Tag: Health care spending

The Testing Glut

In case you missed it, a recommendation came out last month that physicians cut back on using 45 common tests and treatments. In addition, patients were advised to question doctors who recommend such things as antibiotics for mild sinusitis, CT scans for an uncomplicated headache or a repeat colonoscopy within 10 years of a normal exam.

The general idea wasn’t all that new — my colleagues and I have been questioning many of the same tests and treatments for years. What was different this time was the source of the recommendations. They came from the heart of the medical profession: the medical specialty boards and societies representing cardiologists, radiologists, gastroenterologists and other doctors. In other words, they came from the very groups that stand to benefit from doing more, not less.

Nine specialty societies contributed five recommendations each to the list (others are expected to contribute in the future). The recommendations each started with the word “don’t” — as in “don’t perform,” “don’t order,” “don’t recommend.”

Could American medicine be changing?

For years, medical organizations have been developing recommendations and guidelines focused on things doctors should do. The specialty societies have been focused on protecting the financial interests of their most profligate members and have been reluctant to acknowledge the problem of overuse. Maybe they are now owning up to the problem.

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Recession Drives Lower Health Spending

The Great Recession has achieved what 20 years of policy machinations in Washington could not. For the second straight year, the world’s most expensive health-care system did not gobble up a greater share of the nation’s economy. In fact, health care grew at a slightly slower pace.

Health spending rose just 3.9 percent to $2.59 trillion in 2010, only one-tenth of a percentage point faster than the previous year. That was slightly below the 4.2 percent nominal growth in gross domestic product (GDP), which means health care stayed at 17.9 of the total economy, no different than the prior year.

This represents the third straight year of markedly slower growth in health-care spending, compared to the prior decade. Health care was 13.8 percent of GDP in 2000 and 12.5 percent in 1990.

The lingering effects of the U.S. economic slowdown were largely responsible for a slower growth of health-care consumption, economists at the Centers for Medicare and Medicaid Services said. Cash-strapped consumers postponed elective surgeries, put off doctor visits and switched to generic drugs to hold down out-of-pocket costs, which grew just 1.8 percent in 2010.

The economic downturn “caused many people to lose employer-sponsored health insurance and people cut back on their use of care,” said Anne B. Martin, an economist at the Centers for Medicare and Medicaid Services.

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What Is Sustainable Health Spending?

There is broad agreement that historical rates of increase in health spending are “unsustainable”, and we must therefore find ways to bend the health care cost curve. However, there is surprisingly little consensus – and not even much being written – about what growth rate would be “sustainable”?  Defining sustainable growth and establishing a credible target is one of the top research priorities of our Center. We have put a lot of energy into providing more timely estimates of health spending and having a target for comparison is a key next step.

In this blog, the first in a planned series, I lay the groundwork needed to estimate sustainable health spending growth rates.  I begin with a definition of sustainable health spending that I hope you will find intuitively appealing, even if it does not match your own perspective. I then identify key stakeholders affected by health spending increases and who, in the absence of the Affordable Care Act (ACA), would have their own particular sustainability thresholds. Next, I argue that under ACA, the federal government blunts the impact of health spending growth on most other stakeholders and, in so doing, focuses the sustainability question more fully on its ability to raise the tax dollars required to meet its ACA commitments.

Defining “sustainable” health spending

I consider the nation to have achieved sustainable health spending when the projected growth path of spending is within what the nation is willing and able to pay. Note that this definition introduces elements of choice into the determination of sustainability. If there is an absence of willingness to pay, the spending will be unsustainable even if there is ability to pay.

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Hobson’s Choice

I recently moderated a Crain’s Business Breakfast. The panel included four highly respected Chicago-area hospital CEOs. I questioned the panel on a wide range of topics, from near term operational issues to long term public policy concerns. One expects well-rehearsed answers from senior executives so I was pleasantly surprised by the thoughtfulness and thoroughness of many of their comments. I was rather looking forward to how they would respond to this question, which they had been told in advance:

“Secretary of Labor Hilda Solis recently commented that the healthcare sector continues to be a bright spot for job creation. How is the nation to reconcile the desire for “job creation” with the desire for cost containment?”

First, some background. Secretary Solis is correct – the healthcare sector is a jobs engine. In just the past year, healthcare has added about 325,000 jobs, accounting for perhaps a third of total U.S. job growth. By way of perspective, the rapidly growing energy sector creates about 100,000 jobs annually. Job growth is great, but more jobs in health care means more spending on health care. Despite the technological imperative that propels the system, healthcare remains a labor intensive business. Half or more of hospital spending goes to labor, not including physician expenses. Labor expenses dominate home health and long term care. It is nigh on impossible to reduce healthcare spending without reducing labor spending. Thus, job creation and cost containment are enemies.

I put the ball in the hands of the panelists: do you favor job growth or do you favor spending cuts? The panel punted.

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Off-base Optimism

I like to view myself as an optimist, but two recent reports demonstrate the danger of misplaced or premature optimism.  I fear that they are influenced by what the authors hope will be the case rather than what has proven to be the case.  I find this generally to be the situation in the health care arena, where public policy is often based on shallow interpretations of data and on people’s political wishes rather than rigorous analysis.

The first comes from Karen Davis at the Commonwealth Fund, in a blog post entitled, “Health Spending Continues to Moderate, Cost of Reform Overestimated.”  We should know from the title alone that the conclusions cannot be accurate:  It is just too soon to reach them.  It would be like drawing a picture of climate change from one year of data about temperatures.

Here’s an excerpt:

A recent report from the Centers for Medicare and Medicaid Services (CMS) shows that national health spending grew at a historically low rate of 3.9 percent in 2010, almost paralleling the 3.8 percent increase in our gross domestic product (GDP) last year. This is . . . good news for the federal government as the slowdown indicates that the cost of health reform has been overestimated.

Now, let’s look at the possible reasons:

First . . . continuing declines in employment and private health insurance coverage have contributed to fewer people receiving both essential and nonessential treatment. [F]ewer people have received needed preventive and acute care. And people have increasingly gone without prescriptions, tests, and elective procedures.

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Health Alert: Health and Education

I believe I am one the few commentators on the Internet who routinely compares the fields of health and education (see previous posts here and here). The reason: lessons from one field are often applicable to the other.

The parallels are obvious: In both fields (1) we have systematically suppressed normal market forces; (2) the entity that pays the bill is usually separate from the beneficiaries of the spending; (3) providers of the services see the payers, not the beneficiaries, as their real customers and often shape their practice to satisfy the payers’ demands — even if the beneficiaries are made worse off; (4) even though the providers and the payers are in a constant tug-of-war over what is to be paid for and how much, the beneficiaries are almost never part of these discussions; and (5) there is rampant inefficiency on a scale not found in other markets.

Long before there was a Dartmouth Atlas for health care, education researchers found large differences in per pupil spending (more than three to one among large school districts, e.g.) that were unrelated to differences in results. In fact, study after study has found no correlation between education spending and education results. (See Linda Gorman’s summary at Econlog.)

Internationally, the parallels continue. Just as the United States is said to spend more than any other country and produce worse outcomes in health care, the same claim is now made for education.Continue reading…


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