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Deficit Experts: Extra $600B in Health Care Cuts Needed

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By Mari Serebrov
Washington Editor

While Congress and the president debate how best to postpone the broad federal spending cuts sequestration is set to inflict late next week, the president's top deficit reduction experts are calling for more targeted, but even deeper cuts – especially in health care.

As part of a new plan unveiled Tuesday to trim an additional $2.4 trillion from the federal deficit within the next 10 years, former Republican Sen. Alan Simpson and former Clinton White House Chief of Staff Erskine Bowles proposed another $600 billion in health care spending cuts, while recommending that the "abrupt, mindless" cuts mandated by the sequester be scuttled.

Their plan is based on "shared sacrifice" and a need to look beyond the next decade, Simpson and Bowles said. Suggested reforms to reduce Medicare and Medicaid spending include lowering drug prices, reducing waste, reducing payments to providers and realigning incentives so quality, rather than quantity, drives future health care decisionmaking.

To tackle the long-term growth of the debt, Simpson and Bowles said reforms in health care spending "should be backed up by a cap on the budgetary commitment to health care, limiting per capita growth close to the growth of the economy."

Such caps could be problematic when the rest of the provisions of the Affordable Care Act (ACA) kick in next year. Another factor is the aging population, which is creating a greater demand for health care while shrinking the work force.

The increase in health care spending has been slowing and is expected to grow only 3.82 percent this year. But when the ACA is fully implemented next year, health care spending is expected to grow 7.4 percent, exceeding $3.1 trillion in 2014, according to a recent study in the American Journal of Health-System Pharmacy.

Meanwhile, the country's economic growth remains sluggish. The U.S. economy, as measured by real GDP, grew just 2.2 percent last year – well below the 3.23 percent average the nation has enjoyed since 1947. The Congressional Budget Office expects real GDP growth to remain at 2.2 percent into the next decade, and some experts are predicting even slower growth.

Given the status quo pace of the economy and the anticipated increases in health care and other government spending, the federal deficit is projected to continue to grow faster than the economy, putting it on an "unsustainable path," Simpson and Bowles said. That's why their plan, which will be released in more detail in a few weeks, urges Congress to enact reforms that would reduce the deficit in a more meaningful way.

The plan doesn't focus entirely on health care, or cuts, for that matter. Among other reforms, it also looks at ways to make the U.S. tax code more efficient and globally competitive. "There is so much wasteful spending in the tax code that there is room to lower those rates and reduce the deficit at the same time," Simpson and Bowles said.

Iffy Support

It's too soon to say whether the Simpson-Bowles plan will gather much support in Washington. When asked Tuesday whether the president supported the proposal, White House Press Secretary Jay Carney said the president has his own plan.

Since the specifics of the Simpson-Bowles plan aren't available yet, the Biotechnology Industry Organization (BIO) said it couldn't comment on the plan. But it noted that, in the past, Simpson and Bowles have recommended adding a rebate to the Medicare Part D program, which covers prescription drugs. The industry group continues to oppose such a measure, saying it would harm innovation. It also pointed out that Part D, as it currently is designed, is highly successful and has overwhelming patient support.

However, BIO said it recognizes the need for deficit reduction, "and we stand willing to work with the Administration and the Congress to accomplish this in a way that does not hinder patient access to life-saving therapies."

Matthew Bennett, senior vice president at Pharmaceutical Research and Manufacturers of America, echoed that sentiment, adding that "the biopharmaceutical industry supports solutions that foster innovation and economic growth."

Simpson and Bowles expect that when all the details of their plan are unveiled, it will be harshly criticized by the extremes in both the Democrat and Republican parties, as it will include spending cuts and new revenues. "The point of this plan is to push both sides to go beyond their comfort zone in order to reach a principled compromise with enough savings to bring the debt under control," they said.

When it comes to health care spending, Bennett told BioWorld Today that it's imperative that any compromise preserve and sustain continued medical progress. "Maintaining leadership in R&D-intensive sectors such as the biopharmaceutical sector is critical to winning the fight against the human and economic costs of disease and growing the U.S. economy over the long term," he said.