Committee for a Responsible Federal Budget

NCHC's $500 Billion Plan to Lower Health Costs

Nov 9, 2012 | Health Care

In light of our nation’s fiscal challenges, the National Coalition on Health Care (NCHC) has put together a report of policy options to address the long-term challenge posed by rising health care costs. The policy package, released yesterday, proposes 50 recommendations to reduce federal health care spending in the ten-year federal budget window, while building a sustainable and affordable health care system in the long-term. Some of the recommendations also overlap with some of the major fiscal plans in the discussion.

NCHC estimates these recommendations could save roughly $500 billion over the next ten years. This estimate includes only those recommendations that had existing scores by CBO, or, in a few instances, by MedPAC or another organization. Almost half ($221 billion) of the identified savings comes from reductions in federal spending by expanding current policies or enacting new delivery system reforms. The remaining half ($276 billion) of the savings comes from revenue raisers such as a tax on sweetened beverages and raising taxes on tobacco and alcohol. Several of their recommendations not included in the $500 billion estimate have unknown savings, are budget-neutral, or may require modest budgetary increases.

Savings from NCHC's Recommendations (billions)
PolicyTen-Year Savings
Implement "Centers of Excellence" for Certain Surgical Services$0.45
Equalize Payments for Outpatient and Physician Office Services$19
Reform Medicare Post-Acute and Home Health Payments$37
Strengthen Penalties for Potentially Avoidable Acute Care Complications and Readmissions$52
Implement a Value-Based Withhold for Medicare Providers to Backstop Unscoreable Reforms$64
Use Competitive Bidding for Durable Medical Equipment$9.8
Remove Barriers to Competition for Generic Drugs$24.3
Double Increase in Health Care Fraud and Abuse Control Funding$3.7
Miscellaneous Savings$10.7
Subtotal, Spending Savings$221
Equalize and Increase Tobacco Taxes$88
Impose Penny-Per-Ounce Tax on Sweetened Beverages$130
Equalize Alcohol Taxes and Index for Inflation$58
Subtotal, Revenue Increases$276
Total Savings$497

Source: NCHC

Among the recommendations, NCHC highlights four "game-changers" that have significant potential to dramatically alter delivery of care and reduce costs in both the federal and private sectors. These include:

  • Permanent repeal of the Sustained Growth Rate (SGR) formula -- the so-called "doc-fix" -- and a transition from Medicare fee-for-service system to a value-based payment system
  • Value-based insurance design and quality-based tiering of providers
  • Investment in training a full range of health professionals needed for team-based primary care
  • Medical liability reforms such as disclose and offer, evidence-based safe harbors, and health courts

As we've mentioned before, part of the fiscal cliff includes steep cuts to Medicare physician payments. As a result, reforms to how we pay providers and improve delivery of care will play an important role in the weeks and months ahead. However, many delivery system reforms such as episodic bundled payments, care coordination, and value-based payments have faced hurdles in demonstrating to scorekeepers and policymakers that they can yield significant savings. In a report earlier this year, CBO found similar demonstrations currently in place have struggled to overcome the incentives inherent in today's fee-for-service payment system which reward quantity over quality. CBO's findings suggest considerable changes to payment and delivery are needed to result in any substantial savings.

One of NCHC's options that addresses this challenge is a recommendation to implement a value-based withhold to fee-for-service Medicare. Under a withhold, a percentage of provider payments would be withheld and given to providers only if savings and quality targets are met. If the savings targets are not achieved, Medicare would keep the withheld amount. This reform would have a five-year window for Medicare to achieve specified savings; if it doesn’t, then the percentage withhold would be applied to provider payments to make up the difference. Thus, the withhold can enforce savings from other delivery reforms which CBO may not otherwise score as countable. Although it is not the only approach on the table, a value-based withhold could be part of a comprehensive deal to generate real federal health savings.

Overall, NCHC’s recommendations exemplify the kind of innovative and transformative options policymakers should be considering. We’ve laid out other health care options in the past, some of which overlap and/or can be paired in numerous ways with NCHC’s recommendations. Some of their options have been used in other deficit reduction plans such as the soda tax, bundled payments, reductions in post-acute and home health care payments (see who they overlap with here). As Congress works on this issue in the weeks and months ahead, there is no shortage of options to put federal health spending on a sustainable path.