., that efficient, high quality, medical centers and communities that realign financial incentives to reward the most effective care can greatly reduce spending. Elmendorf’s estimates fly in the face of what White House Budget director Peter Orszag and other experienced health care reformers know.
Let’s be clear: Elmendorf is not a health care economist. Nor is he a health care expert. By contrast, Oszag has steeped himself in the medical research which explores what drives wasteful spending, and how collaborative, patient-centered care can address the problem. The cognoscenti of healthcare reform agree that MedPac’s reports offer a blueprint for excising the fat in our system..
Can one “mark up” precisely how much each change in how we pay for health care—and how that care is delivered—will save? No. On Pollitico.com Joust explains: “it is much easier to score costs than cost-savings. Legislation pending in both the House and Senate in fact includes state-of-the art proposals that many health policy experts do believe will result in real savings.
"It is easier to figure out how many people are under a particular multiple of the poverty level and how much it will cost to cover them through Medicaid or to provide them with insurance subsidies” and to tally “the cost of reform. It is much harder to figure out how much a public plan or accountable care organizations will save the federal government. The CBO guesses conservatively with respect to savings, and the media reports this as a ‘blow to reform.’”
As I have said in the past, Medicare reform will be a process—not an event. And it will be a learning process.
In part 2 of this post, I will analyze Orszag’s response to Elmendorf’s most recent criticism. I’ll also consider the media’s response to CBO, and ask why the press has treated CBO’s guesstimates as hard facts.