Another 22 members of the House, including some moderates, sent a letter yesterday to Speaker Pelosi and Majority Leader Hoyer to express their "strong desire to see a robust public health insurance option" in the health reform bill.

The members called the public option "essential if we are to provide more choice for individuals and businesses and if we are serious about lowering costs for both."

The letter contains most of the arguments in favor of a public option we’ve seen elsewhere: providing both competition and "a necessary benchmark" for how we want health insurers to function or lose market share.

But the letter focuses on how competitive the public option might be. The members agree with proposals for a "level playing field" — the devil in the details design battles will occur there. For example, these members want the public plan to pay providers more than Medicare payment rates, whereas the current Tri-Committee House bill would allow the public plan to at least start with Medicare payment rates to make it less costly.

Why does this matter? To assure the public plan’s competitiveness, the members urge that the public plan have access to strong provider networks, and they apparently believe you can’t get that if you don’t pay more than Medicare pays:

But a level playing field that the public option must have access to a provider network that will allow it to compete, from the beginning, with private insurers. Without some connection to an established provider network, such as Medicare, a public option will never be able to offer real choice to businesses and individual consumers.

You’ll recall that one of the AMA concerns about a public plan option was that doctors and other health providers not be required to offer care to patients in the public plan if they chose not to. But public plan advocates have argued that if providers want to retain practices based on Medicare patients, then those providers should also accept public plan patients.

The 22 Congresspeople are thus weighing in on this debate on the side of giving public plan patients access to provider networks the same as, or comparable to, the provided networks that now accept Medicare patients, but paying them more. This is important, because without strong provider networks, some patients might never choose the public plan, but they might be more expensive.

This is where the horse trading will pay off or not. Doctors and hospitals reluctant to take on public plan patients will want assurances they won’t be bound by Medicare’s lower payment rates. In the meantime, WH Budget Director Orszag is pushing Congress to assume lower Medicare payments in the future for treating uninsured patients since, the theory goes, many more people will be insured. And the Finance Committee is looking for more Medicare savings to keep the budget impacts below some arbitrary figure, like $1 trillion.

At the same time Orszag is telling Congress it’s not really reforming the system unless it changes not just how much we pay but what we pay for. That issue is about paying for quality care and better outcomes rather than just the quantity of treatments under a fee-for-service regime.

Those are huge changes and huge dollars at stake for the industry, and we can see both Orszag’s letter and the letter from House Dems as pushing different pieces of how those dollars get allocated. Stay tuned.