Health industry members vow to reduce spending by $2 trillion over next 10 years; savings could help finance reform

Leading health care industry groups on Monday are expected to pledge to President Obama that they will attempt to reduce $2 trillion in expected health care spending increases over the next 10 years, Obama administration officials said on Sunday, the Wall Street Journal reports (Adamy, Wall Street Journal, 5/11).

The groups -- which represent drugmakers, health insurers, hospitals, labor representatives, medical device makers and physicians -- in a letter sent to Obama on Sunday wrote, "We will do our part to achieve your administration's goal of decreasing by 1.5 percentage points the annual health care spending growth rate. ... This represents more than a 20% reduction in the projected rate of growth."

According to Obama administration officials, the portion of the overall economy that health care spending represents is expected to grow from 17% currently to 21% in 2019. However, the groups' commitment would hold that percentage down to 18%, which is equivalent to $700 billion in 2019 alone, the New York Times reports (Pear, New York Times, 5/11).

The letter was signed by the American Medical Association, the American Hospital Association, Pharmaceutical Research and Manufacturers of America, the Advanced Medical Technology Association, America's Health Insurance Plans and the Service Employees International Union (Levey, Los Angeles Times, 5/11).

The letter also stated, "We are developing consensus proposals to reduce the rate of increase in future health and insurance costs through changes made in all sectors of the health care system" (Fletcher/Connolly, Washington Post, 5/11). The letter pointed toward lowering administrative costs, reducing hospitalization rates, improving management of chronic diseases, increasing hospital efficiency and expanding the use of health information technology as methods of reducing health care spending (Wall Street Journal, 5/11). However, the letter did not elaborate on what specific measures the groups would take to achieve such reductions. Instead, the letter suggested that the groups first wanted to meet with the Obama administration (Washington Post, 5/11).

The administration on Sunday also suggested cost-reduction measures, such as limiting insurance company paperwork, "bundling" payments to hospitals and other providers and adding Medicare payment incentives to encourage coordinated care (Young, The Hill, 5/10).

In Return?

The Journal reports that although the groups did not ask for anything in return for the pledge, many of the factions are looking to prevent regulations that could "pose new burdens" or affect their profitability. For example, the health insurance industry is seeking to offset any reductions to their payments by obtaining new rules that would require all U.S. residents to have health coverage, according to the Journal. The Journal reports that health insurers have made several concessions intended to prevent a public option -- which they fear could affect their profitability -- as part of reform legislation (Wall Street Journal, 5/11). According to the AP/Philadelphia Inquirer, drugmakers are hoping to avoid a requirement that new drugs pass a cost-benefit test before receiving regulatory approval. In addition, hospitals and physicians are looking to avoid a system in which the government would dictate their payments for all patients, not just those under Medicare or Medicaid (Alonso-Zaldivar, AP/Philadelphia Inquirer, 5/11).

Administration Comments

An Obama administration official said that "achieving a slowdown in the rate at which they increase would be a huge accomplishment in terms of freeing up resources for other priorities and in terms of relieving pressure on the federal budget " (Los Angeles Times, 5/11). Obama administration officials said the industry groups' pledge could translate into an average savings for a family of four of $2,500 in the fifth year (New York Times, 5/11).

In a statement, Obama said, "We cannot continue down the same dangerous road we've been traveling for so many years, with costs that are out of control, because reform is not a luxury that can be postponed but a necessity that cannot wait" (AP/Philadelphia Inquirer, 5/11).

Administration officials said that the pledge, which is voluntary, does not come with any enforcement mechanism, other than the threat of public embarrassment. The officials also said such savings would be difficult to track (Washington Post, 5/11).

Message on Reform

A senior Obama administration official on Sunday in a conference call with reporters said that the pledge "fundamentally aligns these major provider groups with the president's goal of getting health reform done this year" (The Hill, 5/10). However, the AP/ Inquirer reports that the industry groups' pledge does not address the "thorny details" of reforming the health care system (AP/Philadelphia Inquirer, 5/11). For example, while some of the savings could be achieved through changes in the private sector, most of the Medicare and Medicaid savings could not be achieved without changes in the federal law and regulations, according to the Times (New York Times, 5/11).

However, the pledge would provide "a large chunk of money" that could be used to help offset the cost of an overhaul. In addition, the pledge positions the groups to influence the crafting of a reform bill, according to the AP/Inquirer (AP/Philadelphia Inquirer, 5/11). An administration official on Sunday said, "The savings are crucially dependent on getting health reform done this year" (New York Times, 5/11).

Politico reports that the pledge shows lawmakers that industry groups "can find savings on their own," which "could pre-empt questions" ahead of a Senate Finance Committee meeting this week, during which the committee plans to review financing options for health care overhaul (Budoff Brown, Politico, 5/11).

Len Nichols, director of the health policy program at the New America Foundation, said, "The heavy lifting is still on how to write down how to make it happen" (Wall Street Journal, 5/11). Ron Pollack, executive director of Families USA, said, "If these savings are truly achieved, this may be the most significant development on the path to health care reform" (Fritze, USA Today, 5/11).