Slowdown in healthcare costs linked to economic and clinical factors

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1. Projections for the total spending on healthcare from 2003-2012 were off by $514 billion.

2. The 2007-2009 recession, Medicare rate reductions, and increases in Medicaid/Uninsured populations accounts for 45% of the spending slowdown.

3. The remaining 55% of the spending slowdown is in question but predicted to be associated with structural changes to healthcare, brand name drugs moving to generics, and overall clinical quality improvement.

Evidence Rating Level: 3 (Fair)

Study Rundown: In 2004 the CMS Office of the Actuary predicted that healthcare spending would increase by 3.9% annually from 2003 until 2012. Follow-up data has shown that annual healthcare spending in the US has increased on average by only 1.9%. This slowdown in spending growth is the equivalent of $514 billion in healthcare spending that was predicted, but not actually incurred.

This economic study analyzes the reasons for the slowdown in growth, concluding that 45% of the slowdown can be attributed to a combination of three factors. First it identifies the 2007-2009 economic recession as a contributing factor in the slowdown accounting for 37% of the spending. Second it looks to Medicare payment reductions and freezes on Medicare Advantage premiums as contributing to 3% of the slowdown. Lastly, as a result of recessionary unemployment, many individuals moved from private insurance (higher payment rates) to Medicaid (lower payment rates) and uninsured status (lower utilization) decreasing spending by 5%. These figures were compiled using an array of economic analyses, controlling for variables like inflation and GDP growth.

Altogether this leaves 55% of the spending slowdown in question. The authors argue that this can be attributed to structural changes in healthcare and improvements in quality of care. They propose that technological developments in the pharmaceutical industry have slowed and many expensive brand name drug patents have expired, elevating generic prescription use. Also, overall inpatient stays have declined by 12% between 2001 and 2011 as more surgical procedures have been moved to outpatient. Lastly the authors identify decreases in readmissions and hospital-acquired infections as well as overall improvements in quality to have a significant effect on decreased spending growth.

Click to read the study in Health Affairs

In-Depth [economic analysis]: The researchers analyzed data from the Bureau of Economic Analyses and the Centers for Medicare and Medicaid Services to evaluate cost trends and compare data to larger trends such as GDP growth and volatility in the insurance market.

The study provides less rigorous data analysis to support the claims for the 55% of the slowdown that is in question. The researchers offer conjectures with specific case-studies as evidence, but the study is not cohesive in methodology. For example, researchers point to a decrease in the growth of pharmaceutical spending from 10.1% during 1993-2003 to 2.3% during 2003-2012 and state that 17% of all prescription spending is on drugs that will become generic in the next five years. These statistics are used to argue that this is one way that healthcare spending is slowing, however this data is not accounted for as a specific percentage of the cost slowdown. In this way, they are unable to make direct associations regarding how these factors are specifically accounting for a percentage of the spending slowdown.

This limitation of the study provides direction for future research to analyze and categorize specific innovations and changes in healthcare that are producing real cost reduction. Changes in clinical integration, alternative reimbursement methodologies, health IT, and improved therapies and medications are only a few of the many changes occurring within healthcare that will continue to impact hospitals, physicians, patients and government budgets going forward but are not accounted for specifically in this analysis.

By Jordan Anderson and Andrew Bishara

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