A Medical Device Daily

The Obama administration has published its budget proposal for the upcoming fiscal year, and while the administration promises somewhat more money for FDA and a rather large chunk for comparative effectiveness research, other parts of the plan seem more than a little ambitious, such as containment of healthcare inflation. The budget proposal projects a doubling of Medicare spending by 2019, but also calls for sustained rates of GDP growth that have been seen in the U.S. only once in the past half century en route to a 50% boost of GDP over the same period, leaving Medicare with a substantially larger part of the GDP pie despite assertions to the contrary.

The new director of the administration's Office of Management and Budget, Peter Orszag, said in a recording posted at the OMB web site that "the single most important thing we can do for the long-term economic health of our nation is to slow the growth rate of healthcare costs," adding that Medicare reform has to take place in the larger context of overall healthcare reform. However, the former director of the Congressional Budget office also made the case that the budget proposal "begins the work to bend the curve of healthcare costs."

The document notes that the cost of Medicare is forecast to increase from $425 billion in the current fiscal year to $453 billion in FY 2010, an increase of about 6.8%, which runs essentially parallel to recent historical trends. However, the number rises to $498 billion in FY 2011, a 10% jump in one year. Equally impressive is the projection that Medicare costs will ascend by 30% between FYs 2009 and 2013 to $556 billion, and by 2019, a year often pegged as the year the Medicare Part A trust fund dries up, Medicare spending is expected to top $872 billion, or more than double the current sum.

However, the White House projects that the economy will grow by only about half by 2019 to roughly $22.8 trillion from about $14 trillion in 2008.

The portion of the document that deals with GDP growth suggests a more optimistic set of assumptions about the nation's economy than might be held in some quarters. According to the document, the administration's reforms are expected to trigger GDP growth by 3.4% between 2009 and 2010, but that GDP growth rate is forecast to rise to 5.2% the following year and to 6.2% in both 2012 and 2013.

Much of the argument behind those numbers is presumably that the current economic torpor leaves the economy with lots of headroom to grow into, but the three-year run of growth between 2011 and 2013 would be exceptional compared to other post-recessionary growth spurts in the U.S., according to numbers found on the web site of the Bureau of Economic Analysis (BEA).

According to BEA's numbers, after the relatively short slump of 1991 when the economy contracted by 0.2%, the economy snapped back by 3.3%, 2.7% and 4.0% in the three following years, none of which was exceptional and do not match the administration's projections for 2011-2013.

Going back to the recession of the early 1980s, when the economy contracted in two out of three years by less than 1%, GDP bounced back by 4.5% in 1983 and a vigorous 7.2% in 1984. However, 1984's growth was followed by four years in which the economy grew at a clip of between 3.4% and 4.1%, leaving that resurgence with only one year of exceptional growth.

The 1973 oil embargo by Saudi Arabia choked the U.S. economy sufficiently to cause a contraction each of the following years by half a percentage point or less, and the U.S. economy rebounded by between 4.6% and 5.6% in each of the following three years. To find a rate of growth that hits 6% or better for two consecutive years, one must dial back to 1965 and 1966, when Medicare was signed into law by President Lyndon Johnson as part of his Great Society series of initiatives. GDP grew in 1965 and 1966 by 6.4% and 6.5%, respectively.

Reaction was predictably divided, and swift. In a Feb. 26 statement, Bruce Josten, executive VP for government affairs at the U.S. Chamber of Commerce (Washington) said, "more taxes, heavy-handed regulations, and command-and-control government will not hasten recovery. Instead, it will delay it and do so at a terrible cost to taxpayers, businesses, and working families."

The response from the Advanced Medical Technology Association (AdvaMed; Washington), however, was mixed. The association's president and CEO, Stephen Ubl, said in a Feb. 26 statement that AdvaMed members "applaud the President's commitment to health reform and for recognizing the healthcare delivery system is in need of improved efficiencies and preventive care as well as a greater emphasis on quality," All the same, Ubl took exception to what he saw as a "troublesome proposal in the budget [that] would require pre-authorization of Medicare imaging studies by private utilization review firms." He urged the administration to "await results from a Medicare demonstration program designed to increase physician adherence to guidelines on the delivery of appropriate imaging" before pressing ahead with such a move.

Former comptroller general David Walker, who left his post at the Government Accountability Office in March 2008, published a Feb. 26 statement on behalf of the Peter G. Peterson Foundation (New York), commending Obama for "providing a 10-year budget projection and a specific deficit reduction goal." Walker, who serves as the organization's president and CEO, also expressed concern that the White House is "advocating expanding healthcare coverage before we have demonstrated our ability to control healthcare costs and before we make a significant down payment on the federal government's tens of trillions of dollars in current unfunded healthcare promises." Walker recommended the establishment of a fiscal future commission "to help us get our federal finances in order before we lose the confidence of our foreign lenders."

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