Medicare, Other Health Care Spending Slowing but Cost Controls
Must Be Implemented
Journal of Medicine study finds health spending rose just 0.8% per person in 2012,
Affordable Care Act
measures to control costs may be contributing to biggest slowdown
Dec. 26, 2013 – The growth of health care cost is
slowing and at least a portion is due to actions stemming from Obamacare
(Affordable Care Act),
but regardless of the causes, the U.S. needs to try to control health
spending. An analysis, published today in the
New England Journal of Medicine, also finds that a broad,
bipartisan consensus about strategies that will be effective in
controlling costs has emerged.
According to a new study by David Blumenthal, M.D.,
and Kristof Stremikis of The Commonwealth Fund and David Cutler, Ph.D.,
of Harvard University, health care spending rose only moderately last
year for the third year in a row, increasing by 0.8 percent per person,
slightly less than the rate of growth of gross domestic product (GDP)
This trend marks a departure from the previous five decades,
and may be fueled in part by payment reforms contained within the
Affordable Care Act (ACA).
While analysts are divided on whether the new trend
is a result of the recession or recent efforts to control spending, the
authors of “Health Care Spending: A Giant Slain or Sleeping?” argue
that, either way, the U.S. will need to “reengineer health services to
make them more efficient - to go after the one-third of health spending
that is estimated to be wasteful.”
Blumenthal and his coauthors outline the areas of
agreement among health policy experts about the actions that are needed
to achieve this goal.
Understanding Slower Health Care Cost Growth
In the analysis, the authors review the potential
causes of health care cost growth - such as the use of new and expensive
medical technology, rising prices for medical services, and the
prevalence of inefficient care - and summarize the debate over what has
changed and triggered the slowdown. According to the article, potential
factors contributing to lower costs include:
• Technology slowdowns, such as fewer new
blockbuster drugs and slower growth in the use of existing technologies
such as cardiac procedures;
• Higher out-of-pocket costs for patients, which
discourage the use of health services; and
• Incentives created through the Affordable Care
Act and the private sector for providers to prescribe less care,
including penalties for hospital-acquired conditions and preventable
hospital readmissions, along with the proliferation of accountable care
organizations - in which an insurer and a group of providers share in
savings that come from delivering more efficient care - and Medicare
bundled payment initiatives in which a single payment covers all
treatment required in an episode of care such as a hip replacement.
(see link in sidebar)
Health and Human Services has just announced that
Medicare is expected to break a decades old pattern of
spending growth outstripping economic growth.
Affordable Care Act provisions have
a substantial effect on reducing the growth rate of Medicare spending,
according to the announcement. Growth in Medicare spending per
beneficiary hit historic lows during the 2010-2012 period, and this
trend has continued into 2013.
Projections by both the Office of
the Actuary at CMS and the Congressional Budget Office estimate that
Medicare spending per beneficiary will grow at approximately the rate of
growth of the economy for the next decade, breaking a decades-old
pattern of spending growth outstripping economic growth.
Consensus on Cost-Cutting Measures
Blumenthal and his co-authors recommend pursuing
cost-cutting approaches that have been endorsed by a wide and bipartisan
array of expert groups in order to avoid rationing of health care
services and manage costs long-term, including:
Provider payment reform: Discarding current
fee-for-service payment models in favor of arrangements such as
capitation or partial capitation, global budgeting, or risk-sharing
arrangements such as those supported by the Affordable Care Act’s
accountable care organization program.
Reforming the delivery system: Strengthening three
areas, in particular: the usability of health information technology,
care coordination for the sickest and most expensive patients, and
primary care services.
Engaging consumers in making better health care choices:
With better information and incentives, patients should be rewarded for
choosing providers that have better outcomes and lower costs of care.
health care data more available: Patients should have
better information about the prices providers charge as well as the
quality and safety of their care.
Reducing administrative expenses: While standardization
of billing and claims forms and processes has begun under the ACA, much
more needs to be done.
“Even if spending growth stays low, our current
level of expenditures is far higher than we need or can afford,” said
coauthor and Commonwealth Fund president David Blumenthal. “A wide
variety of studies suggests that as much as thirty percent of health
spending in the U.S. is wasted.”
“Evidence seems to indicate that many of the
Affordable Care Act’s payment reforms, which are moving the U.S. away
from fee-for-service payment to value-based payment, are starting to
bend the health care cost curve,” said coauthor David Cutler, the Otto
Eckstein Professor of Applied Economics in the Department of Economics
at Harvard University.
“But further reforms are needed in areas such as
simplifying health care administration and engaging consumers with
The authors conclude it’s too early to say if cost
growth will remain slow but emphasize that, given the already high level
of current spending and evidence of waste, the private and public
sectors will continue to look for strategies to contain costs even if
growth stays low.
The Commonwealth Fund is a private foundation supporting independent
research on health policy reform and a high performance health system.
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