The notable five-year contraction in healthcare spending growth comes to an end next year, but not in a way that marks a dramatic reversal—at least, not yet. The Medical Cost Trend: Behind the Numbers 2015 report released today from PwC’s Health Research Institute (HRI) projects a medical cost trend of 6.8% for 2015, up only slightly from the 6.5% projected for this year. Our analysis, which measures growth in the employer-based market, incorporates input from health policy analysts, industry executives, earnings statements, government data and actuaries from more than a dozen insurance companies, whose companies cover a combined 93 million members.
Much of this is simple and not surprising based on historical analysis: the healthcare “economic recovery” lags behind the broader economy. So we are now beginning to see the recovery—with more employed workers and more disposable income—loosen up spending on things such as doctor visits and diagnostic tests. Many Americans, after postponing care, are once again spending on their health needs.
Some underlying nuances in the health numbers are more complex and uncertain: greater total spending on health services is not the same as higher costs per person. Even as private health spending ticks upward, evidence reveals that structural changes over the past few years have produced greater efficiency in the $2.8 trillion US health industry. As with any evolution, there is uncertainty. Some of our big healthcare investments today are a financial gamble. Most notably, the burst of high-cost “specialty” drugs could result in lower treatment costs on chronic conditions in future years or signal the start of painfully expensive pharmaceutical bills.
The most durable long-term factors holding down costs are those that instill a new philosophy about care delivery. For instance, health systems and hospitals striving for “systemness,” in which care teams seek to achieve more by working together. They are focusing specifically in two areas: streamlining administrative work and consolidating and standardizing clinical programs, which can provide higher quality care through consistent processes and outcomes.
With about 60% of hospital budgets spent on labor, personnel costs are a top priority. Since 2012, hospital employment growth has slowed and is projected to continue on this trend—evidence that providers are achieving improved efficiency with fewer resources.
More price savvy consumers shopping for value are also redefining the health economy. With many employers choosing health plans that include cost-sharing and high deductibles, price has become a top priority for consumers and affects their health choices. These individuals now demand more transparency from the industry, and some assurance of value for their health dollars.
The short-term trends are more prone to shifts in the economy or consumer attitudes. Five years post-recession, more confident consumers – many newly insured – are revisiting doctors and driving up US health spending. But this surge is a temporary activity that should level out with few lingering effects on price or usage habits.
Similarly, costly new cures today could result in long-term savings and improved quality of life. No drug category has gotten more attention in recent months than the new Hepatitis C therapies, which are expected to increase total Hepatitis C drug spending 209% by 2015. Yet long-term savings for treatment of chronic conditions, liver transplants and lost productivity may ultimately offset the cost of the specialty drugs. In the most serious cases, for example, compare the $270,000 in treatment over a decade for patients with compensated cirrhosis, or scarring of the liver, to the average $86,000 for a course of the new medication, believed to be a cure. The challenge may lie in targeting the patients most in need of the more expensive course of therapy.
Even the large IT investments required by merged health systems may eventually lead to savings through greater efficiency. Technology investments can be daunting for health systems. Vendor selection, hardware costs, and outside support all require significant money and time. According to PwC’s HRI analysis, the cost for a comprehensive integration for clinical and business systems can run between $70,000 and $100,000 per hospital bed. For a 1,500-bed system, that translates into an additional 2% increase in annual operating costs during implementation. By connecting clinical care, business operations and technology and improving the consumer’s experience, the investment should have large, albeit long-term payoffs.
Will we again see the double-digit health spending growth that marked the late 1990s and early 2000s? Just as the sluggish recovery from the Great Recession played a large role in slowing medical inflation, a strong economic recovery with low unemployment could shuffle us in the opposite direction. However there appear to be safeguards in place to prevent runaway inflation. All players in the healthcare system are thinking bottom line: consumers are choosing more frugal options; the delivery of care is being better managed and coordinated; employers and providers are pursuing cost-cutting strategies; and, to keep premiums low, insurers are using high performance and narrow networks to steer patients to lower cost, higher quality providers.
Yet—the long and short of it—health spending continues to outpace GDP. This underscores the need for a renewed focus on productivity, innovation, efficiency and ultimately, delivering better value for purchasers. The real story behind the health numbers is that the industry is striving to be more competitive and more consumer-centered, but there is still work to be done. Our work will not be done until we can bend the cost curve to the negative.
Ceci Connolly is the Managing Director of PwC’s Health Research Institute, a research organization dedicated to objective analysis on the issues, policies and trends important to health organizations and policymakers. Ceci is a veteran journalist and co-authored Landmark: The Inside Story of America’s New Health Care Law and What It Means for Us All.
Rick Judy is a Principal in PwC’s Health Industries practice. During his 19 years with PwC, Rick has consulted many segments of health care, including payers, employers, hospitals, health systems, long-term care facilities, and community and government organizations. Rick is a frequent speaker at healthcare industry events on a range of topics.
 The Express Scripts Drug Trend Report, Express Scripts. (October 2013) http://lab.express-scripts.com (accessed April 2014).
 Nancy S. Reau, MD and Donald M. Jensen, MD. “Sticker shock and the price of new therapies for Hepatitis C: Is it worth it?” Hepatology. Vol 59: 1246 -1249. March 1, 2014.
“The idea is to have government accomplish that goal with the least impact on the marketplace.”
allan, what you mean is the least impact on YOUR marketplace. You don’t want to pay for pre-exist, women, high risk, pregnancy, other parts of plans that don’t apply to you but have an impact of other people. That’s not a socially responsible attitude for health care, and why most other countries use the tax system to involve everyone in paying for it.
I don’t and have never had children, but I willingly support education. It’s just the way that works best. Public transportation is another service that private enterprise can’t make work profitably, so it needs to be subsidized for the good of everyone.
“the least impact on YOUR marketplace.”
Peter1, there is no your marketplace or my marketplace. The marketplace is created by those involved, the willing buyer and the willing seller.
“You don’t want to pay for pre-exist, women…”
You are talking about charity or prepaid medical care not insurance. Get the terms straight. I pay for that high risk pregnancy all the time through my tax dollars. I don’t want to additionally encumber those that are doing the socially responsible thing of buying insurance. I want their premiums kept lower so they can afford it. Others in need can get targeted subsidies from the government without upsetting the marketplace and thus causing the rates to become uncontrollable.
I am not going to discuss another topic, our school system, where those with a left wing ideology keep the underprivileged in schools that don’t teach. By the way not having children is actually not good for the nation for we depend upon each generation to keep the nation going. Transportation? You better look again.
“Experts estimate that there are 4-5 million people who would be uninsurable under traditional medical underwriting standards.”
Barry, that number has to be refined in order to know what the actual cost is. One cannot simply put a number to the cost and then multiply.
1) Everyone is insurable. It is just a matter of price. 2) Not everyone that is considered uninsurable can’t afford the premium. 3) Not everyone that is considered uninsurable can’t afford a portion of the premium. 4) Not everyone that is considered uninsurable spends a lot of money per year.
Last I read we paid at least for 75% of the uninsured’s bill so the total increase in price for a comprehensive fix would lead to a relatively small increase if done correctly.
Also the last number I saw of the number of uninsurables being enrolled before the ACA started enrollment was just a bit above 100,000 people and enrollment for that part of the ACA started a long time ago.
” the only ways I can see to make health insurance less expensive in the U.S. are…”
There are many more ways such as skin in the game and letting the insurers manage risk along with patient choice. You didn’t even mention something you like, capitated care. I think capitation is horrible if the patient doesn’t control the dollars, but if the patient controls the dollars and had to pay for his bad decisions even capitated care could save money.
“The insurer is willing to take on the risk. The problem is with whether or not the person can afford the premium.”
Depends on how the risk is spread. But you are making a dishonest argument. Car ads that say they will not turn anyone down for a loan are also dishonest. They turn away loans by making the contract unattainable.
Single-pay countries acknowledge their risk pool is the entire population and that everyone contributes to a social need so the risk is spread more widely . Insurance carves up risk into profit pools for it’s owe sake.
Peter1 you say “But you are making a dishonest argument.” That is not true. You seem not to understand the job descriptions of everyone involved in the process. Your previous argument was “so the insurance industry can shed that risk.”, but that was wrong. Insurance companies aren’t shedding the risk. They will insure if there is a market and the risk can be covered by the premium. Their job is to determine risk and they make money by determining risk and making sure the premium pays for the accumulated risks, administration and profit.
You provide the example of single-pay countries (the term is probably inaccurate so I will assume you mean most of our western friends). It is true no one may be turned away in single-pay nations, instead there are access problems. Insurance is NOT the same as healthcare.
I don’t think giving patients control over the dollars in a capitated environment would work for two reasons. First, I’m skeptical about the ability of patients, especially those with less education, to make good judgments about what care is appropriate or not. Second, in any given year, about half of patients will need no healthcare services or very few while some will need a great deal costing well beyond the capitated amount. Some will need a lot of care every year.
My problem with the skin in the game concept is that high deductible plans may work OK for the upper half of the income distribution but not the lower half who can’t afford more than a modest deductible. When it comes to hospital based care or care delivered in hospital owned outpatient clinics, the deductible is exceeded quickly than then there is no incentive to care about costs beyond that point. Indeed, too many patients wrongly equate higher prices with better care. It’s hospital based care and, to a lesser extent, post-acute care (rehab and home health) that are the key drivers of medical cost growth. Specialty drugs are an increasingly important factor as well.
On the high risk pools, before debate about the ACA even began, 35 states offered high risk pools that served about 200,000 people altogether despite considerably greater need. These policies often had comparatively low total benefit limits and high deductibles. They were expensive and premium subsidies were not available. Medical cost ratios typically were in the 250%-300% range. They were not effective in addressing the problem of serving the medically uninsurable.
In any medical population, the sickest 1% of patients account for 20% of costs in any given year and the sickest 5% account for 50% of costs. Just because large numbers of people may not need much care in a given year doesn’t mean that aggregate costs won’t be high. The typical large employer health plan spends $5,000 per year per covered life, including family members and companies with older workforces spend north of $6,000 per year.
Sure everyone is insurable at a price but the price is unaffordable for all but the wealthy. That’s why Medicare exists. Very few seniors could afford to buy insurance in the regular health insurance market. The program is largely supported by a payroll tax and general revenue with beneficiary premiums covering only about 12% of program costs. Without the taxpayer funded Medicaid program, poor people couldn’t afford to buy health insurance either. Of the 8 million people who bought a health insurance policy through one of the ACA exchanges, 87% qualified for a subsidy. Most people who are uninsured lack health insurance because they can’t afford it. That’s why we need subsidies though robust income verification would be highly desirable and necessary to adequately protect taxpayers from cheaters..
“Most people who are uninsured lack health insurance because they can’t afford it. ”
Barry, I want to keep this short so I won’t address all the different areas of discussion that are not directly responsive except to tell you that you should take a look at the numbers of the uninsured before the crash since I want to keep Obama out of the discussion. You will note a large number of the 47 million at the time were young. Another large portion were illegals. Still another large percent of the uninsured earned over $50,000 per year and a significant number over $75,000.
You say: “I don’t think giving patients control over the dollars in a capitated environment would work for two reasons.”
You missed the point. I was not talking about patients getting control over the dollars in a capitated environment rather patients having control over the dollars so they can voluntarily purchase or not purchase whatever insurance they desire. That would include capitated plans.
“high deductible plans may work… but not the lower half who can’t afford ”
If the lower income groups can’t afford the high deductible they can’t afford the premium to begin with. Think about that because the higher the deductible the lower the premium.
There are many ways of managing higher deductibles that can help those that have more limited resources. Understand a major reason for the financial problems faced is not the high deductible rather the loss of a job. We need to overhaul the way we insure. For example we could make a deductible disease specific and be a one time event. Alternatively and perhaps a better idea would be to have a multi year deductible.
Take note Barry that until one reaches older age many of the costly cases might involve that 5%, but who is part of the 5% changes from year to year. Thus the savings on premiums in HSA high deductible insurance has led to individual HSA savings in the ten billion dollar plus range. High deductibles help in more ways than you seem to recognize. They slow down a wasteful area of medical care that leads to expensive workups that turn out to be a waste of money. It’s not good enough to quote statistics, some that might be of questionable accuracy. One has to understand what is happening behind the numbers.
Correction: I was incorrect earlier when I wrote that the Physician Career Satisfaction and Practice Sustainability Initiative is sponsored by ABIM. In fact it is an initiative from the AMA.
I always find these discussions about how pure insurance would save us quite perplexing. “Let the marketplace work unencumbered, that’s how we’ll fix this”
Let us exclude pre-exist, don’t mandate any particular coverage, let us reduce coverage to get to an affordable rate, let us tack on deductibles and co-pays so we can all buy insurance, you, government, cover those over 65s because they are no longer profitable, and on, and on. See how smart we are in managing the risk.
Any idiot can make money by cherry picking the best business while saying all the rest is the “governments job”. But that’s not health care.
You have a weird idea of what those that believe in marketplaces think. The one area that almost everyone that is not a leftist agrees upon is that the pre-existing problem be solved. There are many mechanisms to do that and they do not have to have a significant negative impact on the marketplace.
Affordable rates are in the eye of the beholder and if one wishes to get healthcare costs under control one has to start dealing with affordable solutions. Medicare, single payer for seniors, is increasing at a rate substantially higher than the growth of the GDP. Do the math. Draw the lines and see where the lines eventually intersect.
None of these problems that you mention create an unmanageable problem. It is ideological fantasy that the marketplace cannot exist in healthcare.
“The one area that almost everyone that is not a leftist agrees”
So, anyone who disagrees is a “leftist”? You don’t even know me. When arguments start to fail people usually resort to labels. Smugness never won a debate allan.
“There are many mechanisms to do that and they do not have to have a significant negative impact on the marketplace.”
Then why did the insurance industry not solve it?
“So, anyone who disagrees is a “leftist”?”
Read what I said again. The statement I made has nothing to do with what you just said above. My statement simply states that almost all those not on the left agree that the pre-existing problem needs to be solved. It doesn’t go further than that. It doesn’t call you a leftist. It simply makes a position of many clear.
“Then why did the insurance industry not solve it?”
Some people need additional help financially. There are many ways of doing that without negatively affecting the insurance marketplace. However, one cannot expect an industry to function well if the government doesn’t permit it to do its job. (Understand I have no special love of the insurance industry.)
“Some people need additional help financially. There are many ways of doing that without negatively affecting the insurance marketplace.”
What you mean is let government do it so the insurance industry can shed that risk. Although I am not a fan of the ACA it chose to distribute that risk to all premium payers. At least that exposes everyone to the real risk and does not hide it in general taxes. I have not seen a viable, solely private insurance solution.
By the way even true single-pay countries (not faux single-pay Medicare) use the private sector to provide goods and services.
” so the insurance industry can shed that risk.”
Peter1, you are totally wrong. The insurer is willing to take on the risk. The problem is with whether or not the person can afford the premium. In that regard a direct government subsidy can help that individual without radically altering the marketplace. That could be worked out in many fashions without the financial and other costs of the ACA.
“it chose to distribute that risk to all premium payers.”
You don’t want to impose a tax on a person that is doing the socially responsible thing and that is precisely what you are doing.
My suspicion is that you are missing an essential point. There are many ways for government to incentivize universal coverage. The idea is to have government accomplish that goal with the least impact on the marketplace.
Yes, all countries involve the private sector to a greater or lesser extent.
Regarding providing insurance coverage to people with pre-existing conditions, politicians have never demonstrated any willingness to spend what it would take to provide comprehensive coverage at standard rates with subsidies for low income people. Experts estimate that there are 4-5 million people who would be uninsurable under traditional medical underwriting standards. I’m guessing that it would cost at least $20,000 each to cover them or $80-$100 billion per year to cover 1.5% of the population. Premiums paid by beneficiaries would be unlikely to cover more than 10%-15% of that amount net of subsidies which also happens to be the case with Medicare where about 12% of program costs are covered by beneficiary premiums including the IRMAA premium surcharges paid by high income beneficiaries.
Even under the ACA, high risk pools that operated until the exchanges came online allowed insurers to charge older people up to 4 times more than younger people for similar coverage vs. a 3 to 1 maximum ratio for policies now sold on the exchanges and the high risk pool policies were not eligible for subsidies. For policies sold through the exchanges in 2014, 87% of buyers will receive a subsidy which suggests that the underlying problem with both health insurance and healthcare is affordability.
Employer provided policies which are not taxable income to employees are effectively community rated and virtually all economists will tell you that the employee pays the full cost of the insurance in the form of lower wages than he or she would otherwise be paid. The younger and healthier employees subsidize the older and sicker folks under their community rating approach.
Medicare takes the older population out of the regular insurance market and Medicaid does the same for the poor though eligibility rules vary considerably by state.
Without going back to medical underwriting or allowing significantly higher age rating bands, the only ways I can see to make health insurance less expensive in the U.S. are (1) allow people to buy policies that cover fewer services and/or carry a higher deductible and (2) find ways to reduce the underlying cost of healthcare. My preference is to focus on the second option.
“The Medical Cost Trend: Behind the Numbers 2015 report released today from PwC’s Health Research Institute (HRI) projects a medical cost trend of 6.8% for 2015, up only slightly from the 6.5% projected for this year.”
Another possible trend:
“Health insurers in 10 states that reported rate filings have the support of Moody’s Investors Services to go forward with double-digit rate hikes in 2015.
Moody’s analysts said the rate increases reflect an increasing medical cost trend, the Affordable Care Act industry fee and regulatory changes that allow people to keep noncompliant plans for another year, according to a report released Monday, emailed to FierceHealthPayer.
“The premium increases show that insurers have chosen to protect earnings margins rather than push membership growth,” the report states.”
“The premium increases show that insurers have chosen to protect earnings margins rather than push membership growth,” the report states.”
allan, so if big insurance and big investors are driving rate increases where would your “consumer directed” pressure exert itself on prices?
A certain shift to small independent clinics doing some of the routine procedures can bring some relief from hospital pricing, but in my area both Duke and UNCH are buying local clinics or starting their own and charging their usual markups. There is not a lot of choice here and elsewhere in non-competitive markets.
“allan, so if big insurance and big investors are driving rate increases where would your “consumer directed” pressure exert itself on prices?”
Peter1, the additional price increases we are seeing are secondary to massive government interference. Risk is what propels increased prices for services that are essentially the same. Government has created too many of these uncertainties (risk) and has bureaucratically pushed the marketplace in unnatural ways. I think the insurer’s are mostly afraid of selection where more of the sickest patients become enrolled while the healthy don’t. What actually happens doesn’t matter for it is the risk of that happening that has caused prices to rise.
allan, you need to separate the prices billed and the risk held by insurance. Insurance rates are a combination of negotiated prices with providers and a “reasonable” profit after risks are satisfied.
Not all markets are the same and some have very powerful providers where not much negotiation is exercised. But your continued faith that if health care were just plain insurance without government involvement it would solve not only our cost problem but our access problem as well.
If that were true other countries with more government control would show higher costs/prices – not so in fact, we are the world leader.
Your “cure” would also bring back the exclusion of pre-exist coverage for those needing it.
Negotiated prices constitute a cost not a risk. How many times those prices have to be paid is a risk. How the diagnosis was created and thus which negotiated price is paid is a risk.
Free markets where the patient has control of the dollar leads to lower costs. Monopolies lead to higher costs and government has been creating monopolies.
Your comparison with other countries is not a true comparison. We can go that route at another time. Right now focus on risk and a free marketplace.
“Your “cure” would also bring back the exclusion of pre-exist coverage for those needing it.”
Firstly take a look at how many signed up with the ACA because of the exclusion for pre-exist coverage. Relatively very few.
Secondly, I don’t exclude those that are not insured through no fault of their own. A free market place does not mean there is no government involvement. In fact for a truly free marketplace government must exist if only to enforce contracts. There are many ways to manage the coverage of those who through no fault of their own have been denied coverage because of pre-existing conditions without significant negative impact on the marketplace.
The number analysis of the ACA sign up is not in yet, but many signed up for subsidies which included pre-exist that private insurance was not meeting. You can argue the number was not so great to justify the ACA but clearly many were in need of government involvement to get and keep access.
But insurance exists to manage and exclude risk selection, not total risk. The country’s health risk is the health risk and access to health care does not exist for the convenience of the insurance industry to pick and choose it’s profit strategy through risk management.
One of the first programs of the ACA to open was that which insured the uninsurable. It started a long time before the general sign up for the ACA. Since that was a major objective of the ACA one should have expected all those uninsurables to have immediately signed up. Relatively few did and that points out that there is a major flaw in the ACA or the thinking process behind the ACA.
“insurance exists to manage and exclude risk selection”
Insurance has been around a long time. Recently a lot of terms got perverted by overly zealous people that thought they could force individuals to do what they desired. Traditional insurance involves the sale of risk. If you still wish to use the perversion of the word let me know.
Our research focused on the 150M Americans in the employer based healthcare market and the cost drivers impacting that trend, not the individual market.
Vy well-written, thought-provoking piece. You make an important point that “[t]he most durable long-term factors holding down costs are those that instill a new philosophy about care delivery. For instance, health systems and hospitals striving for “systemness,” in which care teams seek to achieve more by working together.” This is where the rubber meets the road in many respects. There is a gulf between the most innovative practices in primary care, for example, and those that cling to the status quo. Sinsky, Bodenheimer, et al, identified key elements to practice improvement in the Joy in Practice work (and Dr. Sinsky is expanding upon her efforts now as adviser to ABIM’s Physician Career Satisfaction and Practice Sustainability initiative). Yet many (most?) primary care practices have yet to adopt these innovations. Doctors are inundated with too much non-doctor work which drives down their level of professional satisfaction while squeezing their schedules to the point where there is little time to come up for air. But they must come up for air, look around, identify and adopt useful innovations. As my co-author Dr. Jack Cochran and I argue in our new book, we as a nation cannot expect to achieve the levels of quality, access, equity and affordability to which we aspire unless we take on this burnout/professional satisfaction crisis. So in a way it is very much about the new philosophy of care delivery and systemness that you describe, Ceci.
Excellent points. The ongoing question in my mind is how we take these smart approaches and spread them across the health system? We clearly have pockets of brilliance but they seem so slow to spread.
“pockets of brilliance but they seem so slow to spread.”
The question becomes how should they spread? Organically or from the top down. The latter approach is a recipe for failure and has delayed positive innovation.
Could not agree more, Allan. An organic spread means primary care docs making time to look around at innovative approaches and decide — as a team — what improvements are most adaptable in their clinic. It is not easy given the time pressures but it means that primary care docs have two jobs in a way: their clinical job and working to improve/innovate.
But (broken record here), Drs. B&S, to take one example, present absolutely no evidence that:
1. the docs in the practices they profile are more joyful than their peers; or that
2. the patients in these practices live longer or are healthier.
I’m not willing to invest the time or money to adapt to the evidence-free opinions of “thought leaders” such as these.
“at innovative approaches and decide — ***as a team*** — what improvements…”
Charles don’t you believe that can also be done individually? Innovation has mostly been created by individuals, not by teams reliant upon consensus thinking and in medicine not by ideas that are locked into third party payer. (Ex: Steve Jobs, Tesla, Ford etc.)
We have to be careful when we have an idea as to how things should be done for that idea is peculiar to the originator and his circumstances not necessarily to everyone else. That is why I believe that our greatest hope for positive innovation is the level playing field where all the participants are free to choose what works best for them. All includes the patient who should be the primary force pushing innovation forward. Our tax system and so much reliance upon bureaucracy has greatly interfered with that choice.
Bottom up innovation is certainly preferred and one size fits all won’t work in a big diverse country like the U.S. I also think insurers have a role to play in developing new payment models that can accommodate new physician practice organizations.
Serving a poor inner city population of complex patients with multiple chronic conditions ranging from substance abuse and mental illness to obesity and asthma to CHF and COPD probably requires a clinic based team approach that includes NP’s, social workers, home visits and the ability to provide transportation to appointments where needed. A similar population in a rural area may require a somewhat different approach. In wealthy zip codes, concierge practices that don’t accept insurance may work well. In some regions like Northern and Southern CA, HMO’s like Kaiser may be well accepted especially among the middle class but are much less accepted on the East Coast.
If providers want to allow patients to communicate with them by phone or e-mail as well as in person and they want to use case nurse managers to help more complex patients navigate the healthcare system, they will probably need to be willing to take on some financial risk that comes with capitated payment or a shared savings approach.
From a patient’s perspective, I would like to see full price transparency for patients and referring doctors as well as the broad use of interoperable electronic records so when I see a specialist or go to the hospital, they can see what procedures I’ve had recently and what drugs I’m taking without my having to repeat them each time.
As for high hospital prices in areas with limited choices, patients may need to be willing to travel farther field for expensive surgical procedures as Peter1 did when he traveled to India for a hip resurfacing. Insurers, for their part, could move toward reference pricing where it makes sense. Safe harbor protection from failure to diagnose lawsuits for doctors who follow evidence based guidelines and protocols where they exist would also be helpful.
The government is worried about costs, but:
1) Medicare is paying almost double the price for a colonoscopy at a hospital (facility fee) than it is for a privately owned OP facility.
2) Government is trying to prevent these less expensive OP facilities from expanding.
What does that tell us about government and healthcare? Government cannot manage the problems we face and needs to step back for costs to fall. I think we might expect costs to fall at present because the patient has been put back into the marketplace with higher deductibles. Patients know how to spend money better than the government. Of course there are other ways to cut cost. One way is to deny reasonable care and we should expect to see a rebirth of the incentives to do just that if ACO’s become a major deliverer of healthcare needs.
“Patients know how to spend money better than the government.”
The truth is people don’t have a clue, they just have so much money to spend on a necessity. Usually I find people know how to spend the government’s money – and that’s what they want.
“people know how to spend the government’s money – and that’s what they want.”
Yes, almost everyone likes spending other people’s money and that causes tremendous waste and marginal care. Therefore it should be inhibited.
However, when it is their money they learn the best way of spending it. Not perfect, but better than when they spend the government’s money. If they cannot get sufficient knowledge they follow the leader, a person that appears to know.
As an example since I know little about cars I might use Consumer Reports to make certain decisions for me. Take note that Consumer Reports increases the transparency of the industry they write about. If one wants medical transparency one has to be willing to engage in the marketplace.
Couldn’t agree more! Healthcare still exceeds GDP — by too much.
“Healthcare still exceeds GDP — by too much.” That’s a new one on me. How is that possible? Must be a new accounting trick cooked up at PWC.
Just to play devil’s advocate for moment, given that the first half of your statement is mathematically impossible, let’s just bandy about the second half. How do you conclude “too much?” Americans have been whining and moaning about the size and growth trajectory of medical care spending since Nixon’s signing of the HMO act in 1973. And, yet, we remain the biggest and most productive economy in the world. Can you conclude that we spend too much on healthcare if people complain but go right on consuming? Would you say the same thing if we spent 17% of GDP on smart phones?
Implicit in the phrase is the condescension someone, somewhere — some expert lingering in the mist — magically knows how to spend the money “better.” I’m not sure that’s true. What I know for sure is not true is that healthcare spending does not exceed GDP.
Vik – I think you are missing the implied word “growth” as it pertains to healthcare exceeding GDP.
Silly me. I read and responded to what she actually wrote.
Your response was correct in a literal sense, Vik, for sure. But I confess that, like Rick, I assumed Ceci was talking about growth in hc spending vs growth in GDP.
Yes I was!
While I agree that there is much more focus on cost and value than in the past, I’m afraid that, in Ben Franklin’s words, we mistake motion for action. As far as I’ve been able to tell, health care’s institutionalized mechanisms of clinical and financial excess are alive and well in every health care sector, each of which has devised its own special mechanisms to drive unnecessary care and cost.
Primary care is still a subjugated profession, with rushed office visits that provide a more direct path to more lucrative downstream services. Purchasers by and large still have only limited access to meaningful, vendor-specific quality, safety and cost data that can drive better purchasing decisions. Fee-for-service reimbursement, which makes every provider a merchant seeking a margin on more products and services, is still the dominant paradigm. Nor are purchasers focused on this issue yet at the C-suite level. As a result, the US care patterns we now assume are normal are highly distorted, delivering far less value than is experienced in other advanced nations. And this excess is so overwhelming to our national economy that it threatens our fiscal stability. We are still in high crisis.
I appreciate Ms. Connelly’s optimism and there is no question that this is a thoughtful analysis. But on the ground I see little evidence that the pendulum has swung enough to merit breathing a sigh of relief.
“Impossible to treat this as a serious assertion. The population is growing by about 1% annually, people are living longer, requiring and demanding ever more services…”
I’m proud to admit Vik, to myself, that my gut instinct about your antennae was correct!
You and I really need to get together to drink some JW.
What? No cocktail for me?
Two cynics, an optimistic & JW Blue Label. I think will make for great conversations
“This underscores the need for a renewed focus on productivity, innovation, efficiency and ultimately, delivering better value for purchasers. The real story behind the health numbers is that the industry is striving to be more competitive and more consumer-centered, but there is still work to be done.” — Could have been written (and probably was, in some fashion) by Ellwood and Einthoven and the Jackson Hole Group 30 years ago. It is the essence of the dream of an idealized world of managed care. Still waiting.
“Our work will not be done until we can bend the cost curve to the negative.” — Impossible to treat this as a serious assertion. The population is growing by about 1% annually, people are living longer, requiring and demanding ever more services, becoming ever more unfit and hapless in terms of personal health competency, and federal policy is promoting a fruitless and idiotic search for disease by telling people to go get screened (through workplace wellness and otherwise).
In the much heralded international scorecard recently released by the Commonwealth Fund, in which the US ranked last amongst modern Western economies in delivering health value, not a single one of the other nations that I assume the report’s authors want us to emulate has negative cost curve at any point during the period of 1980-2010. Not for healthcare spending per capita and not for healthcare spending as a proportion of GDP. See page 11 of the full report. On which planet will the bending of the cost curve to negative take place? Maybe Jupiter, because it seems to me that you an environment with a gravitational pull double our own to achieve this oft-stated and never achieved goal.
“…delivering better value for purchasers”
I always wince when I here the word “value” instead of price because it’s a con job. Infomercials are very adept at this because they pick the higher imaginary price where all this “value” is supposed to come from. Next line is usually, “but wait”.
Please get the damn prices down and let us determine our own value.
“federal policy is promoting a fruitless and idiotic search for disease by telling people to go get screened (through workplace wellness and otherwise).”
Vik, the government is psychotic and has multiple personalities. At the same time one is spending money like a drunken sailor, another is lamenting that we don’t have a balanced budget and still another just prints money. Then all the personalities write rules and regulations that sane people are supposed to follow.
Allan: love it. Never that of it quite that way. I am shamelessly going to commit rhetorical thievery and use it, if you don’t mind.
Thanks, Vik, use it well, use it often, use it.
Al, good points. Fiscal impacts of consolidation are an open question.
I commend you for your efforts, even if the conclusion is fluid. The thing is, there are so many moving parts that it is impossible to predict with any certainty. However, one place where you certainly make excellent points is that double-digits are gone for good. there are simply too many forces that didn’t exist 10 years ago to hold down costs and prices.
One place you may be optimistic is in hospitals banding together. This could increase healthcare prices even if it reduces healthcare costs (and increases hospital profits).
There is also the chance, however slim, that the ACA requires wellness to be done within accepted guidelines for harm avoidance, which will almsot wipe out that industry and as a result reduce costs probably by a percentage point or two from the elimination of unnecessary care.
“One place you may be optimistic is in hospitals banding together. This could increase healthcare prices even if it reduces healthcare costs (and increases hospital profits).”
This is a very troubling issue which I’ll illustrate with a personal experience.
In January, 2009 I had a colonoscopy at my local community hospital. I need to get one every five years or so due to a family history of colon cancer. The hospital billed $2,609 for use of its facilities and my insurer, Highmark Blue Cross at the time, actually paid $1,051 which the hospital accepted as full payment. The actual procedure took all of 20 minutes to perform.
Just over five years later in April of this year, I returned to the same community hospital for the same procedure performed by the same doctor. This time, the hospital billed $5,851 for use of its facilities and Medicare, for which I’m now eligible, allowed the entire amount and paid all but $222 of the charge which was paid by my supplemental insurer! The actual procedure again took 20 minutes. So, the hospital was paid 5.57 times more than it accepted as full payment only five years earlier when general inflation over that period was extremely low.
The key difference that I can identify is that between my two procedures, the community hospital was acquired by a larger hospital system which consists of five hospitals plus clinics, imaging centers, rehab facilities, etc. Pricing for hospital based care, including simple outpatient procedures, is just plain outrageous. Both patients and referring doctors need to be made aware of these prices before services are rendered and if there are more cost-effective options such as independent surgical centers, patients should be encouraged to use them.
Yikes! Perhaps Highmark should pend more time negotiating fees (or at least trying to get them from shyrocketing) and less time pestering their employees with worthless wellness programs.
Thanks for sharing, and, Carol, once again, great posting
Was this Medicare or Medicare Advantage that paid these outrageous charges? Thanks.
It was standard fee for service Medicare that allowed the full chargemaster price and paid all but $222 which was picked up by my supplemental plan. I was absolutely incredulous when I saw the EOB. I’ve only been on Medicare since January 2012 and this was my first instance of care that was delivered in a hospital setting since I became Medicare eligible.
Medicare Advantage plans, on average generally don’t pay more than 102%-103% of Medicare and often pay less than FFS Medicare which is one of the reasons why a lot of providers, especially hospitals, will accept Medicare but not MA plans.
The hospital was much less busy when I had my most recent procedure than it was in 2009. When I asked why, one of the nurses said that several of the doctors with privileges at that hospital also have a financial interest in a freestanding surgical center and have moved many of their patients to that facility where charges are lower but income for the doctor is higher.
I didn’t mention in my prior comment that the doctor billed $700 for his work in 2009 and $800 in 2014 and was actually paid less than $300 both times.
So the huge increase was all in facility fees? The lowest hanging fruit if we want to reduce costs, and CMS and the private insurers do nothing. I wonder why . . .
It will be a challenge getting healthcare growth rate in the US down to GDP in part because of our embrace of new (often expensive) innovation. But the last several years suggest we can get closer.
Innovation frequently brings prices down or the desired quality up. That is because generally innovation is tied in with a marketplace. There can be no successful marketplace with a third party pulling the strings.
I like how you use the term marketplace. The B2B healthcare economy has been a black box for too long. As it pertains to technology, the key will be paying for innovation that truly bends the cost curve, versus overloading some actual healthcare technology with pointless bells and whistles and jacking up the price. In some ways, it is time to get back to the basics, so we can focus our efforts on breakthroughs.
“the key will be paying for innovation that truly bends the cost curve”
Rick Judy, how does one determine which innovation truly bends the cost curve without substantial negative unintended consequences? Who is supposed to make that determination?
Those who have the dollar to spend and some skin in the game about cost/quality generally should determine it. Anyone who is incented to drive costs down and quality up will make that determination, anyone who is is paid to proactively drive health and effecient care delivery ….. should be providers, employers, payers…..and of course, consumers/individuals. Anything that doesn’t, should be pulled from discretionary.
I have agreement with the first sentence. You continue with…
“Anyone who is incented to drive costs down and quality up will make that determination, anyone who is is paid to proactively drive health and effecient care delivery ”
Who makes the determination that someone has the proper incentives and understanding of quality? Who is paying for this service?
Rick Judy, you are the expert. Why don’t you carry out what you initially said to its logical endpoint.
Quoting a mid-step in trying to define the key “paying for innovation that truly bends the cost curve” ”
“Who makes the determination that someone has the proper incentives and understanding of quality? Who is paying for this service?”
Certainly plausible and possible that all these system changes and the new philosophy of thrift are keeping healthcare costs under check. But by no means is this certain or even probable.
Meaning these could all be epiphenomena that are dancing vigorously but are effectively just spectators of natural variation of spending or, a common but underappreciated truism: regression to the mean.
None of this is falsifiable or testable, as this is not hard science. So that one’s analysis tends to be a window to one’s worldview (myself included) and one’s degree of acceptance or refutation of another’s analysis a window to their world view (myself included).
There’s a chapter in Nassim Taleb’s Antifragile that discusses this. I think it’s called “Lecturing Birds How to Fly.” It’s irreverent to the point of absurdity, but worth reading.
Excellent analysis. I shall read the report.
What we see here is as expected: The short-term uptick in health spending against a broader leveling of spending per person (as we have seen strongly in the Medicare market since 2005). Much of this leveling is driven by deep, long-term changes in the market, as the report points out: More consumer awareness, more employer awareness and tough-mindedness, more “systemness” on the provider side, providers taking on various kinds of risk positions.
The truly interesting question about the future is whether those trends will be powerful enough to drive inflation below zero, to actually drive costs down. I believe they will. The strongest trend in that direction is healthcare providers taking on risk for outcomes in one way or another at the insistence of employers and health plans. That trend will tend to drive out the 1/3 of all healthcare costs that are just wasted, just unnecessary.
Thanks for the report. It helps us see how exactly these trends are unfolding now.