Downpayment on Health Reform

Despite the economic crisis and soaring federal budget deficit, President Barack Obama maintains at White House summits and in public statements that reducing the number of uninsured citizens and improving the quality of healthcare will cut costs overall and support economic recovery. The delay in appointing a secretary of Health and Human Services (HHS) has not diminished White House contentions that health reform is on track for this year. Governor Kathleen Sebelius of Kansas is slated to head HHS, and Nancy Ann DeParle, former director of what is now the Centers for Medicare and Medicaid Services, will coordinate the reform campaign as director of the White House Office of Health Reform.

Obama's preliminary budget plan for fiscal year 2010, which was unveiled in February 2009, launched the reform effort by laying out a broad outline for financing expanded coverage and reducing costs. The proposal makes a substantial down payment toward universal coverage by creating a $634-billion reserve fund over the next decade to support reform. The money will come from tax increases on wealthy individuals and curbs on payments to pharmaceutical manufacturers as well as insurers, hospitals, and doctors.

The most substantial change for pharmaceutical companies is a hefty boost in rebates for drugs purchased by state Medicaid programs. That budget item raises almost $20 billion over 10 years by hiking manufacturer rebates from 15% to 22% and revising the system for calculating the payments. The budget plan also promises to boost generic-drug use by prohibiting "collusion" between brand-name and generic-drug companies to keep generics off the market, and by establishing a "workable regulatory, scientific, and legal pathway" for the approval of generic versions of biologic drugs, according to the FY 2010 budget plan. The plan projects only $9 billion in savings from follow-on biologics, however, and notes the need for an exclusivity period that maintains incentives for innovation.

Insurers would take a big hit from a shift to a competitive bidding system for reimbursement of Medicare Advantage plans, which are slated to reduce rates by $175 billion over 10 years. The plan also calls for changes in how Medicare reimburses physicians and hospitals and offers proposals for reducing waste and fraud and adjusting reimbursement to promote quality care.

While Obama and his staff outline broad reform principles, Congress faces the hard task of devising workable legislation to implement these ideas. Senate Finance Committee Chairman Max Baucus (D-MT) and Senate Health Committee Chairman Edward Kennedy (D-MA) plan to offer broad health-reform legislation by summer 2009. That may reflect more bad news about Medicare's finances from the Medicare trustees, which will further emphasize the need for speedy action to reform provider-payment systems and reduce spending on costly, inappropriate care.

For more on this topic, see "Congress and Obama Seek to Bolster Drug Safety"