Rested and invigorated from their Fourth of July recess, Senate Republicans unleashed a new line of attack against the CBO’s score of Sen. Ted Kennedy’s (D-MA) health care bill. After initially claiming that the preliminary CBO estimate of the bill was too high, today during markup, Sens. Mike Enzi (R-WY) and Orrin Hatch (R-UT) argued that the new score — which for the first time included an employer mandate and brought the cost of the bill to around $600 billion — included a tax on hard-working American families and businesses.

Enzi and Hatch argued that the penalty levied on employers who fail to obtain coverage for their workers and individuals was “a new tax” that undermined “President Obama’s own commitment to not raise taxes on 95% of Americans.”

Watch a compilation:

But to characterize the employer and individual mandates as new taxes is highly disingenuous. Health reform builds on the principle of “shared responsibility,” an approach that envisions “joint contributions by the public sector, individuals and employers.” While individuals are responsible for purchasing health insurance coverage — with a waiver for those who cannot afford to do so — “firms that do not directly provide health care to their employees” would be required to pay into a public pool to help finance their employees’ coverage.

Both policies are part of a larger strategy designed to lower health care costs. The bill exempts small businesses from the mandate, offers a tax credit to help them afford coverage, subsidizes insurance for middle class Americans, and allows the lowest income Americans to enroll in the Medicaid program. All this is designed to slow the growth of health care premiums. After all, only if you have everyone in the system, can you really invest in preventive care, reduce expensive chronic disease treatments, and eliminate the cost shift from the uninsured.

Moreover, as UC Berkeley Labor Center chair Ken Jacobs and Berkeley professor Jacob Hacker explain, an employer mandate enhances the existing system of employer-based coverage, levels the playing field between employers “that provide insurance and those competing with them that do not,” reduces “crowd-out of private coverage by new public programs,” and preserves the employer contribution — an important source of funding for health care reform. And while Republicans charge that an employer mandate to provide coverage would lead to fewer jobs or mass layoffs, especially for low-wage workers, Hacker contends that “these concerns are overstated when it comes to the play-or-pay proposals currently under consideration, with their relatively modest employer requirements.”

A study of the impact of the Hawaii health care mandate, for instance, “found no evidence of reduced employment.” In Massachusetts, where employers with more than 10 employees are required to provide coverage or pay a fine, “few firms reported making changes as a result of health reform.” Moreover, “it is also important to keep in mind that health reforms with employer requirements promise new benefits for firms and workers as well as new costs,” Hacker explained in testimony to the House Education and Labor Committee. “All firms would benefit from the reduction in unpaid medical bills incurred by the uninsured. Firms would further benefit from any savings due to a reduced rate of health-care cost growth,” Hacker said.

On the whole, the consequences of failing to reform health care reform far outweigh any penalty levied on the individual or the employer. As economist Uwe Reindhardt points out, the “cost” of the health care reform bill is a small fraction of the $40 trillion we’re projected to spend on health care in the next ten years. Should we fail to reform the health care system, the cost of health insurance for a family of four “will stand at $18,000 by 2010″ or $36,000 per typical nonelderly family of four by 2020. “Millions upon millions of middle-class families will see themselves pushed into the ranks of the uninsured — and possibly into bankruptcy — unless someone helps them financially.” Currently, too many Republicans are simply standing in the way.

Transcript: Read more

TIME Magazine reports that the White House may be considering adopting Prometheus, a payment system developed in Illinois, which “calculates compensation for hospitals and doctors based not on the specific treatments a patient receives but on the care a patient should receive ‘per episode’“:

Taking the congestive-heart-failure example, here’s how the payment scheme would work: A slightly overweight 60-year-old heart-failure patient comes in with coronary-artery disease and acid-reflux disease. According to a Prometheus algorithm, this patient should cost $20,750 a year to treat — including office visits, medications, blood-pressure monitoring and an allowance for complications. The incentive for the heart patient’s doctor to spend less than $20,750 is that he gets to keep a portion of the difference (assuming that the patient was managed properly and happy with the outcome). And the best way to keep costs low is to offer the best care: If the doctor is negligent in monitoring the patient’s condition or fails to counsel the patient fully about proper diet and exercise, that patient could have a heart attack — requiring more treatments — and the doctor would take a financial hit.

Payment reform is at once one of the most under-reported aspects of health care reform and one of the most important. The general idea is to reward medical providers (doctors, hospitals) for the quality of care they deliver rather than quantity and to move away from a payment system that pays for every single service separately. Experts estimate that just paying providers differently can save billions of dollars and drastically improve care quality.

We currently pay our health care providers on a fee-for-service basis, like a restaurant charging the customer for every spoon, fork, or condiment. If restaurants actually operated like that, they would cart out unnecessary silverware to pad the bill. But they don’t. Instead, they charge a flat fee for a dish and work hard to make sure that the food is good and the customer comes back the following week. Health reformers believe we can apply the same theory to health care providers: paying for every single service encourages overutilization and drives up health care costs, allowing the federal government to reimburse for entire episodes of care, bundling payments for certain procedures, and encouraging providers to offer more preventive treatments would not only lower health care spending, but also improve health outcomes (by reducing redundant, unnecessary or harmful treatments). Once Medicare adopts these payment methods, private payers would follow suit, the theory goes.

The key is focusing on patient outcomes, something previous reformers ignored. As TIME recalls, Medicare adopted a similar initiative in 1993, “bundling payments for hospital stays.” But, “since hospitals were paid a certain amount of money for each patient no matter how long they stayed, many patients were discharged sooner than was prudent, which transferred the burden of care onto nursing homes and created a “mini-industry of readmissions.”

The different pilot reform programs currently under consideration wed outcomes to reform, and, most importantly, allow the Secretary of Health and Human Services or the Center for Medicare and Medicaid Services to expand successful models. In a recent paper, CAPAF policy experts Ellen-Marie Whelan and Judy Feder detail the recent proposals, which I have adapted into the table below:

As RAND economist Melinda Beeuwkes Buntin and Harvard University professor David Cutler explain in a new paper, not only will these reforms improve the quality of care, but they could also lead to federal savings of about $299 billion over the next decade. In fact, payment reform that “is based on the idea that good care should be rewarded more than just more treatment…could save about 8 percent of projected spending over the next decade.”

Jonathan Cohn makes a good point about the pending agreement between the White House, Senate Finance Committee and the nation’s hospitals to reduce spending by $155 billion over 10 years. I’ve been rather skeptical about the series of voluntary pledges (first the industry as a whole, then PhRMA and now hospitals) but Cohn correctly points out that “the drug and hospital industries are making a more important pledge: They are suggesting they will go along with legislation that changes the way they are paid”:

The hospital industry has offered to endorse changes in the way Medicare pays hospital bills. By themselves, the endorsements are meaningless. But the endorsements make it possible, politically, for lawmakers to write these changes into reform legislation. That’s not meaningless.

Remember, expanding coverage to all people, or virtually all people, will likely cost between $1 and $1.5 trillion over ten years. If indeed the drug industry can sign off on changes that will generate $80 billion in revenue and if, indeed, the hospital industry can sign off on changes that will generate $155 billion in revenue, that’s $235 billion reformers don’t have to find elsewhere (assuming, of course, the Congressional Budget Office agrees).

From a purely political sense this is true. If hospitals and drug makers pledge to save the government $235 billion, then the price of reform has just gone on sale. But the sale is only good if the deal is real because health reform is only sustainable if it truly lowers health care costs and eliminates some of the wasteful spending already in the system.

It’s not clear that the hospitals are doing that. As Cohn asks, “it’s not clear whether, perhaps, this is an example of some hospitals effectively cutting a deal that hurts others. Insofar as the savings come from reduced payments for charity care–payments that now flow through Medicaid–is this a case in which suburban and specialty hospitals actually do just fine but charity hospitals take a hit?”

In June, the White House identified “proposals that will contribute another $313 billion over 10 years to paying for health care reform.” The administration proposed cutting “more than $200 billion in expected reimbursements to hospitals over 10 years” (in part) by incorporating productivity adjustments into Medicare payment updates and reducing subsidies to hospitals for treating the uninsured as coverage increases. The hospitals — which were the first to backpedal from the initial industry agreement to lower health care spending by 1.5 percentage points over 10 years — objected. Reactions from the American Hospital Association (AHA):

We are disappointed to see cuts of this magnitude to hospitals, especially in these tough economic times…Additional cuts of this magnitude could severely jeopardize hospitals’ ability to care for their patients and communities.

Now, in an effort to regain control of federal government reimbursement rates and to stave off several undesirable policy options, the industry has agreed to roughly half of what Obama initially proposed. As Chip Kahn, the President & Chief Executive Officer of the Federation of American Hospitals (FAH) explained in recent Congressional testimony, hospitals fear that reductions in reimbursements would not parallel increases in coverage. “The FAH recognizes the importance of shared sacrifice, but we need to be very careful that health reform legislation does not arbitrarily reduce hospital revenue,” Kahn said.

To that end, the hospitals fear a robust public option that would reimburse Medicare-like rates, a “Super-MedPAC” — the proposal to change the mission of the Medicare Payment Advisory Commission (MedPAC) from a congressional advisory body to an Executive Branch decision making entity — and incorporating productivity adjustments into payment updates.

Hospitals do support banning self-referrals to physician owned hospitals, decreasing preventable readmissions, and a “reasonable time frame” on reforming post-acute payments and this latest agreement may incorporate many of these shared points of agreement. So what trade-offs did Baucus make? No super MedPac, no robust public option? That’s still to be seen. But to come back to Cohn’s point, what would make this all even more meaningful is if policy makers held hospitals to their cost and quality promises.