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Obama Brings the Pain for Health Care's Gain

By Ceci Connolly
Sunday, June 21, 2009

By tradition in Washington, a president's budget -- especially his first -- has a short shelf life. No sooner does the tome land on Capitol Hill than lawmakers toss it and write their own. President Obama's fiscal blueprint, unveiled on Feb. 26, followed the same well-worn path.

But buried in that document is a tidy chart that provides a glimpse into the minds of a new president with an ambitious agenda and his battle-tested chief of staff, Rahm Emanuel.

There on Table S-6 of the "Mandatory and Receipt Proposals," the pair revealed how they hope to win over -- or at least neutralize -- the formidable players who have much at stake in the administration's push to overhaul the nation's $2.3 trillion health-care system. Hidden under a bureaucratically bland title, the "Health Reform Reserve Fund," is actually $634 billion worth of carefully calibrated pain. It's basically a list of budget cuts certain to make every lobbyist in town wince a little, but not so horribly as to prompt war. And that's the key to understanding the Obama-Emanuel touch -- sock it to 'em, but don't knock 'em over.

Call it the Goldilocks Strategy. Cut too deep, and the industry will rise up to thwart the hopes of yet another president eager to remake health care. Don't cut enough, and he won't have the money to pay for it. Find just the right amount, and perhaps, just perhaps, despite the recent bickering on Capitol Hill, there's a chance of success.

Under the Goldilocks Strategy, everyone shares the pain. True, the pharmaceutical industry doesn't like the prospect of paying out $19.5 billion more over the next decade in higher rebates for Medicaid, the government program that insures the poor, but that's nothing compared to the industry's $291.5 billion in U.S. sales last year alone. Few retirees, even if they are wealthy, would be happy paying higher Medicare premiums, but the senior citizens' lobby AARP immediately recognized that Obama's plan targeted only a fraction of its 40 million members. And though home health care firms protested recommended cuts in reimbursements, the objections were muted by references to the industry's healthy profit margins.

Even though all sorts of businesses and special-interest groups get pricked, not a single proposal sounds a death knell for anyone. And that's what distinguishes this White House strategy. Other attempts to change America's health system have seemed to place the very existence of some constituencies at risk. But Obama's plan merely asks everyone to take a hit and keep on fighting.

"Obama is approaching this as a homeopathic course of treatment," said Ross Baker, a presidential scholar at Rutgers University. "He injects people with a sub-toxic dose of pain to let them know they're going to have to give up something, but it won't make them really sick."

Every president since Harry Truman has tried to close the wide gaps in coverage in this country. The Obama team, which includes many veterans of the failed Clinton administration effort, has charted a different course, leaving the bill-writing to Congress while it tries to charm an industry that controls nearly one-fifth of the U.S. economy.

Glitches on Capitol Hill last week illustrated that even a savvy plan for dealing with industry does not guarantee a quick run through Congress. Lawmakers stalled over unexpectedly high cost estimates, and Republicans complained that they have been left out of the process.

Still, the Obama political strategy shows promise, in part because it complements the economic realities that drove the industry to the bargaining table in the first place. What was most striking about the reaction to Obama's original batch of health-care cuts was that there was almost no aggrieved response from the targeted groups.

The well-financed pharmaceutical industry and its never-shy chief lobbyist, former Republican congressman W.J. "Billy" Tauzin, said at the time: "This is a great start." Sure, he acknowledged in an interview, "there are things we don't like about it. But there's time to discuss all that." Tauzin, an ebullient Cajun known as a masterful inside player when he served in Congress, said he was just happy to have a seat at the bargaining table.

The tone struck by Obama contrasts with the us-against-them message from the Clintons 16 years ago, said Thomas Scully, a health-care expert who worked in both Bush administrations.

The Obama team has "done a hell of a job keeping all the sheep herded so far," said Scully, who displayed a keen understanding of legislative compromise when he helped win enactment of the Medicare prescription drug benefit in 2003. "By a factor of 100, it's way better than '93-'94."

True believers may blanch at deal-making on an issue as personal and fundamental as health care. But Scully applauds anyone in Washington today who shows promise of forging a consensus on, well, anything.

"This happens on every bill through the history of mankind. You've gotta get the votes," he said. "If you have to pay for it, you've got to do deals."

It is a tactic that Obama and Emanuel have returned to often as the debate on health reform has intensified. With each new hurdle, the White House recalibrates the mix of trade-offs, tantalizing the players with enticements while ratcheting up the pain, or what it euphemistically calls "shared responsibility."

It is not an accident that Emanuel, on a range of issues, tells aides: "The only nonnegotiable principle here is success. Everything else is negotiable."

Less than a month after rolling out its budget, the White House invited many of the high-powered lobbyists who had once been vilified by the Clintons to a White House meeting. Though short on substance, the splashy summit on health reform followed the same script, mixing talk of unpopular proposals with broad hints of compromise.

At each crucial moment, Obama and his advisers have signaled their willingness to make deals.

In a letter to Senate Democratic leaders two weeks ago, Obama offered a significant concession: He was willing to drop his objections to a requirement that every American have health insurance. But his support came with a caveat. "If we do end up with a system where people are responsible for their own insurance," he wrote, "we need to provide a hardship waiver to exempt Americans who cannot afford it."

Last weekend, as lawmakers grappled with how to finance an expansion of coverage that could cost $1.2 trillion, Obama weighed in again with a tough message for industry. In the quest for revenue, he proposed another $300 billion in Medicare savings -- most of the reductions hitting hospitals and drug makers.

This time, the hospital lobby protested. Perhaps Obama had suggested a cut too far? Drug lobbyists formally stated their objections to a $75 billion hit, but privately some acknowledged that it was better than the $100 billion cut they had feared.

On Monday, Obama returned to his home town of Chicago to talk health reform with members of the American Medical Association, the nation's largest physician group.

Obama used the speech to outline the types of trade-offs needed to pull off what would be the most far-reaching domestic legislation since the 1960s. Speaking about insurers, he dangled the prospect of a windfall that would come with 46 million newly-insured customers. He made clear, however, that he expects something in return.

"What I refuse to do is simply create a system where insurance companies suddenly have a whole bunch more customers on Uncle Sam's dime but still fail to meet their responsibilities," he said. And he revived his threat to slash more than $176 billion for what Democrats describe as "overpayments" to insurance companies that provide Medicare managed care.

Obama's real targets that day were doctors, who have hindered reform efforts in the past and could easily do so again.

As the White House knows, on the issue of a health-care overhaul, no one in the country is as trusted as physicians, not even the very popular president. A Gallup survey last week found that 73 percent of Americans believe their doctors will recommend the best solutions for changing the system; Obama received a 58 percent trust rating.

Keeping to the Goldilocks strategy, Obama floated the tantalizing prospect of medical malpractice reform with soothing words about physicians' fears of lawsuits. But there was a catch: "I'm not advocating caps on malpractice awards."

Most important, Obama said he was willing to eliminate the unpopular "sustainable growth rate" formula used to calculate what doctors earn caring for Medicare beneficiaries. If the formula is not changed, physicians will see Medicare payments cut by 21 percent in January.

Obama's passing mention of this formula, as obscure as Table S-6 in his budget, means real money to the doctors. And though it was only a bit of rhetoric -- some would say no more valuable than a president's budget blueprint -- you can be sure that the doctors will be hanging on to that pledge. It might just be the right antidote to whatever pain is headed their way.

connollyc@washpost.com

Ceci Connolly covers health care for The Washington Post. She will discuss this article online at 11 a.m. on Monday.

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