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Health-Care Reform: The Industry Signs On

Insurers, hospital executives, and drugmakers have stuck their finger in the wind and decided they are better off standing with President Barack Obama than against him on health-care reform.

On May 11, the new Administration got a promise from reform's former foes to do something about skyrocketing health-care costs. True, there were no real specifics about how the groups will work to lower the growth rate of national health spending by 1.5% a year over 10 years, an estimated savings of $2 trillion or more. And no, there is little to guarantee these same groups won't oppose key portions of health-care reform legislation working its way through Congress. But those who have toiled for years in health-care policy say the event carried heavy symbolism nonetheless. "This is very significant. It shows a dimension to the reform effort that no prior Administration was able to achieve," says attorney Bernadette Broccolo, head of the health-care law practice for McDermott, Will & Emery in Chicago.

As the President posed with the signatories at a White House meeting Monday, in what he called "a watershed event," the tableau carried a high quotient of irony.

Status Quo Not an Option

President Obama was praising the same industry groups that fought hardest to derail a health-care reform bill championed by President Clinton in 1993. This time, though, insurers and hospitals may be bowing to the inevitable. President Obama has made health-care reform a top priority, and the Democratic Congress says it will have a bill marked up this summer. Voters and the corporations that insure them (or at least some of them) are both demanding relief from ever-growing medical bills and insurance plans, and there is a general recognition that the rapid increase in health-care costs is unsustainable. The U.S. spent $2.2 trillion on health care in 2007 alone, and government statisticians expect health spending to increase by 6.2% a year through the next decade. That would increase the share of the gross domestic product spent on health care from 17.6% this year to a crippling 20.3% in 2018.

Several Washington health-care experts say that, in 1993, the status quo was an acceptable second choice to overhauling the health-care system. This time, they say, the status quo is unacceptable. "This is big," says Len Nichols, director of health policy at the New America Foundation, a Washington think tank. Nichols was a key member of the Clinton effort to reform health care. He says Monday's meeting should both confound health-care reform skeptics and embolden congressional leaders. "I liked the willingness to work with Congress and the White House," he says. "This is a sea change from 1993-94."

The Administration apparently learned its lesson from the Clinton experience, which hammered out its bill behind closed doors, with little to no industry input. By bringing the insurance and hospital executives to the table, it makes it that much harder for them to derail the effort altogether. At a White House press conference, Obama Press Secretary Robert Gibbs told reporters: "Let's not minimize the impact of…the difference between being at the table working constructively for comprehensive health-care reform that cuts costs for the American people, vs. campaign-style ads to derail it. I think today represents, in many ways, a big shift in the ground underneath people that have been working on health-care reform for decades."

Who Will Pay?

The Republicans were not quite as enthusiastic. In a statement, Representative John Boehner (R-Ohio) said that "while Republicans support some of the voluntary health-care reforms announced today, the Obama Administration has provided little in the way of specifics on how the proposed $2 trillion in savings will be achieved and enforced. Just as important, the Administration has yet to answer this fundamental question: How will it pay for its multitrillion, government-run health-care plan?"

The cost-cutting measures announced by the industry groups would not count toward covering the cost of a health-care bill that comes out of Congress, because they would all be enacted in the private sector. When Obama first unveiled his budget in February, it contained $634 billion as a downpayment on the estimated $1 trillion total cost of his plan, which envisions expanding health coverage to the uninsured, giving Americans a choice in health-insurance providers—perhaps including a federally backed "public option"—and letting workers take coverage with them if they leave a job.

The Obama-industry partnership is not so strange when put in the context of the number of unexpected alliances that have emerged in the last few years around health-care issues. In 2007, for example, the coalition Divided We Fail was formed by AARP, the Business Roundtable, the National Federation of Independent Business, and the Service Employees International Union, or SEIU, expressly to push for universal health care. And in the past year lobbyists and health-care activists on opposite sides of the issue have frequently joined together on panels and meetings to discuss ways to push reform, not the least of which was President Obama's own White House forum earlier this year that brought together opinion makers from all sectors.

No Details Forthcoming

However, the pledge signed by industry leaders carried few details about exactly how they would cut costs. The letter was signed by the heads of the trade associations Advanced Medical Technology Assn., the American Hospital Assn., America's Health Insurance Plans, the Pharmaceutical Research and Manufacturers of America, the American Medical Assn., and the SEIU. They agreed to aggressively try to curb obesity and promote wellness, coordinate care, manage chronic illnesses, standardize insurance claims forms, and increase the use of electronic medical records and other information technologies.

None of these promises were defined in detail, and there is no enforcement mechanism, raising the concerns of some interest groups. The National Coalition on Health Care, a nonprofit Washington alliance, noted in a statement that "voluntary efforts—without legislated requirements and enforcement—have not worked well in the past."

The signatories also have their own self-interest in mind, noted several Washington health-care experts, since any efforts they make to cut costs may forestall burdensome legislative mandates from Congress. Insurers have already said that they would stop charging more for customers with pre-existing illnesses, in an effort to stop the creation of a government-funded insurer that would cover those who couldn't find affordable coverage in the private sector.

Cause for Optimism

Despite these maneuvers, there was marked enthusiasm in the health-care world for the announcement. "Every one of the key constituencies is on the record," says Broccolo. "We all have a cynical side, but I think there is a real difference this time in how serious all sides are."

Arnst is a senior writer for BusinessWeek based in New York.

Arnst is a senior writer for BusinessWeek based in New York.

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