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New Analysis Of Health Reform Legislation Goes Beyond CBO/CMS Methodology, Finds Greater Savings

By Igor Volsky  

"New Analysis Of Health Reform Legislation Goes Beyond CBO/CMS Methodology, Finds Greater Savings"

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Policy makers have long complained about the conservative methods of the Congressional Budget Office, criticizing the budget office for failing to score savings from prevention, modernization, and payment reform. As Senate Finance Committee Chairman Max Baucus (D-MT) said during one hearing on health care reform, “We’re not in the old situation where whatever CBO says is God. In my judgment you’re not God. My judgment is that the press — there’s a whole new era and, um, you might be Moses, but not God.”

This afternoon, the Commonwealth Fund and the Center for American Progress Action Fund released a new study that quantifies the savings from the provisions that the CBO and the Center on Medicare and Medicaid Services (CMS) largely ignore.

Economists David Cutler, Karen Davis and Kristof Stremikis go beyond the CBO/CMS methodology by relying on business literature about the inefficiency in the health care sector, experiences of health practitioners, and the real world experiences of Geisinger Health System, Health Partners, Denver Health and others. This more “inclusive use of evidence” estimated higher savings from modernization and payment reform.

In some sense, the analysis is a direct response to the CMS analysis of the House bill. That report argued that the health care industry could not achieve the productivity of other industries because most health care service “tends to be very labor-intensive.” Cutler, Davis, and Stremikis contend that “in past 20 years, every time we changed pay structures, doctors and hospitals have responded enormously to that.” “If this doesn’t work in health care, then health care will be the only industry in the economy where better incentives don’t lead to better performance,” Cutler said on a conference call with reporters.

As a result, the report finds that the Senate bill would reduce the deficit by up to $459 billion over ten years (approximately $300 billion more than CBO estimates) and produce Medicare savings of $576 billion (nearly $200 billion more than CBO estimates for the Senate bill). The annual growth rate “in national health expenditures falls from 6.4 percent absent reform to 6.0 percent under the Senate proposal,” the report concludes:

CommonWealthCAPCharts2

The CBO, it should be noted, has admitted the limitations of its conservative methodology. Over the summer, CBO chief Doug Elmendorf admitted during a Senate Budget Committee hearing, “we have very little evidence about interlocking changes in the complex health-care system, and I don’t think that our numbers should be the ultimate determinant of the policies that you and your colleagues will vote for and against.” As Robert Reischauer — the CBO head from 1989 to 1995 — put it after one member of Congress wished to know if the CBO’s estimates about President Clinton’s health care reform plan were “in the ballpark,” “Congressman, I believe that we are in the town the ballpark is in. ”

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