Slowdown in health cost growth may be permanent

One study suggests 'fundamental changes' have slowed down spending

Topics: Finance, Reimbursement, Medicare, Payer Relations, Recession/Downturn, Market Trends, Strategy, Payer and Regulatory Policy, Revenue Cycle

May 7, 2013

The recent slowdown in health care spending could continue even as the economy recovers from the recession, according to a pair of studies published Monday in Health Affairs.

Between 2009 and 2011, total health care spending grew just 3.9%—the lowest annual rate in the past five decades, federal data show. By comparison, between 2000 and 2007, health care spending grew at an annual growth rate of between 6.2% and 9.7%.

First study points to 'fundamental changes'

In the first study, Harvard University researchers led by David Cutler estimated that the poor economy was responsible for about 37% of the lower spending trajectory. As a result, Cutler says economists could be overstating health spending projections over the next 10 years by as much as $770 billion.

The study also found that Medicare spending cuts and a decline in private coverage accounted for 8% of the slowdown. The remaining 55% was linked to "fundamental changes," such as:

  • A decline in the development and adoption of new imaging equipment and costly prescription drugs;
  • The expiration of prescription drug patents; 
  • Increased out-of-pocket costs through high-deductible health plans; and
  • Greater care coordination.

According to Reuters, these trends could persist because one-sixth of prescription drugs will lose patent protection during the next five years and more surgeries are being done on an out-patient basis. "The evidence thus suggests at least as strong a case for structural changes as for cyclical factors" in the spending slowdown, the researchers note.

Second study cites higher out-of-pocket costs, other major factors

In the second study, Harvard Medical School researchers examined claims data for 10 million individuals enrolled in large employer plans. They found that higher out-of-pocket costs accounted for about 20% of the slowdown by those plans in 2010 and 2011, suggesting that much of the slowdown can be attributed to other reasons.

Other major factors contributing to the slowdown included lower Medicare payment rates, slower development of new medical devices and prescription drugs, and new ways insurers are reimbursing providers, such as "bundled payments," the researchers found.

The researchers say that such "current trends" has given them "cautious optimism that the spending slowdown may persist."

Studies counter other recent research

The two studies counter recent Kaiser Family Foundation (KFF) research that found the poor economy accounted for a majority of the decline in health spending, according to the Wall Street Journal. The KFF study showed that the recession and poor economic recovery accounted for 77% of the factors that contributed to the recent slowdown in national health care spending.

Meanwhile, a paper by Urban Institute researchers released on Monday by the Robert Wood Johnson Foundation cast doubt on whether the slowdown would last. The study said, "Health spending growth has rebounded after every major attempt at cost containment and this creates understandable skepticism that the most recent slowdown will be lasting" (Begley, Reuters, 5/6; Lowrey, New York Times, 5/6; Norman, Politico, 5/7; Rau, "Capsules," Kaiser Health News, 5/6; Wilde Mathews, Wall Street Journal, 5/6).

You May Also Like

Comment Now

You must be logged in to comment