#266: Ryan’s Budget Battle

Published April 4, 2011

In Washington on Tuesday, House Budget Committee Chairman Paul Ryan is planning to defy the wisdom shared by countless consultants, pollsters, and party insiders with a budget that tackles the issue of entitlement reform.

The Wisconsin Republican’s rationale is a simple one: “This is why we were elected,” he told me a few months back, and he has been saying it a lot since then. Such things do not sit comfortably in Washington, even within his own party, where many staffers and members would rather sit on their hands, propose nothing or next to nothing in the way of significant reform, biding their time ’til election 2012 rolls around.

Ryan’s decision, instead, is to put forward a budget proposal that will likely come to define the major policy debate for the 2012 cycle. On the left, you have the course charted under President Barack Obama and his namesake domestic policy–with its raft of cost-shifting to states, waivers for cronies, unsustainable subsidies, and deficit-reduction estimates shrinking on a monthly basis. On the right, Ryan’s plan, which any eventual Republican nominee will be challenged to accept or reject.

On Sunday, Ryan was blunt about his intentions: to cut the deficit by more than the $4 trillion Obama’s quickly ignored fiscal commission proposed last year. To do that, he will need to put forward a budget that does not cut only discretionary spending, but also addresses “the drivers of our debt.”

This means significant changes to Medicare and Medicaid. But how significant will these changes really be?

While the details of his proposal are not yet public, we know Ryan’s Medicare solution will be based on a premium support system, following the outlines of his plan released last year, co-written with Democrat Alice Rivlin. Designed to take lessons from Medicare Part D, it is a modest proposal to inject more competition into the system. Along with Veronique de Rugy, I would suggest it is too modest and does not go far enough in solving Medicare’s fundamental problems.

On Medicaid, Ryan’s proposal is likely to be slightly bolder: block grants to the states, which according to the Congressional Budget Office’s latest estimate, is an excellent way to cut the deficit by more than double Obamacare’s most generous total. Giving governors the freedom to customize this unsustainable program to the needs of their state is a good step, but it is only one step.

On Fox News Sunday, Ryan was honest about what he expects to happen: “We are giving them a political weapon to go against us, but they will have to lie and demagogue to make that a political weapon.”

My concern is that in making a moderate, bipartisan proposal, Ryan is falling into the trap of assuming his plan will be greeted with anything but lies and demagoguery. I hope he is not expecting some kind of fair coverage by the media depicting his plan as a rather moderate course toward a more sustainable structure, as opposed to one that will slaughter the nation’s puppies and burn down the houses of the infirm.

The odds are not in Ryan’s favor. Can you count how many scare tactic-laden battles against needed entitlement reform have been successful? Can you count how many politicians have laid aside the needs of the country in the name of their own political self-interest? They are boundless as the stars in the sky or the grains of sand on the shore.

One thing is clear: Ryan intends to seek a bolder path, if not as far as one might wish in policy, at least as far as can be hoped for in strategy. By rejecting the advice to propose little and hope for an unearned victory, Ryan is committing his party to an actual position, one that stands in contrast to Obama’s as more than just rhetoric. For this, we should all be grateful.

— Benjamin Domenech



This week saw a torrent of Accountable Care Organization details from the alphabet-soup authorities involved (a party with CMS, IRS, OIG, FTC and more? Hey, use a coaster!). You can read most of the documents at this Kaiser Health News page, including the marvelous 429-page draft proposed rule. It also doubles as a wondrous sleep aid.

As Mark McClellan and Elliott Fisher write at Health Affairs, the whole point of ACOs is to save money: “The goal of the ACO program is a simple one: to improve care for Medicare beneficiaries and thereby improve their health and lower health spending.” But do we actually have solid evidence ACOs will do any such thing? David Hogberg at Investor’s Business Daily is skeptical (emphasis mine):

How much will it cost an ACO to comply with those regulations? A lot, apparently. In the economic impact section, CMS estimates that start-up costs and first-year operating expenses will range from $131 million to $263 million. The regulations cite a Government Accountability Office report showing that, on average, start-up costs were $489,354 and first-year operating expenses were $1.2 million per physician group.

The costs are high enough that CMS assumes that between only 75 to 150 ACOs will start up in the first three years after the regulations are implemented. CMS also assumes that 1.5 million to 4 million Medicare beneficiaries (about 3% to 8.5%) will join an ACO.

In a best case scenario, CMS concludes ACOs would save Medicare about $1.9 billion between 2012-2014. That’s barely 0.1% of total projected Medicare spending.

Under the worst case, ACOs could actually cost Medicare $270 million.

Of course, the administration wasn’t just working on rules and releases–they were working on talking points, attempting to address the reality that for many seniors, ACOs would break Obama’s promise that you can keep your doctor. According to The Hill, the leaked memo contains this priceless bit of incompleted thought:

To the question “Won’t some ACOs become a monopoly and drive up costs while limiting access to care?,” the document answers: “Need CMS to insert answer.”

I think we’d all be curious about that one, folks.

SOURCE: Investor’s Business Daily


As long as we’re talking ACOs–and if you’re looking for something more worth your time to read than a 429-page proposed rule–this piece from the New England Journal of Medicine by Robert Kocher and Nikhil R. Sahni looks at the potential financial issues hospitals face (emphasis mine):

Strategically, hospitals with a robust employment strategy will be well positioned to compete under various reimbursement scenarios. If the fee-for-service system persists, large physician networks will provide hospitals with greater pricing power when they are contracting with health plans. This scenario favors greater hiring of specialists. Conversely, if payment systems move toward population health management and risk-based reimbursement, then large outpatient networks will allow a system to shift patients away from higher-cost hospital-based care and recapture lost revenues as shared savings or capitation surpluses. This scenario favors greater hiring of PCPs.

A major concern in either scenario is the potential for hospitals to convert greater market power into higher prices and less competition. High-cost markets are typified by dominant local providers who exercise pricing power. This is perhaps most clearly illustrated in Massachusetts, where Attorney General Martha Coakley determined that high prices and price variation are largely correlated with market share. She found that “price variations are not explained by quality of care, the sickness or complexity of the population being served, the extent to which the hospital is responsible for caring for a large portion of patients on Medicare or Medicaid, or whether the hospital is an academic teaching or research facility.” Payers acquiesce in price negotiations because they cannot afford to lose access to large provider networks. Similar patterns have emerged around the country; for instance, in Roanoke, Virginia, the dominant system, Carillion, reportedly charged 4 to 10 times as much for a colonoscopy as local competitors or providers in similar markets. Although ACO-type organizations that integrate physicians and hospitals offer the promise of better care coordination, fewer complications, and cost savings, it is unclear whether these benefits will be passed along to patients as lower prices.

SOURCE: New England Journal of Medicine


The Early Retiree Reinsurance program launched under Obamacare is so popular, it’s closing down early–the last accepted applications will be April 30. Jennifer Haberkorn at Politico writes:

The program was given $5 billion in the health care overhaul and was supposed to stay open no later than 2014, when the exchanges come online. But the money is expected to run out by the end of September 2012, and the administration is shutting down enrollment early so the money lasts until then.

Administration officials said that employers already enrolled in the program will continue to receive their approved funds, which have to be used by December 2013. The program will not technically close until then, the officials said.

CMS said the news was a sign of the popularity of the program. Critics of the law are likely to argue that it’s a sign the legislation was underfunded.

Both can be true, of course. But the interesting bit is who actually benefited from this $1.7 billion spending spree–and Jamie Dupree at the Atlanta Journal Constitution has the answer. Would you be surprised to see a listing where six of the top 10 recipients were public employee pension funds, or one that could double as a list of top donors to the White House, including AT&T, Verizon, General Electric, the United Auto Workers, and more? Well, prepare to be surprised.

SOURCE: Politico