Friends Like These

Buried in Obamacare is a secret weapon to contain Medicare costs. Meet the group of House Democrats who want to destroy it.

When Wisconsin Representative Paul Ryan let loose the bombshell of his Republican budget proposal in early April, the pressure in Washington immediately began to mount for President Obama to come back with a response. Hailed as a bold and courageous attempt to reckon with the mounting deficit, Ryans plan scored instant points for its willingness to grapple with Medicare, the greatest long-term driver of government deficits and debt. Of course, behind the much-hyped boldness came an all-too-familiar Republican attack on a government program. Ryan proposed phasing out Medicare and replacing it with a privatized system of vouchers that would, according to the Congressional Budget Office, have seniors paying two-thirds the cost of their care, while also cutting taxes on the wealthy and repealing the Affordable Care Act of 2010. But a gauntlet had been thrown down: Obama would have to come forward with a better idea.

And so the president did, in a widely watched speech eight days later at George Washington University. With Ryan himself sitting in the front row, Obama excoriated the Republicans proposal and offered a full-throated defense of programs like Medicare, Medicaid, and the social safety net as a whole.Were a better country because of these commitments, Obama said. Ill go furtherwe would not be a great country without those commitments.

When it came time to offer his substantive answer to Ryan and the deficit, Obama pointed to the Affordable Care Act itself, whose reforms, he reminded the crowd, were projected to save the federal government $1 trillion on their own. Then, as a new deficit-control measure, Obama proposed expanding the powers of a crucial but little-understood entity established by the health care bill. We will slow the growth of Medicare costs, Obama said, by strengthening an independent commission of doctors, nurses, medical experts, and consumers who will look at all the evidence and recommend the best ways to reduce unnecessary spending while protecting access to the services that seniors need. He was referring to something called the Independent Payment Advisory Board, or IPAB.

In the days that followed, while the left mainly cheered at Obamas philosophical defense of the welfare state, the right zeroed in on the presidents call for a stronger IPAB. The National Review flamed the forgettable-sounding board as the real death panel, the true seat of rationing, and the royal road to health-care socialism. (For good measure, the magazine ran a cover image depicting the commission as a ghoulish crowd of Grim Reapers.) As it happened, the Republicans had been gunning for IPAB for quite some time. Legislation to kill the independent panel was put forward as early as July 2010 in the Senate, and this January, Tennessee Tea Partier Phil Roe introduced a bill to repeal it in the newly Republican House. Now, by emphasizing its importance, Obama had put IPAB back at the front of the conservative firing line.

The fallout had all the markings of a straightforward partisan battlea reflexive attack on faceless bureaucrats tailor-made for the Tea Party era. But then, just two days after Obamas speech at George Washington, a little-known Democratic congresswoman named Allyson Schwartz signed on as a cosponsor of Roes bill. Her defection was enough of a partisan hiccup to earn some prominent ink in the Beltway press. An article that landed on the cover of the New York Times in mid-April suggested that conscientious opposition to IPAB was becoming an issue that crossed the political aisle.

What Schwartzs defection really represented, however, was not the MacGuffin of earnest bipartisanship but a serious moment of escalation in a war that the medical industry is waging against the lynchpin of President Obamas health care reforms. To understand why, it helps to know a little bit about Schwartz and who she represents. A former health care executive from a suburban district outside Philadelphia, she is the health policy brains of the New Democrat Coalition, a group of forty-two House members whose close relationship with several hundred Washington lobbyists has made them one of the most successful political money machines since the Republican K Street Project collapsed in 2007. In the past several years, they have played an instrumental role in helping the financial and health care industries limit and weaken proposed reforms; IPAB would appear to be their next target. And if the history of the group is any indication, where Schwartz goes, the votes of a substantial number of her New Democrat colleagues are liable to follow.

Likewise, to understand why so many forces are amassing against IPAB, it helps to know what it represents: namely, our best hope not only of reining in Medicare costs and hence future budget deficits, but also of reforming the exorbitant, entrenched, ineffective practice of American medicine itself.

Since Medicare was signed into law in 1965, oversight and administration of the program has fallen to the Centers for Medicare & Medicaid Services. However, the CMS has consistently been hampered by Congress, which, through both subtle and direct means, has placed itself at the center of Medicares affairs, dictating terms and blocking reforms.

If the CMS has been answerable in great detail to Congress, it is important to remember that Congress has been, and still is, heavily answerable to the health care industry. For members sitting on committees that deal with Medicare, health care companies and trade groups have provided a steady stream of industry-sponsored studies and campaign contributions in the hopeusually fulfilledthat lawmakers will take their side. To help counter this influence, congressional budget hawks in 1997 created the Medicare Payment Advisory Board to give lawmakers independent expert advice. Med-PAC has since produced scores of recommendations for lowering costssuggesting, for instance, that the CMS agree to pay the lowest price among different products designed for treating knee osteoarthritis, all of which work more or less the same way, rather than the average price of those products (likely savings: $500 million over ten years). But such recommendations are only advisory. Lawmakers are free to ignore them, and under pressure from, say, medical device makers, they usually do.

So when the Affordable Care Act was being drafted, key senators like West Virginias Jay Rockefeller and White House officials decided that what was needed was a health care equivalent of the Base Realignment and Closure (BRAC) Commission, the highly successful independent body Congress created in 1988 to make decisions about which military bases to closedecisions that Congress had repeatedly shown itself unable to make on its own. IPAB fits that bill. Composed of fifteen experts plucked from the health care world, IPAB will have the authority to impose binding, fasttracked changes to Medicare once per capita costs rise beyond specific levels outlined in the health reform bill. Congress could reject IPABs recommendations, but it would have to offer its own alternative cost-saving measures, reducing the chances of meddling. IPAB is prohibited by law from rationing care or raising premiums, and its authority over some sectors of health care wont kick in for years. Moreover, the Affordable Care Act left many of the boards powers undefined. But over time, with a proactive chair and a supportive White House, the board has a great deal of potential to fundamentally change the way Medicare does business.

Beginning in 2014, IPAB will be able to green-light many of MedPACs most promising ideas. But potentially even more important, it could take the best results of a number of innovative delivery reform experiments mandated by the new lawfor instance, the bundling of services into a single payment to encourage doctors to forego unnecessary tests, or rewarding health care networks for providing higher-quality integrated care for patients with expensive chronic diseasesand fast-track their implementation systemwide. The hope is that, over time, these changes could substantially lower the rate at which Medicare costs are expected to grow. And since private insurers often follow Medicares lead, the reforms could lower cost growth in the broader health care system, which is the real source of the problem.

Given the threat IPAB represents to a status quo that is very lucrative for the health care sector, the industry has gone into a lobbying frenzy. Groups like PhRMA, the incredibly powerful drug industry trade group, were out of the gate almost as soon as Congress had passed the act. Though PhRMA supported the billwhich did, after all, expand their potential market of patients by about thirty milliontheir press release on the occasion of its passage was quick to mention concerns about IPAB and its overly broad powers. It was a message that Republicans found intrinsically appealing. But for any repeal effort to actually work, bipartisanship would be required.

Luckily for IPABs opponents, a group called the New Democrat Coalition was waiting in the wings.

The New Democrat Coalition quietly emerged on the scene in 1997, toward the end of the Clinton era. Like the Democratic Leadership Council and the Blue Dog Democrats, two other groups that broke through in the age of Third Way politics, they sought to tap into the vast campaign finance coffers of corporate America. While the Blue Dogs are known as a largely southern and rural club with interests in social issues, fiscal conservatism, and energy, the New Democrats have tended to come from suburban districts across the country and focus on matters of trade, finance, and health care. Throughout the groups history, its membersnames like Gary Peters, Adam Smith, and Martin Heinrichhave mainly been congressmen who are little known outside their districts, unlikely to chair a committee or hold a prominent leadership post. Instead, they have been positioned along the fault lines of major policy battles, using their status as fence-sitters to extract concessions for the business community.

If the New Democrats have a favorite buzzword, it is innovation. Their PR literature is full of phrases like championing innovation, growing the innovation economy, and funding the innovation agenda. In practice, the term has largely served as cover for the priorities of their corporate backers. For example, when the financial industry came to Congress in the late 1990s asking for the removal of the Depression-era Glass-Steagall Acts restrictions on investment banks merging with depository institutions, many New Democrats voted for the Gramm-Leach-Bliley Act, which paved the way for too big to fail banks. New Democrats also threw their weight behind the Commodities Futures Modernization Act, which limited regulation of financial derivatives, including theyesinnovative products that played a major role in the financial crisis.

When Republicans took back Congress and the White House in 2000, the GOP was able to monopolize campaign cash from lobbyists through the K Street Project, and the power of the New Democrats waned. For a time, membership in the group was akin to being just a name on the list, the current vice chair Representative Ron Kind has said.

All that began to change after the 2006 election. With their party again at the levers of power, setting the policy agenda for Congress, the New Democrats stock began to rise once more. The business community needed new Democratic allies in Congress; the New Democrats needed seed money for their campaign finance war chest. Then, when Barack Obama swept into office in 2008 promising broad reforms, some of Washingtons most powerful lobbying constituencies had more need for the New Democrats than ever.

During the health care reform debate, biotech companies wanted to prevent generic versions of a lucrative new class of drugs called biologics from entering the marketplace, claiming that a proposed seven-year monopoly, endorsed by the Federal Trade Commission and the Obama administration, would block meaningful incentives for innovation. In stepped the New Democrats, lending their collective support to an industry-endorsed twelve-year monopoly that included language consumer groups said would allow near-automatic renewals of monopoly periods if manufacturers changed dosages or delivery methods. With public attention focused squarely on the debate over the public option, ensuring that drug companies got the monopoly they wanted was a breeze.

Likewise, as Congress sought to reform the regulation of Wall Street in the aftermath of the financial crash, the New Democrats mobilized to block meaningful reform of derivatives. Though they were unable to squeeze out all the concessions they desired, their pressure shifted the boundaries of the debate toward weaker reforms.

In each case, one or two New Democrats would take the lead, either by introducing legislation, circulating a Dear Colleague letter, or writing up an op-ed endorsing a particular bill. As a floor vote neared or a debate intensified, additional members of the coalition would join in. Eventually, as was the case with derivatives language in Wall Street reform and biologics in health care reform, the coalition would take an official vote on whether to endorse a given measure and then fire off a letter on official coalition stationary to party leadership with dozens of signatures, making clear that the New Democrats meant business and could deliver the votes to prove it.

True to form, when Allyson Schwartz announced she would support the Republican effort to repeal IPAB, her first action was to send around a Dear Colleague letter. A few weeks later, an op-ed in USA Today followed; in it, Schwartz wrote that IPAB has the potential for stifling innovation. Not surprisingly, the only others discussing IPAB in terms of its innovation stifling effects have been the drug industry and its allies.

As of early June, only a handful of Democrats have signed on as cosponsors to Phil Roes bill, including one other New Democrat, Nevadas Shelley Berkley. But we already know how many in the New Democrat coalition feel about an independent board to help reduce Medicare costs: during health care reform, several signed letters opposing its formation. And if past is prologue, the question is not whether other New Democrats will join Schwartz, but how many will do so, and when.

If an IPAB repeal bill passes the House with a couple dozen or more Democratic votes, it will set in motion a cascade of events that could end very badly for Barack Obama and his administrations efforts to rein in long-term federal spending. What would once have seemed a partisanand hence dismissibleRepublican attack on a core pillar of the presidents health care reform will instead have a bipartisan glow. The Beltway media, long fixated on bipartisanship as an automatic indicator of worthiness, will quickly deem the bill to be the moderate position and IPAB as bureaucratic overreach. Indeed, industry groups are already touting Democratic opposition and labeling the repeal effort, in the words of a recent PhRMA press release, a bipartisan issue, knowing the value that label confers.

From there, its not hard to imagine what comes next. For Democratic senators wishing to come to the aid of their friends in the health care industry, the bipartisan sheen generated by the New Democrats support would provide cover for them to desert the White House and join Republicans in support of a Senate version of a bill killing IPAB. If enough of them do so, Senate Majority Leader Harry Reid will be under tremendous pressure to allow a floor vote, and if the bill passes, the president will find himself in a terrible bind.

On the one hand, he could sign the bill, but that would mean killing off the single most important cost-cutting and reform-enforcing element of his signature legislative accomplishment. That seems unlikely, especially given that in his April speech at George Washington University he made strengthening IPAB central to his plan for further deficit reduction.

More likely, since the bill probably wont garner a vetoproof majority, Obama will simply veto it, and thus preserve IPAB. But this will be politically costly in an election year, especially for a president who has spent much of his first term portraying himself as a champion of bipartisanship and who is staking his reelection bid on winning over independents. Its hard to imagine, then, that the New Democrats will be able to repeal IPAB before the 2012 election. But, by joining with Republicans in the attempt, they may well succeed in turning Medicare from a winning issue for Democrats into a losing one.

Sebastian Jones

Sebastian Jones is an editor at the Washington Monthly.