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Why Healthcare Spending is Slowing – A New Normal?

Posted Jun 01 2012 12:55pm

The growth in healthcare spending has slowed in recent years.  Many experts and pundits have sought to explain why – while also worrying, (or predicting), that this slowing is only temporary, i.e. past performance will predict the future.

Healthcare Delivery and Financing are Dynamically Evolving

The future will be significantly different than the past because our healthcare system, society, and economy are evolving into what might be called a “New Normal” state.  Assuming current priorities and pressures continue, public and private sector organizations at all levels will increasingly emphasize value¹ in their decisions about spending and preferences for healthcare services – including choices about substituting one treatment option for another.  For public entities, these choices involve coverage and budgeting for programs ranging from Medicare, Medicaid, and Veterans’ healthcare, to benefits for government employees – as well as rules for insurance exchanges. For private organizations, these choices range from health insurance benefits provided by large employers to the decisions individuals make for their insurance coverage – as well as the clinical and lifestyle choices individuals make inside and outside doctors’ offices.

While those choices will collectively mold our future healthcare system, many changes have occurred in the last five years that are creating a new environment for making these choices and pushing us into a “New Normal” state, i.e., these evolutionary forces have already started bending the cost/spending curve.  This progress towards more value oriented healthcare will continue unless the driving forces are hampered, hindered, or blocked by future actions.

The Times They Are a-Changin”
                             Robert Zimmerman

Listed below – in my estimated rough order of importance – are reasons why healthcare spending has slowed and will continue to be less than had been projected.

  1. Dipping Economy: The economic slowdown has decreased the amount of healthcare people are seeking – as well as creating a temporary disruptive environment for making other changes in stakeholders’ attitude and latitudes of practice. Whether the decrease in healthcare utilization is because people have mostly declined or delayed unnecessary or truly discretionary healthcare services and treatments, or are foregoing many important preventive actions and therapies – which will lead to higher costs and morbidity in the future – remains to be determined.
  2. Private Insurance Benefit Design Changes: People with private insurance have shifted to higher deductible plans ², (a.k.a. consumer directed plans), which have lower monthly premiums and higher deductibles, and sometimes increased co-payments/co-insurance.  This change has been in both employer sponsored plans – where individuals may not have a choice – as well as for people (and families) buying insurance as individuals or through small business plans.  Like #1 above, economic incentives have led people to be more selective in what healthcare services and products they are using, but the wisdom of these choices and their long-term effects on costs and quality of care (and life) are not yet fully understood.
  3. Medicare Outpatient Prescription Drug Benefit: The Medicare outpatient prescription drug benefit, (a.k.a. Part D), started in 2006.  If the general premise that prescription medicines are the most clinically and cost-effective form of healthcare is correct, then the greater use of prescription medicines by Medicare enrollees should be reducing spending growth in other Parts of Medicare, e.g. hospitalizations and doctor visits.
  4. Mindset Changes for Patients and Clinicians: The economic downturn, various provisions of the Accountable Care Act, and changes in healthcare benefit design – particularly more high deductible health insurance plans – are making patients and clinicians more attuned to the economic implications of healthcare choices and the value of integrated, multidisciplinary, (a.k.a. team-based), care delivery. Resistance to shifting to such integrated care from the old one-patient/one-doctor Marcus Welby, MD-esque mindset will impede progress in some areas – particularly the adoption of EMRs and regional health information systems, which require up-front spending, and where the long-term benefits are derived from providers participating in such team-based care paradigms.
  5. Change to Healthcare Delivery System:
    1. Integrated care delivery systems and the purchase or affiliation of physicians’ practices;
    2. Geographically uneven changes;
    3. Accountable Care Organizations (ACOs);
    4. Patient Centered Medical Homes (PCMH);
    5. Concierge medical practices;
    6. Greater use of tele-medicine for remote monitoring, management, and consultations;
    7. Greater use of non-physician clinicians, community based healthcare coordinators, and home care services – including more old-fashioned house calls.
  6. Change to Financial Incentives: (Besides high-deductible insurance plans)
    1. Pay for Reporting (P4R) – usually tied to quality metrics, but also used for EMR capabilities;
    2. Pay for Performance (P4P) – similar to P4R, but for actually performance, not just reporting;
    3. Global or bundled payments, e.g. ACOs shared savings and risk sharing arrangements with Medicare and private payers;
    4. Non-payment for “never events”.
  7. Trans-Fat Labeling: FDA regulations have required food labels to list trans-fats since 2006, which has had a two-fold effect which should be driving down long-term health spending: Making people more aware of trans-fats as an unhealthy choice, and inducing food companies to both remove trans-fats from their products and advertise that fact. The results have been significant. Earlier this year the CDC reported that blood levels of trans-fats have declined from 2000 to 2009: “The 58 percent decline shows substantial progress that should help lower the risk of cardiovascular disease in adults”. I suspect that CBO or others didn’t project savings to Medicare or Medicaid from the food labeling requirement.  However, shifts to healthier lifestyles will need more environmental changes like these, e.g. bike sharing programs; walking paths; programs connecting individuals with shared goals; healthier food options at cafeterias, restaurants, and grocery stores, etc.
  8. Price Transparency and Accountability for Outcomes: More transparency about prices and quality of care delivered by individual clinicians and providers is placing greater pressure on healthcare prices. In addition, since healthcare prices in the US are higher than in other countries, globalization will increasingly create downward pricing pressure – especially for products and services where people, (or their specimens), can easily travel to other countries, such as for elective surgery, or DNA testing. [Note - accountability for quality, accuracy, and fraud prevention will be necessary to ensure that foreign services with lower prices represent higher value rather than just greater waste and harm to patients.]
  9. Innovations – Better Therapies, Diagnostics, and Prevention:
    Healthcare innovations range from biopharmaceuticals, genetic tests, HIT/tele-medicine, to validated best practices including checklists and clinical decision support.  Some innovations increase costs. Some improve clinical outcomes. Some do one but not the other. Some do both.  As metrics demonstrating the value of innovations become more granular and can be determined more rapidly, clinicians and providers will be under greater pressure to demonstrate – and be accountable for – the outcomes they are delivering. However, this will only occur in a balanced way as long at patient-centric quality outcomes are measured alongside economic outcomes.  The danger is that clinical outcomes will only be determined on a population basis, but then applied to patient care decisions without considering individual patient characteristics or priorities.
  10. Smoking Restrictions.  Restrictions on smoking in public places is reducing exposure to second-hand smoke.  Some studies have shown rapid declines in heart attacks for people working in restaurants and bars after smoking in those workplaces was prohibited.  (FYI – LEED certified residential buildings treat second-hand cigarette smoke as a pollutant and often prohibit smoking inside the entire building – including people’s apartments, as well as outside doors and windows. And the DC Department of Health has been publicizing the toxic nature of second-hand cigarette smoke from adjacent apartments.)
  11. Tougher Enforcement Against Fraud and Abuse. Cracking down on fraud and abuse may be reducing healthcare spending by deterring such criminal activity.  These efforts have been aided by improvements to healthcare IT – and this will only improve in the future.
  12. There certainly should be a 12th reason – since all good lists have 12 items – but I can’t think of one right now…. Any suggestions?

Not a Simple Picture

The dynamic interactions among many of the factors listed above makes it very difficult to determine the contribution each one makes to reducing healthcare spending for a particular condition, population, or US healthcare spending overall. For example, improvements to healthcare IT are enabling improvements to delivery system operations and financial incentives – which are also linked to each other.  Each of these also affect the mindsets of  patients and clinicians, i.e., HIT systems are elevating patients’ and clinicians’ expectations for better information about treatment options and less waste. And financial incentives are evolving to support the use of such information to achieve better outcomes. Together these and other changes are altering patients and clinicians attitudes and actions towards the entire healthcare system to be accountable for delivering greater value. This hyper-cross-connected situation is analogous to the biomedical research field of systems biology, which is seeking to understand how multiple physiological systems cause specific diseases – and how combination therapies may be needed to treat such complex illnesses.

 

1. Value in healthcare can be a tricky concept, but it generally encompasses the clinical and economic outcomes produced by the intervention compared to the total costs, risks, and potential adverse effects of the treatment option.
2. Haviland A., et. al., “Growth Of Consumer-Directed Health Plans To One-Half Of All Employer-Sponsored Insurance Could Save $57 Billion Annually,” Health Affairs, May 2012 31:5,1009-1015

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