Committee for a Responsible Federal Budget

How Simpson and Bowles Plan to Bend the Health Care Cost Curve

In their new deficit reduction proposal, A Bipartisan Path Forward, former Fiscal Commission co-chairs former Senator Al Simpson (R-WY) and Erskine Bowles include $585 billion in savings to federal health spending. They also put forward as one of their central principles that policymakers should "bend the health care cost-curve," looking beyond one-time savings and cost-shift to reforms which would fundamentally realign incentives to slow health care cost growth.

To this end, $170 billion of savings in the plan are described as "structural reforms to bend the health care cost curve." Simpson and Bowles assert that by realigning incentives to encourage behavior change, lawmakers can help to bend the health care cost curve and put federal health spending on a more sustainable path.  They recommend four categories of reforms to achieve this goal:

1. Delivery system and payment reforms ($60 billion through 2023): Simpson and Bowles propose a number of changes on the provider payment side meant to encourage more efficient delivery of health care. Among those changes include:

Replacing the Sustainable Growth Rate (SGR) formula with reforms to drive providers away from Medicare fee-for-service (FFS) and towards a payment model that encourages quality and coordinated care while prioritizing primary care and reducing Medicare costs.

Expanding and increasing current penalties for avoidable hospital readmissions and complications ("never events") -- a proposal similar to one proposed by Community Catalyst.

Expanding the current competitive bidding program for durable medical equipment (DME) and applying it to lower the cost of more medical devices, laboratory tests, radiologic diagnostic services, and various other commodities -- a proposal similar to one offered by MedPAC, the National Coalition on Health Care, and others.
  Increasing payment bundling where many providers are paid with a fixed amount for a bundle of services as has begun to occur in the Medicare Acute Care Episode (ACE) demonstration -- a proposal similar to those proposed by experts at the Center for American Progress (CAP) and the American Enterprise Institute, as well as more modest bundling policy in the President's FY2014 budget proposal.

Increasing price and quality transparency such as those proposed by CAP

Giving CMS and the Independent Payment Advisory Board (IPAB) greater authority to experiment and improve delivery and payment for care.

Simpson and Bowles also call on lawmakers to consider creating an alternative benefit package that would drive beneficiaries and providers toward higher value, coordinated care. For example, this could be similar to the Commonwealth Fund’s Medicare Essential plan, Michael Chernew and Dana Goldman’s global payment model, or even BPC’s proposed Medicare Networks.

2. Reform Medicare cost-sharing rules ($90 billion through 2023): Another way in which the Simpson-Bowles plan would slow health care cost growth in Medicare is by altering cost-sharing rules for beneficiaries. We’ve talked about the growing consensus around such reforms recently, and their proposal adds yet another approach.

They recommend building on the original Fiscal Commission proposal that combines cost-sharing provisions of Medicare Part A and B into a simple income-based system of deductibles, co-insurances, and out-of-pocket limits by implementing income-adjusted out-of-pocket maximums and a lower deductible for low-income beneficiaries.

Their plan would also restrict and discourage the use of supplemental coverage (including Medigap, retiree health plans, FEHBP and TRICARE for Life) from distorting Medicare incentives through first-dollar coverage.

Together, these reforms seek to give beneficiaries more “skin in the game” by using cost-sharing levels to encourage high value services and discourage excessive or low value care. The plan's cost-sharing reforms help to slow cost growth by instituting higher copayments, coinsurance, and first-dollar deductibles.  However, it would include some out-of-pocket limits for low-income seniors. The Bipartisan Path Forward highlights a few other variations of these cost-sharing policies that policymakers could use to achieve the same goal, and by doing so, demonstrates the dial-ability of many options that are on the table.

3. Medical Malpractice Reform ($20 billion through 2023): Simpson and Bowles offer $20 billion in savings through several proposals on medical malpractice reform to reduce the cost of defensive medicine. These include instituting a statute of limitations for malpractice claims, sliding-scale limits on lawyer contingency fee, rules to ensure defendants are only responsible for their share of the responsibility for injury, and evidence-based clinical practice guidelines among others.

4. Increase State Flexibility for Reforms: Give states greater flexibility through a new Medicaid waiver program that encourages states to coordinate care, improve quality, and lower costs. For instance, this could target high-cost populations such as dual eligible beneficiaries and advance better coordination between states and the federal government.

Simpson and Bowles project the above policies to save the federal government $170 billion through 2023, but argue that they could save substantially more if they were truly able to "bend the cost curve." To ensure further savings materialize, they propose a cap on the growth of the per beneficiary net federal commitment to health care to growth to GDP after 2018. The cap would be enforced through a combination of an across-the-board increase in Medicare premiums, a reduction in the value of the employer-provided health insurance exclusion, and something called a value-based withhold, under which a percentage of provider payments would be withheld and rewarded to providers only if they meet certain savings and quality targets. This is just one approach towards applying a budget constraint on the federal commitment to health care; however, other deficit reduction plans have included similar caps at varying levels.

As health care spending continues to rise, these reforms make an aggressive effort to bend the health care cost curve downwards. While the savings of some of these reforms may be uncertain, they hold potential to provide structural changes necessary to reign in federal health spending and are backed-up by real enforcement mechanisms. Still, bending the health care cost curve is only one part of putting federal health spending on a more sustainable path.  Other reforms will be necessary, particularly to address the aging population which is the primary factor behind rising spending over the next few decades.  That's why Simpson and Bowles also include other savings from means testing, a gradual increase in the eligibility age, elimination of overpayments to providers and states, and other Medicare provider reductions. Overall, A Bipartisan Path Forward provides lawmakers with more options that should be considered in this budget debate.