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“The slowing of the growth rate is partly explained by the recession, but evidence suggests that changing behavior of health care providers and consumers also partly accounts for it”
The New York Times, May 01, 2012, by Annie Lowrey, WASHINGTON — The growth of health spending has slowed substantially in the last few years, surprising experts and offering some fuel for optimism about the federal government’s long-term fiscal performance.
Much of the slowdown is because of the recession, and thus not unexpected, health experts say. But some of it seems to be attributable to changing behavior by consumers and providers of health care — meaning that the lower rates of growth might persist even as the economy picks up.
Because Medicare and Medicaid are two of the largest contributors to the country’s long-term debts, slower growth in health costs could reduce the pressure for enormous spending cuts or tax increases.
In 2009 and 2010, total nationwide health care spending grew less than 4 percent per year, the slowest annual pace in more than five decades, according to the latest numbers from the Centers for Medicaid and Medicare Services. After years of taking up a growing share of economic activity, health spending held steady in 2010, at 17.9 percent of the gross domestic product.
The growth rate mostly slowed as millions of Americans lost insurance coverage along with their jobs. Worried about job security, others may have feared taking time off work for doctor’s visits or surgical procedures, or skipped nonurgent care when money was tight.
Still, the slowdown was sharper than health economists expected, and a broad, bipartisan range of academics, hospital administrators and policy experts has started to wonder if what had seemed impossible might be happening — if doctors and patients have begun to change their behavior in ways that bend the so-called cost curve.
If so, it was happening just as the new health care law was coming into force, and before the Supreme Court could weigh in on it or the voters could pronounce their own verdict at the polls.
“The tectonic plates might be beginning to shift,” said Karen Davis, the president of the Commonwealth Fund, a nonprofit research group in New York. “It’s hard to believe everything that’s been tried over the last decade to slow spending wouldn’t be making a difference.”
Experts were surprised, for instance, at a drop in spending on some hospitalized seniors — people enrolled in Medicare, whose coverage the recession should not affect. They also noted that some of the states where health care spending slowed most rapidly were states that were not hit particularly badly by the recession, suggesting that other factors were at play.
“The recession just doesn’t account for the numbers we’re seeing,” said David Cutler, a Harvard health economist and former adviser to President Obama. “I think there’s much more going on.”
The implications of a bend in the cost curve would be enormous. Policy makers on both sides of the aisle see rising health care costs as the central threat to household budgets and the country’s fiscal health. If the growth in Medicare were to come down to a rate of only 1 percentage point a year faster than the economy’s growth, the projected long-term deficit would fall by more than one-third.
The growth of health costs slowed in the 1990s as health maintenance organizations became more popular. That played a role in both gains in household income — less money on employer-provided health benefits means more money for raises — and in budget surpluses, economists argue.
Some experts caution that there remains too little data to determine whether the current slowdown will become permanent, or whether it is merely a blip caused by the economy’s weakness.
“If there’s something else going on, we don’t know what it is yet,” said Gail Wilensky, a health economist who headed Medicare and Medicaid during the administration of President George Bush. “The most honest thing to say is that, one, the reduction in use is greater than the recession predicts; two, we don’t understand why yet; and, three, you’d be foolhardy to say that we can understand it.”
She argued that the unusual decline in not just income but also wealth during the recession might be one factor cutting down on use of the health care system.
But many other health experts say that there is just enough data to start detecting trends — even if the numbers remain murky, and the vast complexity of the national health care market puts definitive answers out of reach.
Many experts — and the Medicare and Medicaid center itself — point to the explosion of high-deductible plans, in which consumers have lower premiums but pay more out of pocket, as one main factor. The share of employees enrolled in high-deductible plans surged to 13 percent in 2011 from 3 percent in 2006, according to Mercer Consulting.
That means thousands of consumers with an incentive to think twice about heading to the doctor. One study by the RAND Corporation found that health spending among people who shifted into a high-deductible plan dropped 14 percent — though the study also found that enrollees cut back on some care that tended to save money in the long run, like vaccinations.
A second factor is a dearth of expensive, novel drugs coming onto the market, experts said, as well as growing pressure to use generics. “There just aren’t as many blockbusters,” said Professor Cutler, the Harvard economist.
Finally, and most important, health economists point to a shift toward accountable care, in which providers are paid for the quality of care, not the quantity.
There are about 164 “accountable organizations” in the United States, according to research by Leavitt Partners. Hundreds of other insurers and health systems have enacted some of the features of accountable care, like assigning specially trained nurse practitioners to patients with multiple chronic conditions to make sure they take their medications and to prevent hospitalizations.
Many health care experts said they believed that the shift toward publicizing medical error rates and encouraging accountable care seemed to be paying dividends — and that providers were making changes in anticipation of the health care overhaul, which further emphasize accountable care.
“In Massachusetts, we had a lot of political pressure to understand the growth in costs as unsustainable,” said Sandra Fenwick, the chief operating officer of Children’s Hospital Boston, which has put more than 100 reforms into effect, saving millions of dollars, in the past four years. “We had to figure out how we were going to be part of the solution, not part of the problem.”
Ms. Davis of the Commonwealth Fund said that “a lot of the big gains have come from keeping people out of the hospital and the emergency rooms.”
“Five or seven years ago, the private sector started rewarding providers that got their patients’ chronic conditions like diabetes and asthma under control,” Ms. Davis said. “That was couched as a quality-control measure, or putting an emphasis on chronic-disease care. But the direct result is going to be a reduction of hospitalization.”
Moreover, experts said not to discount the accountable-care revolution just because it remained small or because the changes implemented by the Obama health care law had not come into full effect yet.
“In the past, these slowdowns have occurred not just because of the direct effect of reforms, but because of greater attention to reforms changing provider and patient behavior,” said Mark B. McClellan, the economist and doctor who ran Medicare and Medicaid under President George W. Bush.
Of course, health care experts caution that there have been times when health care spending had slowed, only to start tracking back up again.
“If you asked me, ‘How confident are you that this is not just the recession?’ I’d say 75 percent,” said Professor Cutler of Harvard. But he said he was less confident that this trend would continue.
Explaining a Slowdown in Health Care Spending
While the decline in the growth of national health care spending has largely been attributed to the recession, the changing behaviors of consumers and providers may also be a factor. As a share of the economy, health expenditures remained steady from 2009 to 2010. Related Article »
How One Hospital Bent the Cost Curve
The New York Times, April/May 2012, by Annie Lowrey — In an article in The Times on Sunday, I look at whether there is more than meets the eye in the slowdown in health care costs.
Economists anticipated that the recession and sluggish recovery would depress the rate of growth. But the slowdown was more than they expected, prompting a debate about whether doctors and patients are doing the seemingly impossible: bending the cost curve years before the most aggressive cost-saving provisions of the Affordable Care Act, the Obama health care law, come into effect.
Many economists and health policy specialists think that changes made by insurers, hospitals and doctors to emphasize the quality of care rather than the quantity of care is a major factor, and Children’s Hospital Boston offers a good test case.
Children’s is a Harvard-affiliated research institution that treats many of the region’s sickest children and spends a lot of money doing so. But about four years ago, the hospital recognized the growth in costs as unsustainable — as many institutions in Massachusetts did after the state passed an individual mandate law.
“We knew that by design the coverage law was not intended to focus on the cost or affordability issue,” said Andrew Dreyfus, the president of the nonprofit Blue Cross Blue Shield of Massachusetts, the state’s largest private provider of health insurance. “Massachusetts was both an expensive state and a state where health care costs were growing rapidly — we had a high base and a high trend. We knew that if we were going to be able to sustain the reforms, we needed to deal with the cost issue.”
Children’s went on a campaign to scrub unnecessary costs from the system while maintaining its renowned quality of care. It first tackled internal costs, said Sandra Fenwick, the chief operating officer of Children’s. It looked at things like space utilization and spending on energy, and made the operation more efficient.
Then, it tackled patient care, trimming unnecessary procedures and focusing on efficiency and preventative care. If you are a child with asthma, a nurse might come inspect your house and advise your parents to look into new mattresses, that could reduce the chance that you will end up in the emergency room with an attack. If you are a teenager with cancer, doctors might recommend that you receive intravenous hydration at home, rather than in a care facility. Children’s also opened satellite offices to keep patients out of the higher-cost downtown hospital.
All in all, the hospital made more than 100 changes and cut tens of millions of dollars in costs, Ms. Fenwick said. It not only reoriented itself to focus on quality, rather than quantity. It has started renegotiating its contracts with insurers to move away from fee-for-service medicine.
In January, it signed a contract with Blue Cross Blue Shield that pays it for how well it cares for patients, rather than the number of procedures performed. This year, the deal includes a zero percent rate increase — and the hospital is meeting its benchmarks thus far, Ms. Fenwick said.
Children’s is not the only hospital making such dramatic changes in how it approaches costs and care. Indeed, doctors providing care to about 77 percent of Blue Cross Blue Shield of Massachusetts members have signed on to such “alternative quality contract” agreements, giving them an incentive to prevent readmissions, cut out unnecessary procedures and otherwise reduce spending.
“We’ve had to convince skeptical institutions that we’re not taking away their margin,” Mr. Dreyfus said. “We’re just saying, ‘Don’t make your money on volume. Make it on quality.’”