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The Health Care Industry And Costs: An Interview With David Cutler

May 19th, 2009

There has been a great deal of debate over how much significance to attach to last week’s promise by health care industry leaders to “do our part” in achieving the Obama administration’s goal of cutting health care cost grown by 1.5 percentage points annually. President Barack Obama called the occasion “a historic day, a watershed event.” He added: “Over the next 10 years — from 2010 to 2019 — they are pledging to cut the rate of growth of national health care spending by 1.5 percentage points each year — an amount that’s equal to over $2 trillion.” But the industry groups involved quickly pushed back against that interpretation, saying that they had merely agreed to work toward the eventual goal of reducing cost growth by 1.5 percent a year.

One person who said that he “probably put more stake in [the industry pledge] than most do” is David Cutler, the Otto Eckstein Professor of Applied Economics at Harvard, who has been a major source of health policy advice for Obama during the campaign and afterward. The industry initiative, he said in a May 13 interview with the Health Affairs Blog, showed that the same groups that had helped doom the Clinton administration’s effort to overhaul health care now felt welcome in the reform process. This buy-in is important, he said: “If you pass some kind of new payment system, doctors could spend the first decade fighting it. You’re not going to get very much savings if they spend a decade fighting it.”

Cutler also emphasized the importance of the amounts involved in the industry initiative, in terms of both overall savings and the $600 billion or so in potential savings to the federal government. He characterized the industry as saying, “We believe we can get to a number that is big enough where you really have a very serious chance of being able to finance reform.”

Cutler acknowledged that an industry pledge to restrain costs would not in itself be scored by the Congressional Budget Office (CBO) as saving money, but he said that the industry initiative showed that a consensus is forming around the cost-cutting potential of tools such as health information technology (IT), prevention efforts, comparative effectiveness research, and revamping payment to focus on quality rather than quantity. The industry’s description of how costs can be trimmed is “very consistent with what the president has said, it’s consistent with what [Sen. Max] Baucus has said and [Sen. Charles] Grassley has said,” Cutler explained. In a paper for the Center for American Progress Action Fund, Cutler laid out his own vision of how health care modernization could save 1.5 percentage points in health care cost growth starting in four or five years.

In other noteworthy comments, Cutler:

– emphasized that caution was needed in contemplating eliminating the income tax exclusion for employer-sponsored health benefits. Modifying the exclusion has to be on the table along with everything else, but “I’m very worried about the implications of a huge reduction in employer-provided health insurance right now,” he said. He stressed the need for creating adequate buying pools and dealing with the problem of medical underwriting before considering eliminating or restricting the tax exclusion.

– suggested a functional approach to determining whether responsibility to implement various aspects of health reform should be delegated to the Centers for Medicare and Medicaid Services (CMS) or should be located elsewhere. Overseeing insurance exchanges is “a completely different activity from running a Medicare program, so I wouldn’t necessarily give CMS running insurance exchanges,” he said. Similarly, Cutler said he might locate responsibility for directing comparative effectiveness research in an agency other than CMS. “Administrative bodies often to well when they have a task,” he explained.

Cutler added that CMS would definitely have more responsibilities after reform and would need a new infusion of money and people to handle them. “Most everyone says that agency morale is very low, that a lot of good people have left, and that they are not sure that CMS at the moment can handle a lot of new things.”

– suggested that insurance brokers may still have a role in a postreform health care system but that their role will likely change radically. “You can imagine a broker helping a firm figure out what it should do, a consultant to the firm rather than an independent agent selling you insurance and getting a commission.”

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2 Responses to “The Health Care Industry And Costs: An Interview With David Cutler”

  1. Jack Shoemaker Says:

    What we need are clear and transparent pricing signals. The miracle of prices will help solve many of the medical-cost inflation problems. To that end, we must abnadon policies that obsure prices – like the existing tax treatment of health-insurance premiums. Also, we would be wise to adopt a more consumer-centric model as described by Berwick instead of the cathedral approach we have used for the last several score years.

  2. brianahier Says:

    I will withhold judgment on whether there is sufficient “buy-in” from industry stakeholders at this early stage. I am encouraged by the unprecedented initial cooperation, yet already some are pulling back from full support for the administration’s views.
    On May 14 in a conference call held by the American Hospital Association, hospitals from across the country expressed concern about how much they would have to give to the overhaul effort. The call was prompted because of questions and concerns regional hospitals had about a partnership the AHA had joined with five other payer and provider groups. The partnership caught many of the association’s member hospitals off-guard, and only three days after word had leaked, the AHA set out to clarify its position.
    I suspect that we will see similar types of concerns expressed from others in the health care industry. I am taking a wait and see approach to how this will all shake out…

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