Fa­vor­able di­rec­tion?

As prices drop, CBO low­ers spend­ing pre­dic­tion

Modern Healthcare - - THE WEEK IN HEALTHCARE - Me­lanie Evans

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

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