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Lower spend­ing in­creases are rooted in a bad econ­omy

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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.

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