Pun­dits pon­der mean­ing of cost data

But health­care spend­ing still dou­bles in­fla­tion rate

Modern Healthcare - - FRONT PAGE - Jes­sica Zig­mond

The na­tion’s econ­omy is im­prov­ing, but it’s do­ing so weakly, and that con­tin­ues to curb the growth in health­care costs. That was the mes­sage last week when CMS an­a­lysts re­leased the agency’s an­nual National Health Ex­pen­di­ture Ac­counts, which showed U.S. health­care spend­ing to­taled $2.6 tril­lion, or about $8,402 a per­son, in 2010. Spend­ing that year grew at a rate of 3.9%, just a tenth of a point higher than the rate of 3.8% in 2009. To­gether, the two years rep­re­sent rates that grew more slowly than any other years in the 51-year his­tory of the National Health Ex­pen­di­ture Ac­counts. Mean­while, health­care spend­ing as a share of gross domes- tic prod­uct held steady at about 17.9%.

While the health­care spend­ing rate re­mained slow for a con­sec­u­tive year, it was still more than dou­ble the 1.6% rate of gen­eral in­fla­tion that the Bureau of La­bor Sta­tis­tics re­ported for 2010. And the re­sults fol­low re­cent find­ings that com­mu­nity hos­pi­tals col­lec­tively pro­duced a record-break­ing net mar­gin of 7.2% on $730.9 bil­lion in net rev­enue for that year, ac­cord­ing to the sta­tis­tics from the Amer­i­can Hos­pi­tal As­so­ci­a­tion (Jan. 9, p.12).

Spend­ing for hos­pi­tal ser­vices to­taled $814 bil­lion in 2010, which rep­re­sented an in­crease of 4.9% over 2009. As a com­par­i­son, spend­ing for hos­pi­tal ser­vices had risen by 6.4% from 2008 to 2009—and the de­cel­er­a­tion marked the fourth con­sec­u­tive year of slower growth, av­er­ag­ing 5.5% com­pared with 7.4% in the pre­vi­ous four-year pe­riod. “I think a lot of or­ga­ni­za­tions are re­al­iz­ing that the past mod­els of sim­ply fo­cus­ing on rev­enue growth, rather than cost con­trol, are com­ing to an end,” said David Auer­bach, a health econ­o­mist at RAND.

Caro­line Stein­berg, vice pres­i­dent of trends anal­y­sis at the Amer­i­can Hos­pi­tal As­so­ci­a­tion, echoed that sen­ti­ment, say­ing the na­tion’s hos­pi­tals have been em­ploy­ing a host of meth­ods to re­duce costs, such as tight­en­ing up on non­clin­i­cal staff; closely watch­ing sup­ply-chain con­tracts; us­ing generic drugs in the phar­macy; im­prov­ing process flow; and ad­just­ing staff lev­els when hos­pi­tals have a low cen­sus.

At Sut­ter Health, for ex­am­ple, the Sacra­mento, Calif.-based sys­tem set a goal in 2009 to re­duce its sys­tem cost struc­ture by 10%, or about $850 mil­lion. Through 2011, Sut­ter Health has achieved about

$340 mil­lion in re­duc­tions with mea­sures such as re­duc­ing hos­pi­tal-ac­quired in­fec­tions and stream­lin­ing sup­ply pur­chases and con­tracts, Bill Gleeson, vice pres­i­dent of com­mu­ni­ca­tions, said in an e-mail.

Mean­while, an­a­lysts and pub­lic pol­icy ex­perts were not sur­prised that over­all health­care spend­ing growth con­tin­ued at a slow pace as the U.S. econ­omy works to re­bound from its most re­cent re­ces­sion.

In his an­nual “State of Amer­i­can Busi­ness” ad­dress last week, U.S. Cham­ber of Com­merce Pres­i­dent and CEO Tom Dono­hue— who listed en­ti­tle­ment re­form among the group’s top pri­or­i­ties to ad­dress in 2012—said while the econ­omy is im­prov­ing, it is do­ing so “too slowly, weakly and in­suf­fi­ciently to put our na­tion back to work.” And a di­rect line can be drawn from Dono­hue’s ob­ser­va­tion and the na­tion’s over­all health­care costs.

“In gen­eral, the fact that health­care was slower in a down-time eco­nom­i­cally is not shock­ing be­cause peo­ple have less money and par­tic­u­larly work­ing folks are hard hit by the slow growth in jobs,” said Stu­art Guter­man, vice pres­i­dent of pay­ment and sys­tem re­form at the pri­vate Com­mon­wealth Fund. “More peo­ple are putting off get­ting needed health­care than they had in pre­vi­ous years.”

The an­nual sta­tis­tics from the Cms—pub­lished in Jan­uary’s Health Af­fairs—sup­port Guter­man’s ob­ser­va­tion, reporting that the slow growth in health­care spend­ing in 2009 and 2010 “was in­flu­enced by slower growth in the use of health­care goods and ser­vices as con­sumers re­mained cau­tious about their spend­ing—in part be­cause of losses in pri­vate health in­sur­ance cov­er­age, lower me­dian house­hold in­come and fu­ture fi­nan­cial uncer­tainty.”

The National Health Ex­pen­di­tures data re­ported that to­tal re­tail pre­scrip­tion drug spend­ing grew only 1.2% to $259.1 bil­lion, which the CMS said is a his­tor­i­cally low rate of growth that was driven by the vol­ume of drugs con­sumed, con­tin­ued use of generic med­ica- tion, the loss of patent pro­tec­tion for cer­tain brand-name drugs and fewer new drugs be­ing in­tro­duced. Sim­i­larly, to­tal spend­ing for physi­cian and clin­i­cal ser­vices (in­clud­ing physi­cian of­fice and out­pa­tient vis­its) also hit a his­toric low: to $515.5 bil­lion, at a rate of 2.5%, down from 3.3% in 2009.

For pri­vate health in­sur­ance spend­ing, growth in to­tal pre­mi­ums ex­ceeded growth in to­tal ben­e­fits for the first time in seven years. Mean­while, spend­ing growth in to­tal pri­vate health in­sur­ance slowed a bit, to 2.4% in 2010 from 2.6% in 2009, which con­tin­ued a slow- growth pat­tern that be­gan in 2003, ac­cord­ing to the find­ings.

“That seems con­sis­tent with the kinds of prod­ucts and kinds of trade-offs that have ex­isted,” said Mila Kof­man, a re­search pro­fes­sor at Georgetown Univer­sity’s Health Pol­icy In­sti­tute who served for­merly as the su­per­in­ten­dent of in­sur­ance at the Maine Bureau of In­sur­ance. “If you want lower pre­mi­ums, you’re go­ing to choose poli­cies where you have higher up-front costs, higher de­ductibles, higher-co­pays, and you may choose poli­cies that are less com­pre­hen­sive.”

The econ­omy is grow­ing “too slowly, weakly and in­suf­fi­ciently,” Dono­hue said, which is hin­der­ing health­care spend­ing.

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