Lower spending increases are rooted in a bad economy
Reductions in cost increases come from bad economy
In response to pressures from the Patient Protection and Affordable Care Act and the private insurance market, most healthcare organizations are reorganizing and restructuring their clinical business models. And while not every provider seeks accountable care organization status, most expect to be held increasingly accountable for the care they provide through value-based purchasing or other quality initiatives. They recognize the need to bend the cost curve.
At the same time, the CMS reported that 2009 and 2010 experienced the slowest growth of healthcare costs in the U.S. in recent memory. The CMS reported that total U.S. health expenditures grew 3.8% in 2009 and 3.9% in 2010—half the annual growth rate for the years 2000-2008.
It’s tempting to think that provider initiatives are truly denting costs, but it’s hard for changes in provider behavior to influence costs before they occur. The above CMS data run through 2010, long before the changes providers are contemplating got under way. Instead, the drop in healthcare cost growth is primarily attributable to the Great Recession’s impact on employment, private health insurance, government revenues and budgets.
In the private sector, the recession accelerated trends already under way: Fewer people have insurance, and the coverage of those who manage to keep it is much less generous. Seven million fewer Americans had employer-provided insurance at the end of 2010 than did in 2008 because they lost their jobs, their premiums became unaffordable, or financially stressed employers reduced benefits. And 31% of those with employer-based insurance were in highdeductible plans by 2010, while most of the rest experienced increased out-of-pocket liabilities. At the same time, household incomes were generally flat or falling, so spending more on medical care posed an increasing problem for many families.
People with less insurance tend to use less medical care, and the CMS reported reductions in privately insured volume for hospitals, physician visits and prescription drug purchases. Other surveys have shown significant increases in the proportion of households postponing or forgoing medical care for financial reasons. A less widely
Reductions in cost increases are largely the result of people getting less care rather than greater efficiency.
acknowledged fact is that consumers who use less care because of affordability problems are just as likely to cut back on medically necessary use as on more discretionary services.
Whether there has actually been a decline in medically necessary utilization among the privately insured, and whether that decline will create a boomerang effect in which untreated problems evolve into serious, expensive-to-care-for conditions, remains to be seen. In any event, it’s clear that reductions in the rate of cost increases in the private sector are largely the result of people simply getting less care rather than greater efficiency or rationality in health services.
In the public sector, enrollment in Medicare and Medicaid continued to grow, and state budgets were cushioned in 2009 and 2010 by the temporary increase in federal Medicaid matching rates in the Obama administration’s 2009 stimulus legislation. But on a per-enrollee basis, Medicare and Medicaid costs also grew much more slowly than in prior years. The Medicaid growth per enrollee was only 1.3% in 2009 and 1.5% in 2010—below the rate of general inflation in both years. For Medicare fee-for-service, which still accounts for 75% of all beneficiaries, per-enrollee costs rose 4.3% in 2009 and 3.5% in 2010, despite modest ACA benefit enhancements. Medicare Advantage payments, after increasing 5% per enrollee in 2009, actually fell on a per-enrollee basis in 2010 by almost 1%.
Unlike private insurance, per-enrollee utilization of services continued to increase for Medicare and Medicaid beneficiaries. The deceleration of expenditures was largely the result of rate reductions in provider payments.
In other words, the healthcare cost curve is already being bent from the payer side before the hoped-for delivery system reform can be expected to occur, and that bending is likely to continue even as the economy improves, regardless of whether reform actually produces more efficient, cost-effective care. And the bending may even accelerate after 2014, if implementation of the ACA’S coverage provisions actually takes place. Even though the healthcare system would receive a significant one-time funding infusion to cover care for the previously uninsured, the CMS actuary expects that investment to slow the rate of future healthcare spending growth.
The ACA’S guiding principle is that by eliminating waste and making care more integrated and better-organized, lower costs will be accompanied by better health outcomes. That theory will be fairly tested over the next five to 10 years. The alternative, however, is not continuing acceleration in healthcare costs, at least not at historical levels. Instead, the pessimistic scenario is continuing reductions in service use by those without considerable financial resources or public insurance, and continued squeezing of provider payments by public payers, which will diminish access to care for individuals dependent on institutions already teeming with publicly insured patients.
Kenneth Raske is president of the Greater New York Hospital Association. Bruce Vladeck is senior adviser for Nexera Consulting, GNYHA’S healthcare supply chain and management services company.