The Dog Days of Summer

The phrase “dog days of summer,” apparently originally stemming from a reference to Sirius, the “Dog Star,” refers the hottest days of summer, typically extending from July through August, when it is too hot to get things done. It may also be an apt way of summing up where things stand on healthcare reform legislation.

If nothing else, this month was the month the “Blue Dog” Democrats had their place in the sun. Their opposition to the House bill slowed progress on a final House bill, but in the meantime they were able to force some compromises to be made in the bill.

Interestingly enough, the origin of the term “Blue Dog Democrat,” meaning a conservative Democrat, is connected with Billy Tauzin, the president and CEO of PhRMA. Mr Tauzin, starting in 1980, had been a Democratic Congressman from Louisiana. In the mid-1980s, a Louisiana artist named George Rodrigue began painting a series of pictures of a blue dog, paintings that eventually become relatively famous. Mr. Tauzin eventually co-founded a group of conservative Democrats who called themselves Blue Dogs to distinguish themselves from “yellow dog” Democrats, a term that apparently originated in the 1928 Presidential campaign of the New York Democrat Al Smith to describe loyal Democrats. While many Southern Democrats opposed the Smith’s nomination, others were such loyal Democrats that it was said that they would “vote for a yellow dog if he ran on the Democratic ticket." Blue Dog Democrats, by contrast, had no such party loyalties. Mr. Tauzin even ended up switching over and becoming a Republican.

In any case, it is now clear that there will be no votes in either the House or the Senate on a healthcare reform bill until September. Whether there will be any progress at all, such as draft legislation from the Senate Finance Committee, is still an open question.

Coming Full Circle to IMAC

In an attempt to shore up support for healthcare reform legislation, particularly among Blue Dog Democrats who have expressed concern that current draft bills do little to rein in long-term spending, the Obama administration is now proposing the establishment of an Independent Medicare Advisory Council (IMAC), which would be empowered to make recommendations on Medicare payment rates and other reforms.

It is worth recalling that former Senate Majority Leader Tom Daschle, President Obama’s original nominee for both HHS Secretary and Director of the White House Office of Health Reform, had been advocating the creation of a Federal Health Board, modeled on the Federal Reserve Board, with the independence and authority to make decisions about healthcare policy. Dr. Ezekiel Emanuel of the National Institutes of Health, who is the brother of White House Chief of Staff Rahm Emanuel and currently serves as a healthcare advisor to Peter Orszag, the Director of the Office of Management and Budget, has also advocated the creation of a Federal Health Board.

The idea of a Federal Health Board did not appear to have a very promising future, particularly after Mr. Daschle’s departure. After all, even if one concedes that Congressional meddling in Medicare policy has often served narrow political interests rather than the broader goal of high-quality, cost-effective healthcare, removing decisions from the political process and, instead, putting them in the hands of “experts” is inherently undemocratic.

Although the idea of a Federal Health Board appeared to be aborted, Senator Rockefeller proposed elevating the status of MedPAC so that it could play a similar role, an idea that the administration supported, but neither the House bill nor the Senate HELP Committee bill included such a provision.

Now, with the IMAC idea apparently gaining traction, we appear to have come full circle. Changing the name may make the idea more palatable, but the differences with the Federal Health Board idea may not simply be a matter of cosmetics. In contrast to a Federal Health Board, IMAC’s ability to set policy would only partially be insulated from the political process. Peter Orszag described the process in a letter to House Speaker Nancy Pelosi last week:

This proposed legislation would require the President to approve or disapprove each set of the IMAC’s recommendations as a package. If the President accepts the IMAC’s recommendations, Congress would then have 30 days to intervene with a joint resolution before the Secretary of Health and Human Services is authorized to implement them. If either the President disapproves the recommendations of the IMAC or Congress passes such a joint resolution, the recommendations would be null and void, and current law would remain in effect. The review process would permit intervention if the IMAC’s reforms are not in keeping with the goals of Congress or the President, while retaining autonomy for implementing annual payment updates and other Medicare reforms for the IMAC.

Currently, Congress must act if it agrees with MedPAC’s recommendations and wants to implement them as law. By contrast, with IMAC, basically Congress would have to act if it wanted to prevent IMAC’s recommendations from being implemented into law. Given the difficulty Congress has on agreeing to any course of action, that provision alone may effectively insulate IMAC from the political process while, at least on the surface, making IMAC subject to Congressional oversight. We will see if President Obama raises the idea of IMAC in his press conference this evening on healthcare reform.

Senate Timetable Slips Further Behind

In testimony before the Senate Budget Committee yesterday, Congressional Budget Office Director Douglas Elmendorf really did not say anything that he has not already said before, but he still managed to make headlines, including on the front page of the Wall Street Journal. In response to a question from Chairman Kent Conrad, he said, “In the legislation that has been reported, we do not see the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount.” This was the subject of our last blog post.

That Dr. Elmendorf’s comments made headlines is mainly a reflection of the enormous strains that have emerged within Congress—even among Democrats in Congress—over the direction of healthcare reform. President Obama started the week by pushing Congressional leaders to move forward on healthcare legislation. Senate Finance Committee Chairman Max Baucus continues to search for bipartisan support, but the result so far has been a stalemate. With the push from President Obama, Senator Baucus was again saying that a bill would emerge this week. Once again, however, the week ended without a bill from the Senate Finance Committee and with renewed pledges to produce a bill the following week. If, in further negotiation, Mr. Baucus is able to forge a compromise that has the backing of Senator Check Grassley, the Ranking Member on the Senate Finance Committee, it will have been worth the wait. As time goes by, however, divisions seem only to be deepening, and the chances of the Senate passing a bill before the August recess seem to be slipping away.

In the Long Run, We Are All Dead

President Obama has promised that his healthcare reforms will be budget neutral, that the higher government spending associated with expanding health insurance coverage of the uninsured will be financed by spending cuts elsewhere and by higher revenues, possibly a tax surcharge on high-income individuals.

Of course, the Obama administration is also hoping to introduce healthcare delivery system reforms that will create incentives to provide high-quality, cost-efficient care. Ideas such as creating a “medical home” for Medicare beneficiaries in which primary care physicians would be paid to coordinate care across different settings, bundling payments so that hospitals have an incentive to coordinate post-acute care and reduce the risk of re-admissions, and creating “accountable care organizations,” in which networks of primary care physicians, specialists, and hospitals would be held jointly accountable for the care and costs of Medicare beneficiaries, all have the potential to improve quality and reduce costs. But will they? The viability of applying such reforms across the entire healthcare system has not been tested. Certainly the Congressional Budget Office (CBO) does not have enough evidence—or even details on the specifics of such reforms—upon which to estimate potential budgetary savings.

Over the longer term, after the mechanics of such reforms have been tested and can be implemented across the healthcare system, incentives for providers that reward quality and efficiency may begin to reduce the escalation in healthcare spending. As John Maynard Keynes famously wrote, however, “In the long run we are all dead,” and whether we have the luxury of waiting for healthcare system savings to materialize is an open question. For even if Congress succeeds in tweaking healthcare reform legislation so that it is budget neutral over a 10-year horizon—delaying an expansion in Medicaid, for example, so that the costs do not kick in for 3-4 years, it is fairly certain that it will not be budget neutral beyond a 10-year horizon.

Yet, even before adding these expenditures, the CBO has made it quite clear that the current trajectory of government spending, of which Medicare and Medicaid are the main drivers, is unsustainable. In its Long-Term Budget Outlook released last month, the CBO projected the rise in government debt under a scenario in which Medicare payments to physicians are not cut and the alternative minimum tax is indexed to inflation (a realistic scenario, in other words). Under this scenario, as shown in the graph, federal debt exceeds 100% of GDP in 2023, 140% of GDP in 2030, and 200% of GDP in 2038. Without cutting healthcare spending in Medicare and Medicaid, the only realistic way to avoid this very scary scenario is to raise taxes. Congress continues to tiptoe around this issue because confronting harsh realities risks alienating powerful constituencies, but time is running out.

Allocating Comparative Effectiveness Research Funds

The American Recovery and Reinvestment Act of 2009 (ARRA), which is the stimulus bill that was signed into law in February, included $1.1 billion in funding for comparative effectiveness research. Of this amount, the AHRQ received $300 million, and the NIH received $400 million. An additional $400 million was to be allocated by the Office of the Secretary of the Department of Health and Human Services (HHS). How should the HHS Secretary allocate these funds?

That was the question Congress posed to two committees, one organized by the Institute of Medicine (IoM), and one organized by the Federal Coordinating Council for Comparative Effectiveness Research, a group created by the ARRA with representatives from all of the major federal health agencies. Yesterday, both committees released their recommendations. A summary of the IoM’s report is available here (a PDF of the full report can be downloaded with registration at the website of the National Academies Press, http://www.nap.edu/). The Council’s report is available here. There are also two perspective articles published online in the New England Journal of Medicine on June 30, one on the IoM recommendations and one on the Council’s recommendations.

Both sets of recommendations include some surprises, at least from my perspective. In the case of the IoM recommendations, for example, while priority research topics for particular diseases, such as cardiovascular disease, are listed, almost one-fourth of the committee’s recommended priority topics are in the health care delivery system research area, a broad category that includes topics related to dissemination of results, health behavior and care management, and comparisons of settings of care, among others. One, for example, is to “compare the effectiveness of alternative redesign strategies—using decision support capabilities, electronic health records, and personal health records—for increasing health professionals’ compliance with evidence-based guidelines and patients’ adherence to guideline-based regimens for chronic disease care.”

For its part, the Council recommended that a majority of the HHS Secretary’s funds go to comparative effectiveness data infrastructure development, such as building, expanding, and linking longitudinal administrative claims databases, or linking administrative data with electronic health record-based or registry data.

The common thread here is the need for a well-designed IT infrastructure for our healthcare system, with a central role for electronic medical records. An interview article in the July 2009 issue of McKinsey Quarterly with Hal Wolf, a senior executive with Kaiser Permanente, makes it clear that KP HealthConnect, Kaiser Permanente’s electronic medical record database, is what has enabled the institution to identify and disseminate best practices. Mr. Wolf says, “We can now determine how even small changes in care pathways can have a significant impact on outcomes, and we can study patients with specific combinations of co-morbidities to identify the best treatment approaches for them.”

In a recent article published online in Health Affairs, Ari Hoffman and Steven D. Pearson put forth the useful concept of “marginal medicine” as the source of potential waste most likely to be revealed by comparative effectiveness research. They list four evidence-related categories of marginal medicine: 1) inadequate evidence of comparative net benefit for any indication; 2) use beyond boundaries of established net benefit; 3) higher cost when established benefit is comparable to other options; and 4) relatively high cost for incremental benefit compared to other options. The latter two categories address cost-effectiveness, a topic scrupulously avoided by the IoM and Council recommendations, mainly because of the controversy the issue of comparative cost-effectiveness still evokes. The last thing the pharmaceutical industry would like to see is a recreation in the US of the UK’s NICE system, which has restricted coverage of drugs deemed not to be cost-effective.

In the wider context of medical interventions, however, drug treatments, which account for approximately 11% of total US healthcare spending, will often prove to be cost-effective, particularly if the alternative is physician procedures or hospitalization, which are the two biggest drivers of spending. For example, in a new study published online in the New England Journal of Medicine examining drug spending and other medical spending among a group of Medicare beneficiaries before and after the introduction of the Part D drug benefit, beneficiaries who previously had no coverage or limited coverage for drugs prior to Part D ended up spending more on drugs after getting coverage, but their other medical expenditures declined. Even though the current emphasis on comparative effectiveness research in the US is not focused on the cost effectiveness of drugs, it is only a matter of time before the cost-effectiveness of treatments—certainly not limited to drugs—is systematically integrated into coverage and reimbursement decisions. Pharmaceutical companies that design their clinical development programs to address issues of cost-effectiveness, taking into account different modes of care, will be well-placed to thrive in the US healthcare system’s next era, even if the transition to that next era takes longer and is more difficult than current reformers envision.