Obama Endorses Health Industry's Goal to Rein In Costs
Despite Fanfare, Experts Say Plan Lacks Key Details

By Ceci Connolly and David Hilzenrath
Washington Post Staff Writers
Tuesday, May 12, 2009

In his quest to transform American health care, President Obama appeared yesterday to put his faith in pledges from some of the interest groups that helped scuttle reform 15 years ago, but the industry's promises fell well short of the White House's expansive claims.

"This is a historic day, a watershed event," Obama said after a meeting with lobbyists representing doctors, hospitals, drug manufacturers and medical-device makers. "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."

In a letter to the president however, the organizations made a more limited commitment.

"As restructuring takes hold and the population's health improves over the coming decade, we will do our part to achieve your Administration's goal," the six trade groups wrote.

Administration allies cheered the news that the once-recalcitrant health lobby is eager to join reform negotiations. But many offered a cautionary note that warm words from the industry cannot be mistaken for enforceable policy changes.

"It's a goal and a good goal," said Sen. Charles E. Schumer (D-N.Y.). "But it's hardly locked in stone."

Obama has consistently framed his desire to overhaul the health system in the context of broad economic pressures. Health-care spending has been increasing much faster than the overall economy, straining businesses, consumers and state and federal governments, which finance care for the poor and elderly.

Though experts agree that the health system is inefficient, squeezing out savings has proven difficult. Yesterday's announcement, despite the fanfare, shed little light on precisely how the industry and government might achieve $2 trillion in savings over the next decade.

Despite the high-profile attention -- complete with a photo opportunity in the White House State Dining Room -- the industry offered just a handful of ways to achieve significant cost reductions, most of which were included in Obama's budget proposal.

"An unrivaled set of abstractions and posturing," said Alan Sager, a professor of health policy and management at Boston University. Among the specific money-saving items listed in a White House document are streamlining billing procedures, investing in preventive care and offering financial incentives to hospitals that reduce readmission rates.

"It would be difficult to wring 1.5 percentage points out of this list of proposals," said Robert D. Reischauer, former director of the Congressional Budget Office.

Many experts say it is possible to reduce the rate of growth in medical spending, but that it could take years to accomplish and it could involve painful trade-offs for patients and providers.

"We know that there's a lot of wasteful spending, but it's incredibly hard to identify it and then to figure out ways to eliminate it without putting some administrator in the doctor's office," said Dana Goldman, director of health economics at the Rand Corp.

J. James Rohack, president-elect of the American Medical Association, however, is optimistic that even more inefficiency could be rung out of the health system.

He described the 1.5 percent reduction as "a floor" to what could be achieved. "We can slow that growth even more."

Lowering the rate of growth of health-care spending by 1.5 percentage points would leave the federal budget deficit in the hundreds of billions of dollars, based on government data, and would leave health-care spending growing faster than the overall economy, said G. William Hoagland, vice president for public policy at the insurer Cigna, which is a member of one of the trade groups that signed the letter.

Consumer advocates and some analysts also were doubtful the industry would implement such steep cost reductions on its own.

"How is it we'll know these promises are actually implemented?" asked DeAnn Friedholm, campaign director of health-care reform at Consumers Union.

Speaking of the industry groups represented at the White House yesterday, Princeton University health economist Uwe E. Reinhardt predicted that when specific cost-control proposals come up in Congress, "They'll be right at the witness table arguing against it."

White House press secretary Robert Gibbs said the president would hold industry leaders accountable.

"Before they went out, he said to this group, 'you've made a commitment; we expect you to keep it,' " Gibbs said.

Asked whether the groups were saying Obama could count on them to reduce the growth rate of health-care spending by 1.5 percentage points annually, Robert Zirkelbach, spokesman for America's Health Insurance Plans, one of the six groups, said: "I don't know if they can do that.

"What the groups have said is that they are stepping up to do whatever they can to bend the cost curve" and "that they are committed to find cost savings in their own sector," Zirkelbach said.

Indeed, Obama said, "None of these steps can be taken by our federal government or our health-care community acting alone."

If the government and private sector achieve the desired savings, it would defy decades of failed efforts, from changes in 1980s in the way Medicare pays hospitals to the rise of HMOs in the 1990s.

In the 1970s, Sager recalled, hospitals offered "voluntary efforts" at cost control to defuse the threat of more onerous mandatory cuts. Politicians and hospital administrators wore "VE" pins evocative of the World War II victory in Europe.

But three decades later, the problem remains.

Staff writers Lori Montgomery and Michael D. Shear, and research director Lucy Shackelford contributed to this report.

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