Nash Equilibrium Returns: Industry Support for the Affordable Care Act Unravels

Today’s Managing Health Care Costs Indicator is $100 billion

One of the unheralded successes of the health care reform effort was to gain the support, or at least acquiescence, of major stakeholders who had opposed health care reform for decades. I called this the “Coalition of the Willing” at the time, after the various countries that not-so-willingly joined the American forces in Iraq in the George W. Bush administration.   Ultimately, the Affordable Care Act was supported by drug companies, the hospital and the physician lobby, medical device manufacturers, and health care unions. 

This broke a long-time “Nash Equilibrium,” where in a multiparty “game,” each party can see the others’ equilibrium strategy – and no player has enough to gain by changing strategy unilaterally.  It’s not easy to overcome the inertia of a Nash Equilibrium, and I was skeptical that the Obama administration could do this.

The agreements forged to support health care reform in spring, 2010, though, are fraying.

Politico  reported on Friday that the trade group representing brand pharmaceutical companies is lobbying fiercely to avoid having to offer Medicaid-style discounts to patients who are “dually eligible” for both Medicare and Medicaid.   Before Medicare Part D was enacted, Medicaid was the primary payer for these patients, who tend to be severely disabled or nursing home residents. 

However, Medicare Part D forced pharmas to take (low) Medicaid prices for drugs for this group of patients.  Part D was a giant pharma giveaway – enough that the Republican who managed the legislation, Billy Tauzin, became the head of the Pharmaceutical Research and Manufacturers of America (PhRMA) within months of the bill’s passage.  Current deficit reduction plans might eliminate the extra income from the dually eligible, which could lower the deficit between $50-100 billion over ten years.

The pharmaceutical industry came to the bargaining table for health care reform early, and agreed to chip in $80 billion in “savings”  for discounted brand name pharmaceuticals to senior citizens in the “donut hole” where Medicare Part D does not cover prescriptions.  However, its members were angry enough that Billy Tauzin left his position shortly after health care reform passed.

The medical device industry  also regrets its agreement to industry taxes, and is trumpeting that this element of health care reform could cost jobs and decrease innovation. 

The Wall Street Journal reported Monday that Democrats are furious at the hospital lobby, including local 1199, for its adds decrying suggested additional cuts in hospital payment as part of deficit reduction.  The hospital industry had agreed to substantial decreases in future pay increases as part of the Affordable Care Act, and it was fighting for more.

The American Medical Association supported the Affordable Care Act – but predicated its support elimination of the SGR, which caps total professional spending and would lead to a fee cut of over a quarter if not legislatively overridden at the end of this year.  The SGR remains – and the AMA’s top executive, James Maves, also headed for the door after health care reform passed.  There have been angry volleys from the AMA over recent MedPAC and HHS suggestions about how to change professional fees.

Nash equilibriums are very stable – breaking such a stalemate requires a compelling case that things will be much worse for stakeholders if they don’t agree to change.   That compelling case existed in early 2010 – but recent sniping leaves many in industry convinced that they could return to the pre-Affordable Care Act environment.   The costs of that system are unsustainable, but the pain of the savings to make the ACA work are daunting.  Industry will only support health care reform with a strong signal that the pre-ACA days will not return. That signal is not coming from Washington now.