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September 19, 2018

Medicare's per-person costs are actually falling. Here's what the health system can learn from it.

Daily Briefing

    When actuaries detected a slowdown in Medicare spending growth a few years ago, Medicare officials claimed it was a one-time blip due to the recession. But one expert is spearheading research that paints a different picture—revealing a sustained slowdown in spending that the larger health care system could learn from, Politico's Dan Diamond reports.  

    The inexplicable Medicare cost 'slowdown'

    For years, Medicare trustees and lawmakers have raised concerns about the financial future of the program, citing the large number of baby boomers who, Diamond reports, are enrolling at a rate of 10,000 per day.

    But the program's annual per-person spending has increased by about 1% in recent years, which is less than the rate of inflation. This slowdown has prompted Medicare trustees to extend their bankruptcy projections for the Medicare hospital insurance trust fund to 2029. According to Politico, the hospital trust fund is often viewed as a key indicator of the program's long-term financial health.

    So what is driving the slowdown? Medicare officials generally have attributed the lower growth rate to the recession, but Melinda Buntin, an economist at Vanderbilt University, argued that there are other reasons for the "cost slowdown."

    What is responsible for the lower costs?

    Buntin, a former Congressional Budget Office (CBO) staffer, has spent years studying the factors behind the Medicare slowdown to find out why Medicare per-person costs are slowing when even private insurers struggle to restrain costs for their younger, much-healthier beneficiaries.

    Buntin's initial findings published in 2013, during her time at CBO, concluded "the slowdown appears to have been driven in substantial part by factors that were not related to the economic recession's effect" on Medicare beneficiaries seeking care. According to Buntin, her findings were met with "good-natured skepticism" among Medicare trustees. 

    But since then, Diamond reports, other researchers have corroborated Buntin's findings, and Buntin herself has built on her previous work, offering two potential explanations for the continued slowdown:

    • Medicare has improved care coordination for so-called "dual-eligible" beneficiaries who qualify for both Medicare and Medicaid; and
    • Medicare's value-based care initiatives—including Medicare's bundled-payment program—have changed the way Medicare reimburses doctors for care in a way that lowered the spending growth rate.

    Industry takeaways

    Buntin cautioned that her findings cannot directly attribute specific initiatives to the spending slowdown. "I don't think we will ever be able to precisely say that we know everything that caused it, and it's 57% this, and 43% that," Buntin said.  

    But she said that doesn't mean there are not lessons worth learning based on the data. For example, Buntin said private insurers should take note of the way Medicare is managing dual-eligibles' care and that lawmakers and the Trump administration should continue to support and build upon successful value-based payment models.

    "The temptation is to either declare that we've accomplished this mission and kept cost growth low or to try and double down on it. I'm not sure either one is the right answer," Buntin said. "We've been given a slight reprieve here. Let's try and learn from it" (Diamond, Politico, 9/12; Doherty, Politico, 9/12).

    Overwhelmed by 2,000+ pages of new Medicare rules? Here's what you need to know.

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    Download our one-page cheat sheets for a quick overview of each rule's scope, then review the slide decks from our webconferences for full details:

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