Interview with OMB Director Peter Orszag

By The NewsHour, The NewsHour - November 10, 2009

JIM LEHRER: Next tonight: Is the push for health care reform cutting costs, as well as changing the system?

Judy Woodruff gets two sets of answers.

JUDY WOODRUFF: First, we turn to the president's point person on costs. He is Budget Director Peter Orszag.

Peter Orszag, thank you for joining us.

PETER ORSZAG, Director of Office of Management and Budget: Thanks for having me.

JUDY WOODRUFF: Even after this big success, getting a bill through the House of Representatives, you still have people out there, Republicans and Democrats, who are saying they seriously doubt whether any legislation that comes through Congress is going to put a dent in spending on health care.

What do you say to that?

PETER ORSZAG: Well, I think we have to be clear. We have said the legislation has to be deficit-neutral over the next decade. The Senate and House are both meeting that test. We're looking for it to be better than that in the second decade. Both the Senate and the House are meeting that test also.

And not only that, but we also want significant reforms to the delivery system, moving towards things like bundled payments, accountable care organizations, incentives to reduce readmission rates that are unnecessarily high at hospitals. Legislation includes a variety of those changes, too.

So, all in, there are an important set of reforms here that will help move towards a higher-quality/lower-cost system over time.

JUDY WOODRUFF: Well, let me ask you first about the deficit point, because "The Washington Post" has editorialized in the last few days that, essentially, what you're going to have in the next 10 years is much greater outflow from the federal government than you are going to have inflow, it's going to result in a gap that is ultimately going to need to be reconciled either by more taxes or by severe cuts on people who can least afford it.

PETER ORSZAG: Well, let's separate to things. One is the underlying budget problem. We do face a $9 trillion deficit over the next decade. That -- and we can talk more about that.

The second question is, what is health reform doing to that underlying deficit? Again, take the Senate legislation. There is a reduction in that 10-year deficit of almost $100 billion coming from the Senate Finance legislation, and then, perhaps just as importantly, much larger effects that are growing over time in the second decade and thereafter.

So, there is an underlying fiscal problem. And we do need to address that. But the health legislation is not exacerbating that problem. It's making it better.

PETER ORSZAG: Well, if you take -- again, take the Senate Finance legislation as an example, it includes not only movements toward value-based purchasing for hospitals and paying doctors for quality, rather than quantity, but it also includes a Medicare commission, which will be a flexible way of moving towards that fee-for-value, rather than fee-for-service, system over time.

And I have had lots of discussions with Denis Cortese. I respect him a lot. But I think even he would say, up or down, Senate Finance bill, he would take it. Perhaps, you know, sitting in a think tank or somewhere else, you could always do more, but in terms of a real piece of legislation, this is moving in an important way towards delivery system reform.

JUDY WOODRUFF: Another criticism one hears, Peter Orszag, is that the -- frankly, the deal that the White House, that you all cut with the hospital industry to, I think, limit hospital payment reductions to about $150 billion over 10 years also puts a crimp in how much savings there really is going to be in health care costs.

PETER ORSZAG: Well, still that's a significant amount of money, more than $150 billion. There are not only improvements in the hospital side of things, but also in the insurance industry and other components of the medical sector that can help finance an expansion in coverage. And that's what this legislation does.

JUDY WOODRUFF: And one other point one hears is that there -- you know, you said yourself there are a series of suggested reforms. But what I'm hearing from critics is that these are just incentives, that they're not really hard, mandated requirements that spending go down.

PETER ORSZAG: Well, there's a combination of hard, mandated requirements that spending go down, for example, with regard to reducing overpayments to Medicare Advantage plans -- those are the private insurance plans that cover some Medicare beneficiaries -- and, then, yes, some incentives to move towards a higher-quality/lower-cost system.

One of the issues there is, in part because we haven't taken this sort of concern seriously enough in the past, we don't know exactly what to do in exactly how to design a bundled payment, for example, where you pay a doctor for treating a disease, rather than for each individual procedure that is done to treat that disease.

We need to move in that direction, but the exact parameters need to be tested out and then moved to scale quickly. But they still need to be tested out. And that's what this legislation is doing.

JUDY WOODRUFF: Final quick question: Do you believe that private insurance premiums are going to go down?

PETER ORSZAG: I do, yes. Private insurance companies -- sorry -- premiums, I believe, will go down.

For example, individuals will now have access to a health exchange, where they won't face the same kind of selection effects that can drive up costs that currently exist in individual markets.

JUDY WOODRUFF: Peter Orszag, budget director, budget adviser to the president, thanks very much.

PETER ORSZAG: Thanks for having me.

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