[TheMercenary]

CBO Failures

Congress’s Health Care Numbers Don’t Add Up

FOR competence and integrity, few organizations command more respect in Washington than the nonpartisan Congressional Budget Office. As health care reform makes its way through Congress, the budget office’s assessment of how much various elements might cost may determine the details of legislation, and whether it ultimately passes. But when it comes to forecasting the costs of reform, the budget office’s record is suspect. In each of the past three decades, when assessing major changes in Medicare, it has substantially underestimated the savings the changes would bring.

In the early 1980s, Congress changed the way Medicare paid hospitals so that payments would no longer be based on costs incurred. Instead, hospitals would receive a predetermined amount per admission, based on the patient’s primary medical problem. This encouraged shorter stays, led to fewer diagnostic services and reduced administrative costs. The Congressional Budget Office predicted that, from 1983 to 1986, this change would slow Medicare hospital spending (which had been rising much faster than the rate of inflation) by $10 billion, and that by 1986 total spending would be $60 billion. Actual spending in 1986 was $49 billion. The savings in 1986 alone were as much as three years of estimated savings.

Why was the budget office so far off? It had projected that the new payment strategy would increase hospital admissions, because hospitals would maximize their payments by admitting patients who were less severely ill and discharging them quickly. In short, they would make up money with faster turnover. But in the first year of the new payment system, admissions, which had been increasing, actually declined by 3.5 percent. By the third year, they had declined by 15.9 percent. It may be that the declining admissions resulted from a new and stronger program for reviewing admissions.

But the Congressional Budget Office was correct in assuming that hospital stays would grow shorter. In the first three years of the payment system, the length of Medicare patients’ hospital stays, which had been decreasing by 1 percent to 2 percent a year, fell by 17 percent. The new system also led hospitals, for the first time in decades, to cut their work forces — by 2.3 percent in the first year alone.

In the 1990s, the biggest change in Medicare came with the Balanced Budget Act of 1997, a compromise between a Republican-controlled Congress and a Democratic administration. At the time, the Congressional Budget Office forecast that, from 1998 to 2002, the act would reduce Medicare spending by $112 billion — a 9.1 percent reduction. Part of that — $36 billion worth — would come from paying skilled nursing facilities and home health care services a set fee per patient. But only a tiny fraction of the savings, about $100 million, would come from better monitoring of fraud and abuse on the part of health care providers, according to budget office projections.

The actual savings turned out to be 50 percent greater in 1998 and 113 percent greater in 1999 than the budget office forecast. Overall spending increased just 1.2 percent from 1998 to 2000, rather than 5.6 percent, as was projected. With increased monitoring for fraud and abuse, hospitals billed less aggressively. Spending for skilled nursing facilities, which had increased by 38 percent per year from 1988 to 1997, did not increase at all in 1998 and 1999. At the same time, spending for home health care services, which had been rising at the rate of 25 percent a year, fell by 52 percent. In fact, Medicare spending fell so much that Congress increased payment levels to hospitals and other providers in 1999 and 2000.

In the current decade, the major legislative change to the system was the Medicare Modernization Act of 2003, which added a prescription drug benefit. In assessing how much this new program would cost, the Congressional Budget Office assumed that prices would rise as patients demanded more drugs, and estimated that spending on the drug benefit would be $206 billion.

Actual spending was nearly 40 percent less than that. Spending on drugs declined from fiscal year 2007 to 2008. Seniors proved more willing to buy lower-cost generic drugs than expected, fewer people participated in the program than expected, and competition held premiums down. Few new blockbuster drugs came on the market, so overall drug prices remained relatively constant, rather than accelerating as predicted.

The Congressional Budget Office’s consistent forecasting errors arose not from any partisan bias, but from its methods of projection. In analyzing initiatives meant to save money, it helps to be able to refer to similar initiatives in the past that saved money. When there aren’t enough good historical examples to go by, the estimated savings based on past experience is essentially considered to be unknown. Too often, “unknown” becomes zero — even though zero is not a logical estimate.

The budget office has particular difficulty estimating savings when it considers more than one change at once. For example, last December the office reported that it found no consistent evidence that changes in medical malpractice laws would have a measurable effect on health care spending. It also reported that increased spending on studies comparing the effectiveness of different drugs and medical treatments would yield no net savings for 10 years. Yet if both malpractice reform and comparative effectiveness studies were instituted simultaneously, they might work together to yield substantial savings; doctors would gain more confidence in the effectiveness of less aggressive treatments and, at the same time, could use those treatments with less to fear from lawsuits.

The budget office’s cautious methods may have unintended consequences in the current health care reform effort. By underestimating the savings that can come from improved Medicare payment procedures and other cost-control initiatives, the budget office leads Congress to think that politically unpopular cost-cutting initiatives will have, at best, only modest effects. This, in turn, forces Congress to believe it can pay for reform only by raising taxes, which then makes reform legislation more difficult to pass.

The Congressional Budget Office’s integrity is beyond questioning. But the record shows that it has substantially overestimated the cost of health care reform three times out of three. As Congress now works on its greatest push for reform in generations, the budget office needs to revise the methods it uses to make predictions about costs.

Jon R. Gabel is a senior fellow at the National Opinion Research Center of the University of Chicago.

http://www.nytimes.com/2009/08/26/op...fice%22&st=cse