As prices drop, CBO lowers spending prediction
It’s different this time. That’s what the bulls say when stock prices soar as a way of discounting warnings that what goes up must always come down. And that’s what some analysts are beginning to say after the latest ratcheting down of projections for healthcare spending. But is it really different this time?
The latest projections on budget deficits from the Congressional Budget Office showed government healthcare spending over the next decade will be less than previously believed. The update cited the broader slowdown in health spending.
The projections come as the Labor Department released its latest snapshot of healthcare inflation, which showed a record drop in hospital prices last month, though one economist with the agency cautioned April’s sliding consumer prices might not be a trend.
Since the recession that ended in June 2009, the nation’s spending on hospitals, doctors and other healthcare has slowed to record lows. New projections showed Medicare spending through 2020 will be $138 billion less than projected in 2010, according to the CBO report, which represented another $12 billion reduction from the projections of just three months ago. Medicaid spending is now projected to be $89 billion less during the period.
Healthcare economists are still debating the causes of the slowdown. Clearly, the economic downturn left many households financially insecure or unemployed, which curbs spending on health as on everything else. But fewer pricey drugs and medical devices and more efficiency may also be at work, the researchers say.
The CBO projections may, in fact, be too conservative, said one economist. The projections rely on historical spending, which haven’t fully factored in changes to Medicare policy that increasingly squeeze payments to hospitals and doctors, according to Chapin White, a senior health researcher at the Center for Studying Health System Change and a former CBO principal analyst.
White dismisses the idea that delivery system reforms like accountable care organizations are having a major impact on the slowdown. “Medicare saves a pittance, nothing from ACOs,” he said. “ACOs are a sideshow. The price reductions are saving Medicare real money.”
The drop in prices also reduces physician income, he said, which can lower healthcare utilization as doctors work less in response.
Prices dropped significantly in April, preliminary Labor Department figures show. Healthcare producer prices, which track the change in prices paid by Medicare, Medicaid and commercial insurers, fell for hospitals and physicians in April by 0.6%, a one-month change for hospital prices not seen since January 2004. Physician prices declined 0.2% during the month and haven’t changed over the entire prior year.
Hospital prices in the consumer price index, which includes payments by uninsured and privately insured patients and commercial insurers, also dropped sharply in April. Prices paid to hospitals fell by 0.7%, the largest decline since the agency began collecting records 16 years ago.
Falling consumer prices occurred in regions of the country that have more influence on the index, said Daniel Ginsburg, a supervisory economist for the U.S. Bureau of Labor Statistics. The geographic disparity suggests the trend may not continue.
Standard & Poor’s Healthcare Economic Indices, meanwhile, reported a composite of Medicare and private insurance costs for the year that ended in March grew at 3.02%, the slowest rate since January 2005, when the agency first collected the data. “We’re looking at these numbers and they are encouraging,” said David Blitzer, managing director and chairman of the S&P index committee.
Virtually all of the increase was registered by commercial insurers, whose costs rose 4.46%. Medicare’s costs increased just 0.82% during the year.
If healthcare cost control is the goal, then the economic indicators may be trending in a favorable direction.
“Medicare saves a pittance, nothing from ACOs. ACOs are a sideshow.” —Chapin White Senior health researcher