fah hospital policy blog

Perspectives on health policy affecting America’s hospitals and the patients we serve.

Category Archives: spending-slowdown

New BEA Numbers Upend Estimates of Health Care Spending Growth

June 27, 2014 | FAH Hospital Policy Blog

Category: Spending Slowdown

The public debate on the direction that health care spending is headed in the United States recently has been fueled by estimates of a sharp uptick in spending beginning in the 4th quarter of 2013. The predicted uptick, when taken out of context of the four years of historically low growth rates in national health care spending, predictably inspired doom and gloom amongst some in the health care space. However, new numbers from the Bureau of Economic Analysis (BEA) turn these preliminary estimates and the corresponding “Chicken Little” predictions on their heads.

The BEA said Wednesday that spending actually dropped by an annual rate of 1.4% in the first quarter of 2014 – a complete about-face from earlier estimates. This extreme level of downward adjustment came as a surprise even to those who were skeptical of the estimated jump. Sarah Wheaton of POLITICO PRO reports that the year-over-year decrease in health care spending over the past five years could be the “new normal.”

Wheaton, in her piece, offers the following quote from Peter Orszag, former Director of the White House Office of Management and Budget during President Barack Obama’s first term:

“There’s a sea change going on that is causing health costs to grow much more slowly than they have historically.”

After a succession of CBO adjustments further and further reducing Medicare spending estimates over the past six straight years, the downward trend in spending points to structural changes in the way health care is delivered in our country. Wheaton adds:

“The new numbers do appear to lend ammunition to one side in the ongoing debate over what’s most responsible — the Great Recession or structural changes in how health care providers do business. Typically cited are the spread of accountable care organizations, the trend away from fee-for-service payments, the digitization of health care and employers’ moves toward defined-benefit insurance plans.”

It is becoming increasingly evident that the changes in health care delivery are driving the sustained spending slowdown – a slowdown that could yield as much as $900 billion in additional Medicare savings over the next decade, according to a recent study, commissioned by the FAH from the economic consulting firm Dobson | DaVanzo. The continued downward trend in health care spending from the BEA yesterday further supports the Dobson | DaVanzo study’s estimates of continued savings.

Clearly, a dynamic transformation is taking place, and hospitals are leading the way, from historically low price growth to clinically integrated care. Let’s not disrupt it with misguided policies or perpetual cuts to hospital funding.

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White House Blog Validates Enduring Spending Slowdown in 2014

May 28, 2014 | FAH Hospital Policy Blog

Category: Spending Slowdown

Yesterday, the White House published a blog showcasing new powerful numbers that demonstrate the ongoing trend that is the national spending slowdown in health care spending.
“… the last several months have also seen a steady stream of good news on health care costs. This good news suggests that even as coverage expands, the underlying slow growth in health care prices, per-enrollee spending, and premiums that we have seen in recent years is continuing.”
The blog also notes historic inflection points in health care data:
As measured using data from the Bureau of Economic Analysis through March 2014, prices of health care goods and services were up just 0.9 percent relative to a year ago, the slowest rate of increase in the last 50 years. The slow growth in health prices does not merely reflect slow inflation economy-wide, as the gap between health care inflation and general inflation is also low in historical terms.
Surveying the latest data for 2014, the post also references a new Milliman report focused on the total healthcare spending for a family enrolled in employer coverage. According to Milliman, the growth in the cost of care for a typical family, at 5.4% in 2014, is at the lowest level since Milliman first began tracking this measurement in 2002.

The White House also points to recent projections from the Congressional Budget Office (CBO), which estimates a rise of just 0.7% in Medicare spending for the first seven months of 2014, relative to the same period in FY13. Inflation-adjusted Medicare spending per beneficiary is down 3.4 percent versus the same period last year and follows three years over which growth in inflation-adjusted Medicare spending per beneficiary is estimated to have averaged close to zero.

The Milliman Report, and blogs like this from the White House which aggregate a number of critical data and studies, reinforce that the spending slowdown in health care is enduring long beyond economic recovery. The ongoing slowdown is credited in large part to structural changes outlined in a report commissioned by the FAH earlier this year. This report estimated as much as $900 billion in additional Medicare savings in the next ten years. This, in addition to the CBO’s ever-shrinking estimates in Medicare spending growth further verifies that the spending slowdown is based in foundational, structural changes in the delivery of health care.

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New Reports, Analysis Put Spending Uptick In Perspective; Reaffirm Medicare Savings

May 14, 2014 | FAH Hospital Policy Blog

Category: Spending Slowdown, Uncategorized

Recent coverage of health care spending has focused on an uptick in health care spending, causing a swath of claims that the spending slowdown has ended, or been reversed. Fortunately, several new data points and analyses put the uptick in perspective after four consecutive years of historically low growth in national health care spending.

In a Bloomberg View article by Peter Orszag, he points out that in assessing this spike in spending, one has to keep in mind the 8 million people who recently signed up for coverage through the Affordable Care Act, as well as the 5 million who have enrolled in Medicaid. With the increased enrollment in health insurance exchanges spurred by the Affordable Care Act going into effect, naturally utilization of health care services will increase, causing this spike in spending. Orszag also points out that the continued slow growth of Medicare spending, along with the slow job growth in the health care sector are other indicators that the sending slowdown has not seen its last legs.

Orszag also points out the constant revision of estimates and projections on spending, GDP and other critical data for health care. Case in point: CBO recently adjusted its projections on Medicare spending to reflect an additional $106 billion in savings beyond its most recent 10-year spending estimates. And just last week, the Altarum Institute released its May 2014 monthly briefs on price and spending, urging caution on reaching any conclusions, noting, among other data points, that health and hospital price growth remains at or near historic lows.

In addition, there is another piece shining light on the realities of US health care spending. The Committee for a Responsible Federal Budget released a report noting $900 billion in Federal health care savings resulting from CBO‘s repeated reductions in spending projections

The report notes:

The last pre-ACA CBO baseline was in March 2010 and projected net spending on Medicare and Medicaid at $1.34 trillion in 2020. The April 2014 baseline, though, actually estimates spending on those programs plus the ACA’s exchange subsidies in 2020 will be $70 billion lower than before the ACA was even enacted, at $1.27 trillion. Note that the most recent comprehensive estimate of the ACA had it increasing federal health spending, on net, by $145 billion in 2020 (including the revenue effect of the exchange subsidies), but that increase has been outdone by the declining projections of federal health spending since then.

All of this news and new information reinforces the trend of slower growth in health spending due to structural changes taking hold in health care payment and delivery - points made in a report commissioned by the FAH earlier this year assessing the spending slowdown.

The report, from the economic consulting firm Dobson | DaVanzo, estimates as much as $900 billion in additional Medicare savings over the next ten years. The $106 billion already revised by CBO is movement towards this nearly $1 trillion in savings that we believe will come to fruition as the spending slowdown continues.

The increased utilization of health care services due to the enrollment of millions of Americans in the health care exchanges will naturally cause a spike in health care spending; however this should not be viewed as an indication that the past four years of an unprecedented slowdown in health care spending has been reversed. We continue to see positive signs of continued slowed spending, historic low price growth, and a downward spiral in projected Medicare spending. These welcome outcomes result in part from the power of the structural changes taking place in the delivery of health care – changes that are driven in large measure by the investments and leadership of hospitals. Going forward, it is imperative that hospitals be allowed to continue investing in this transformation and that resources are not syphoned off by short sighted budget cuts or burdensome new policies. Let’s continue investing in success.

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What the Latest Data Tell Us About the Spending Slowdown

April 09, 2014 | Chip Kahn

Category: Spending Slowdown

Recent reports on national health care spending have pointed to what appears to be a sharp uptick in the growth rate, most notably in the 4th quarter of 2013. Following four years of sustained historically low growth – driven in no small part by structural changes transforming the way we deliver health care – it is too soon to call this new data point a trend. Time will tell, though it is worth noting that part of the recent increase is, in fact, an expected outcome of the ACA-driven coverage expansion.

Meanwhile, health care price growth, including hospital price growth, remains near historic lows. This is a key metric and an important barometer of the moderating influence on cost growth from delivery reforms and marketplace dynamics.

What should not be lost in the headlines, however, is the truth about the stunning slowdown in Medicare spending, which CMS emphatically reaffirmed with Monday’s Medicare Advantage rate announcement. In Monday’s report, CMS lowered its forecast of the Medicare growth rate for purposes of calculating Medicare Advantage rates to -3.4%, down from its previous estimate of -1.9% per beneficiary. That previous estimate of -1.9% was made just six weeks ago.

This slowdown has enormous implications for Federal policymakers that have not yet been fully recognized, though folks are beginning to take notice. Peter Orszag, for example, recently said at an Aspen Institute conference, “…If you continue the rate of growth that has occurred over the past five years in Medicare the entire fiscal imbalance disappears. That’s how big the slowdown has been.”

Orszag’s comments are generally consistent with the findings of a study FAH commissioned and released last month. Utilizing the most recent CBO projections and applying a statistical methodology that extrapolates the trend in Medicare spending per beneficiary from 2010-2013, the health care economics consulting firm Dobson | DaVanzo estimates as much as $900 billion in additional Medicare savings over the next 10 years. Keep in mind that this $900 billion would come on top of the $154 billion reduction in revised Medicare spending that CBO forecast in its February 2014 budget outlook – the sixth straight year that CBO reduced its estimate of Medicare spending.

Clearly, the storyline about health care spending is more complicated than simple, sometimes sensational, headlines might suggest. There is terrific news on the Medicare spending front, and price growth remains low. And the health care system continues its steady redesign to increase value, through integrated care networks, interoperable information technology, and new care and payment models. This is a work in progress—work that is demonstrating progress—and hospitals are proud to play a leading role.

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