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Let's Make A Deal, Health Reform Edition

On Wednesday, according to the Washington Post, three groups representing the U.S. hospital industry will announce their willingness to give up $155 billion in revenue over the next ten years--money that the government can then use to help finance universal coverage, or some approximation thereof.

The deal, which the hospital groups are making with Senate Finance Chairman Max Baucus and the White House, has apparenlty been in the works for a while. Laurie McGinley and Phil Galewitz of Kaiser Health News first reported its emergence last week. It follows closely on the heels of a similar deal Baucus and the White House struck with representatives of the pharmaceutical industry in late June. And, broadly speaking, it's consistent with the pledge leaders of the health care industry made at the White House in early May: That they would support health care reform, even if it meant taking money out of their own pockets.

These agreements might seem merely symbolic. They are not. They are significant developments, both politically and substantively.

But are they also good developments, the sort that liberals should cheer? That's a bit more complicated. To be quite honest, I'm not sure I know the answer.

First, let's be clear about what's actually happening. A lot of people--even people who follow the health debate--seem to be under the impression that the industries are merely promising to save some money over the next few years, on a purely voluntary basis. That's not quite right, as best as I can tell. Both 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 drug industry has offered to endorse changes to the Medicare drug benefit. 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).

Not bad for a day's work. Or even a week's.

Still, you have to wonder: Could these industries be giving up more? The drug deal, at least, doesn't look all that great--except, perhaps, to the drug industry. My reading of the agreement--and, to be clear, there's still a lot of ambiguity here--is that the drug industry has agreed to kick in some of its own money to help fill in the "donut hole" in the Medicare drug benefit.

That's very nice and will, I think, make it easier for seniors to afford their drugs. But it also seems that, as part of the deal, seniors have to buy more drugs from name-brand manufacturers rather than generics. It's entirely possible that the name-brand drug industry--that is, the companies represented by PhRMA--could actually come out ahead.

Meanwhile, PhRMA has made it clear it will go after legislators who support stronger measures that would take away more of their revenue--like, say, the measures now under consideration in the House. David Rogers has the details in a must-read story that ran in Politico on Monday.

The expected hospital agreement seems may be more signfiicant--and, for liberals, more encouraging. Although it's impossible to know without seeing the details, $155 billion is a decent chunk of change. That could represent a serious sacrifice on the part of the hospitals.

On the other hand, it's not clear whether, perhaps, this is an example of some hospitals effectivelly 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 speciality hospitals actually do just fine but charity hospitals take a hit?

Perhaps the most important question to answer is what these industry groups are getting in return. Changing payments to the health industry isn't simply about generating savings that can finance expansions of insurance coverage. It's also about changing the behaviors of these industries--and, in so doing, creating a health care system that offers better quality care for less money. 

To accomplish that, reform should ideally include measures like strengthening the hand of the Medicare Payment Advisory Commission (MedPAC), developing more data on comparative effectiveness (CE), or building a strong public insurance plan. But hospitals don't like the idea of a stronger MedPAC, drug makers are pretty hostile to good CE, and insurers (among others) hate the idea of a public plan. When the industries cut these deals, are they prying promises from Baucus--or the White House--not to push too hard on these levers?

Like I said, I don't know the answers to these questions. And, for what it's worth, the pro-reform sources I generally consult don't seem terribly worried. In the last twenty-four hours, I have asked about a half-dozen of these people--some in Congress or the administration, others on the outside but still plugged in--how they felt. Most approved of the agreements and several were downright enthusiastic.

They suggested the political upside of these deals was considerable: "The more people are making deals," one Hill staffer told me, "the greater the sense of inevitability that this will happen and the greater the momentum." And while these sources understood the groups could simply walk away from the deals anytime--and declare, in effect, that their pledges of support were null and void--these sources noted that reformers, starting with the president, could do the very same thing.

Keep in mind these are deals with Baucus and, via his proxy, the Senate Finance Committee. But whatever comes out of Senate Finance will eventually have to be combined with the Senate Health, Education, Labor, and Pensions Committee bill. The combination, in turn, will have to be reconciled with whatever comes out of the House. That creates quite a few opportunities for modification--and improvement.

--Jonathan Cohn