Federal Health Programs Need Reform – Important New Paragon Analyses

Good morning,

Today, Paragon released an important new study from Paul Winfree, “The Contribution of Federal Health Programs to U.S. Fiscal Challenges and the Need for Reform.” Paul, a fellow at The Heritage Foundation, served in the White House in 2017 as Deputy Director of the Domestic Policy Council and the Director of Budget Policy. Paul’s study makes clear the urgency of stemming the rising red ink from federal health programs. 
 
In addition to highlighting Paul’s findings, today’s newsletter also reviews an important finding from Dr. Joel Zinberg about a perverse policy tucked inside the recent omnibus bill that threatens patients and medical innovation.
 
The Threat of Rising Federal Health Spending to American Prosperity
 
Paul addresses two crucial questions in his analysis:

  1. On the federal government’s current fiscal trajectory, when will the U.S. run out of fiscal space, or when will debt markets enforce a limit on the borrowing capacity of the federal government?
  2. How much does federal health spending contribute to the U.S.’s unsustainable fiscal trajectory and what changes are necessary over the next decade to course correct?

To answer the first question, Paul uses revenue and spending projections from the Congressional Budget Office, as well as an estimating model adopted by the International Monetary Fund. Paul varied assumptions, including about interest rates, and estimated that the federal government will run out of fiscal space within the next 25 to 50 years. The main two causes are high and growing interest payments on federal debt and high and growing federal spending on health programs. 
 
Under current law, federal health spending will grow from about six percent of the entire economy to nine percent over the next three decades. This is simply too high an economic burden, and if unaltered will necessitate devastating tax increases, as well as contribute to escalating inflation and interest rates. 
 
The sooner Congress acts, the better. According to Paul: 

To avoid exhausting fiscal space over the next 30 years, federal health spending would need to be reduced by 7.5 and 18.3 percent of the baseline—or between 0.5 and 1.2 percent of GDP—over the 2025-2034 budget window. These reductions in spending may seem significant; however, beginning structural reforms sooner will allow a path of continuous growth in the budget for health programs while avoiding potentially draconian cuts in the future as well as problematic future tax increases, inflation, and higher interest rates.

The paper, which is relatively short and full of interesting figures and tables, is a worthwhile read for anyone who cares about the future of the country’s finances. Policymakers have delayed making decisions about the unsustainable trajectory of federal health programs for far too long, and many recent policies—including those that increased Affordable Care Act subsidies—have worsened the situation.
 
To reiterate, policymakers have two choices: program reforms and reductions to spending growth trajectory or much higher debt, interest rates, inflation, taxes, and then haphazard and large spending cuts to these programs. And as Paul’s paper makes clear, policymakers are running out of time to avoid the later outcome. 
 
The FDA Wants to Interfere in the Practice of Medicine
 
On January 13, The Wall Street Journal published an op-ed by Dr. Joel Zinberg, the director of Paragon’s Public Health and American Well-Being Initiative, about a little-noticed provision of the omnibus spending bill that could give the Food and Drug Administration (FDA) the power to ban off-label use of approved therapies. In the op-ed, Joel discusses the origin of the provision, but the key part of his piece describes the problematic implications:

The statute gives the FDA the power, without any public input, to prevent patients’ access to off-label therapies even though their physicians and their patients have found the treatments to be beneficial or even essential. …
 
Yet 1 in 5 prescriptions written are for an off-label use. In some fields off-label use is the rule, not the exception. In oncology, the standard treatment for specific types or stages of cancer often includes the off-label use of one or more drugs. And off-label uses are routine in pediatrics, where scientific, ethical and logistical concerns preclude conducting large trials for approval in children.
 
Allowing the FDA to ban certain off-label uses will impair clinical progress. Off-label use enables physicians to assess their patients’ unique circumstances and use their own evolving scientific knowledge in deciding to try approved products for new indications. If the treatment proves useful, formal studies are performed and published. If enough evidence accumulates, the treatment becomes the standard of care, even if the manufacturer didn’t submit the product for a separate, lengthy and costly FDA review.

Joel concludes that Congress should reconsider this policy. 
 
While both Paul and Joel’s pieces highlight significant problems with government policies, there are solutions. In the months ahead, Paragon will release analyses for how policymakers can put federal health programs on a more sustainable trajectory as well as reform public health policy. 

All the best,
 
Brian Blase
President
Paragon Health Institute

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Paragon Health Institute (PHI) is a non-partisan, not-for-profit policy research institute. Any views, beliefs, or opinions expressed by PHI’s Public Advisors are those of its Advisors and do not necessarily reflect the official policies or positions of PHI or its employees. Any views, beliefs, or opinions expressed by PHI or its employees belong solely to PHI and do not necessarily reflect those of PHI’s Public Advisors.