Major hospital groups pledge $155 billion savings in deal

Washington -- The hospital industry has become the latest health care sector to broker a stand-alone agreement with the White House to help save the system money in advance of national health reform. But not everyone in the debate is cheering the deal.

The American Hospital Assn. is one of six organizations, including the American Medical Association, that pledged earlier this year to help President Obama control the growth rate of health spending over the next decade. But the AHA joined two other leading hospital organizations to announce a separate July 8 deal with Obama that they say would result in spending reductions of $155 billion over 10 years.

The agreement, which also included the Federation of American Hospitals and the Catholic Health Assn. of the United States, lacks specifics. But the federation said some savings would come from productivity adjustments to Medicare hospital pay.

The hospitals said the $155 billion savings is contingent on reforms that cover the vast majority of the uninsured, and they signaled that it represents their best offer. The reductions "are linked in part to increased coverage and cannot go any deeper without damaging hospitals' ability to care for their communities," stated a letter from the three groups to Obama.

The hospital pledge comes on the heels of an agreement by the Pharmaceutical Research and Manufacturers of America to save the system $80 billion over the next decade, in part by reducing the amount that Medicare seniors are expected to pay for their drugs during a gap in government coverage. Senate Finance Committee Chair Max Baucus (D, Mont.) finalized that deal with PhRMA and the White House on June 22.

Signs of internal disagreement

The three organizations that made the deal with Obama do not speak for all of the nation's hospitals.

A collaboration of about a dozen state hospital associations that have dubbed themselves the "Value Coalition" drafted a July 7 letter stating its concern with any proposal that relies on pay reductions as the primary means to fund reform. It instead favors value-based payments that reward efficiency and high quality.

The letter's authors said it was not meant to be taken as direct opposition to the $155 billion agreement. But the coalition, which includes hospital associations from Montana, Oregon, Virginia, Washington and Wisconsin, described tough times that require a hard look at any proposed payment reductions.

"Many hospitals and their communities are experiencing some of their toughest economic challenges in decades," the letter stated.

Still, the backers of the deal insisted that hospitals everywhere would have much to gain from using cost savings to advance reforms that put many more people on insurance rolls. "Our members' leading concern is to help resolve the nation's uninsurance crisis, and the agreement would take us to 95% of coverage," said Richard Coorsh, an FAH spokesman.

Skeptics in Washington

At least one key lawmaker on Capitol Hill has cast doubt on whether such industry deals with the White House would hold up in the reform debate.

House Energy and Commerce Committee Chair Henry Waxman (D, Calif.) cautioned that the government is not formally committed to these agreements with industry. In a July 8 speech, Waxman used blunt terms to describe the $80 billion savings pledge by drugmakers and indicated that lawmakers might mandate higher spending reductions on the industry to help fund health system reform. "We're not bound by that agreement," he said. A Waxman aide said the lawmaker did not have an immediate comment about the hospital industry's pledge.

Some policy experts also are unsure whether the $155 billion in savings would come to pass.

"If the uninsured population does not decrease significantly, hospitals will no doubt be able to charge the private sector more to make up for the reduced Medicare and Medicaid reimbursements, just as they do now," said Merrill Matthews, PhD. He is director of the Council for Affordable Health Insurance, a Washington-based research and advocacy organization.

Questions also persist as to whether lawmakers can use the proposed savings to help pay for reform legislation. The Congressional Budget Office "has been claiming there is no way they can factor this in unless it's in legislation," Matthews said. "They only track what they can see in the legislation, not what industry is willing to do."

He sees no assurances that promises by the hospital and drug industries will be delivered. "I know of no way how you could enforce that. Right now it's a gentlemen's agreement."