Health Affairs

The release of average charges for common procedures in more than 3,000 U. S. hospitals last week by the Centers for Medicare and Medicaid Services (CMS) elicited divergent reactions – not surprisingly. On one hand, it was front-page news for most of the major newspapers: “Hospital Billing Varies Wildly, Government Billing Data Shows,” was the headline in the New York Times. The article went on to speculate that these new data would likely “intensify a long debate over the methods that hospitals use to determine their charges.”

On the other hand the data were “old hat” to most health policy analysts. Several colleagues mentioned to me that “this is old news” and “it isn’t meaningful at all because we all know that charges don’t mean anything.”

“No one pays charges” is the common refrain. “Charges are merely an accounting fiction.”

Charges Do Matter — They Matter A Great Deal

Counter to the belief of both hospital industry representatives and many of my colleagues, hospital charge levels and rapidly escalating charges matter a great deal. While individual states and the Affordable Care Act (ACA) have instituted limits on the amounts low-income uninsured patients pay hospitals, insured patients that receive care at hospitals that are “Non-Par” or “out-of-network” are still victims of hospital’s exorbitant charging practices. When patients receive emergency services at an out-of-network hospital, the patient and/or insurance company (depending on insurer cost sharing for out-of-network care) pay full charges.

High and increasing hospital charges, combined with increasing proportions of cases admitted through the hospital Emergency Department (ED), are major factors behind the ever-declining negotiating leverage of private health insurers. This situation, coupled with the increased pricing power of the ever-more-concentrated provider industry, will be a major contributor to the almost certain rapid escalation in total U.S. health care costs in coming years.

The Affordable Care Act survived the Supreme Court and a presidential election, so why does it face such an uncertain future? One reason is that it was essentially silent on how to control costs. This has led many pundits — including the likes of Paul Krugman and Robert Reich — to argue that the best approach would be to extend Medicare to everyone. A January National Research Council report on the relative disadvantage of America in global health outcomes, especially compared to countries with national health insurance, added further fuel to the fire. But is a larger government role in health insurance the best approach?

The idea of universal Medicare is powerful and attractive. Mr. Krugman points out that in the last forty years, average Medicare costs per person have grown by 400 percent while those for private insurance have increased more than 700 percent. His numbers suggest that if everyone had Medicare for the last 40 years, we might now spend only 14 percent of GDP on health care instead of nearly 18 percent, while also reaching universal coverage. Mr. Reich argues that “Medicare-for-All” would save between $58 billion and $400 billion annually, and similarly concludes: “Medicare isn’t the problem. It’s the solution.” Critics of the U.S. system are also quick to point out that Americans don’t live as long as their counterparts in countries that spend much less, suggesting universal Medicare could save money and improve our health.

The argument for universal Medicare basically comes down to three key claims: (1) Medicare gets lower prices, (2) Medicare’s administrative costs are lower; and (3) Greater spending does not mean better health. Each of these deserves closer attention.

If you missed last week’s Health Affairs briefing on our May issue, “Tackling The Cost Conundrum,” or if you just want to see it again, video and speaker materials are now available on the Health Affairs website. You can watch the whole briefing or select particular panels or speakers.

At Managed Care Matters, Joe Paduda presents highlights of recent health policy blogging in a new Health Wonk Review. Among the pieces Joe highlights are Health Affairs Blog posts by John Holahan & Stacey McMorrow and Charles Roehrig on the causes and likely longevity of the recent slowdown in health spending growth.

The Affordable Care Act included provisions to accelerate the transition to value-based payment, including Accountable Care Organizations (ACOs). Many private sector insurers, providers and employers also are moving in this direction.

However, many of today’s measures are inadequate to the task of assessing and paying for value. Current measures focus on process and clinical outcomes, as opposed to health status, and few are based on patient-reported data that would measure the overall care experience.

In addition, most measures are add-ons to current work rather than an integral part of the care process, requiring manual chart reviews and retrospective data analysis. Not only does this make implementation burdensome, it limits opportunity for real-time feedback and adjustment.

These inadequacies create opportunities to implement new measures that will be more meaningful to consumers, clinicians, purchasers and policy makers. But to avoid a proliferation of measures that are inconsistent or questionable in terms of assessing value, a framework is needed to define specific measures for each component of value – health outcomes, patient experience and per capita cost (see Table 1, click to enlarge).

In less than nine months millions of Americans will receive new health care coverage through provisions of the Affordable Care Act. Most observers believe that strong physician leadership can help heath care reform succeed, through the optimization of care quality and cost management. But, at the same time, too many American physicians are dissatisfied with current medical practice, and unsure of what to do about it. Many would not recommend a career as a physician to their own children.

There are multiple causes for this dissatisfaction where it exists, including unpredictable reimbursement for services, excessive work burden and long hours, and excessive time devoted to non-clinical activities, including “paperwork”.

One possible reaction to physician dissatisfaction is a shrug of one’s shoulders. Most physicians are well paid, compared to most Americans, and are highly respected. We suggest, however, that improving physician practice satisfaction should be important for both patients and policymakers.

Much has been made of the slowdown in health spending growth and the role played by the economy. I have to confess that my first take, after studying plots of business cycles and health spending, was that health spending “had a mind of its own” and paid no attention to business cycles. Consider the two most recent recessions depicted in the chart below. During the recession of 2001, health spending growth actually shot up at the same time that the growth in gross domestic product (GDP) was dropping, and continued to rise even after the recession officially ended.

During the Great Recession, spanning December 2007 through June 2009, the growth in health spending dropped by about 2 percentage points and then leveled off while GDP growth dropped by nearly 10 percentage points and then quickly rebounded to a more normal long run rate of growth (though not sufficient to make a large dent in unemployment). I hope you can see why I was skeptical of a predictable relationship.

Following the third straight year in which the Centers for Medicare and Medicaid Services estimated the growth in national health expenditures to be a record-low 3.9 percent, considerable speculation on the causes of slower spending growth has come from a variety of sources. There seems to be a consensus among actuaries, academics, and other analysts that the recession and the associated increase in unemployment and decline in insurance coverage led individuals to cut back on their use of health care services. (See here, here, But, while the recession is clearly associated with the dramatic slowdown in spending growth from 2007-2009, there is also evidence that the slowdown in spending preceded the recent recession and seems to be continuing during the modest economic recovery.

Observers of this more general trend have begun to suggest that fundamental structural changes in the health system are playing a role in recent spending trends. The ability of some high profile providers and health systems to achieve high quality outcomes with greater efficiency has garnered a lot of attention and some suggest that more salaried employment of physicians could be altering the practice patterns that developed under a fee-for-service system. Others have pointed to patient-centered medical homes, accountable care organizations, and other payment and delivery system reforms as potential contributors to the slowdown in spending growth. The Obama administration has also argued that the Affordable Care Act has started to have a moderating effect on spending growth.

The extent to which the economy versus broader systemic changes has been driving slower spending growth has enormous implications for forecasting future spending trends. If the economy has been the primary driver of recent trends, we should expect spending growth to return to historically high levels as the economy recovers. The Congressional Budget Office (CBO) and the CMS actuaries have revised their Medicare and Medicaid forecasts downward to reflect the latest trends, but both entities seem to suggest that spending growth over the long term will return to historical levels. If, however, more structural changes are at work, then perhaps there is reason to be hopeful that health care spending growth will continue at a rate much closer to the rate of growth in the economy.

Health Affairs’ May issue, released today, analyzes the recent slowing in the growth of health care expenditures and explores whether the trend will last. The issue also addresses major cost drivers in Medicare and presents proposals for putting the program on a more sustainable path. Another article tracks federal spending on mental health during severe state budget constraints throughout the recession.

As Health Affairs Founding Editor John Iglehart notes on his “From The Founding Editor” page (quoted at length below), the new thematic volume, “Tackling The Cost Conundrum,” continues the journal’s coverage of a topic that has been a “driving theme” of the journal since its inception. The May issue will be discussed at a National Press Club briefing tomorrow morning, Tuesday, May 7. The issue and briefing are supported by a grant from the Robert Wood Johnson Foundation.

Researchers writing in the new issue are cautiously optimistic that the slowdown in health care spending is here to stay. A study by Michael Chernew, Alexander Ryu, and colleagues at Harvard Medical School looks at two factors potentially contributing to the record slowdown in growth to 3.1 percent during 2007-11: job loss and benefit changes shifting costs to the insured. Analyzing National Health Expenditure Accounts and large-employer data, the authors found that benefit design changes that increased enrollees’ out-of-pocket costs were responsible for about one-fifth of the observed decrease in the rate of growth. However, the slowdown occurred even when benefit generosity at large firms was held constant. The authors suggest that other factors are largely responsible and that major events, such as health reform, shifts in payment methodology, and the transformation of the delivery system’s organization may contribute to a longer-term trend of slower spending growth.

In a related article, David Cutler and Nikhil Sahni of Harvard University conclude that fundamental changes, including less-rapid development of imaging technology and new pharmaceuticals, increased patient cost-sharing, and greater provider efficiency, led to the majority of the slowdown in health care spending growth; if this path continues for the next ten years, public-sector health care spending could wind up $770 billion under projections, they write.

In a publication released in numerous states as well as a JAMA Forum article and a recent list of ten supposed “myths” about Medicaid expansion, the Heritage Foundation repeatedly cites our paper for the proposition that “40 of 50 states are projected to see increases in costs due to the Medicaid expansion,” and that expansion would force such states “to dig deep into their already overstretched budgets.” Even in the 10 remaining states, according to Heritage, the budget gains we projected to result from expansion were speculative and uncertain, since they supposedly relied on states cutting payments for hospital uncompensated care.

These claims distort our work. We identified 10 states in which Medicaid expansion would yield net savings based on just one factor—namely, unusually generous prior Medicaid coverage, for which states could claim enhanced federal matching funds. The modest additional gains resulting from uncompensated care savings did not tip any state from the red into the black.

Medicaid Expansion Offers Budget Savings, Revenue, and Economic Gains to States

More importantly, Heritage ignored our explanation that, because we were limited to “data available for all 50 states and the District of Columbia, we were unable to estimate several potential sources of state fiscal gain;” and that if additional, state-specific factors were considered, “many more states could realize net fiscal gains.” Nor did Heritage acknowledge that all states must pay for national health reform but only those that expand Medicaid will receive large, offsetting allotments of federal Medicaid dollars, with resulting economic activity, jobs, and state revenue.

US presidents and policymakers have for decades struggled with the issue of ballooning health care costs and were unsuccessful, or unmotivated, in finding a path to lasting cost containment. Recently, though, there has been progress. The forthcoming issue of Health Affairs, “Tackling the Cost Conundrum,” explores the slowing growth of health care expenditures of late and examines whether it is a temporary or lasting phenomenon; the issue also examines major cost drivers and presents proposals for putting Medicare on a more sustainable path.

Please join Health Affairs Founding Editor John Iglehart on Tuesday, May 7, at the National Press Club in Washington, DC, for a Health Affairs briefing at which we unveil the May 2013 thematic issue, “Tackling the Cost Conundrum.” The thematic issue and briefing are supported by a grant from the Robert Wood Johnson Foundation.

WHEN & WHERE:
.
Tuesday, May 7, 2013
9:00 a.m. – 12:30 p.m.
National Press Club
529 14th Street NW (Metro Center)
Washington, DC
Register Now

Follow live Tweets from the event @HA_Events, and join in the conversation with the hashtag #HA_Costs.

Yesterday, Senator Orrin Hatch (R-Utah) and Representative Fred Upton (R-Mich.) released their plan for “Making Medicaid Work.” One of the blueprint’s key proposals is to implement per capita caps, which would impose a cap on the funds that the federal government contributes to states for each Medicaid beneficiary. In April Health Affairs released a Health Policy Brief that explains how a per capita cap would work and looks at the arguments for and against the approach:

Supporters contend that instituting a system of per capita caps would moderate the growth of federal spending on Medicaid. They describe the approach as a middle ground between the program as it currently operates and other proposals such as block grants, which would more dramatically change the way federal Medicaid funding is calculated.

Critics contend that a per capita cap approach would not necessarily slow the rate of growth of Medicaid spending. If it did, they say, it would do so by shifting the costs to the states, which would face even greater pressures to cut services or limit eligibility, ultimately limiting many poor Americans’ access to care. What’s more, they contend that setting up a system of per capita caps would be very complex and difficult to administer.

Over at InsureBlog, Hank Stern hosts a “Money Tree” edition of the Health Wonk Review. Hank highlights a number of great posts, including a Health Affairs Blog post by Paul Ellwood — known as the father of managed care — proposing a framework for holding health spending constant as a percentage of GDP.

US presidents and policymakers have for decades struggled with the issue of ballooning health care costs and were unsuccessful, or unmotivated, in finding a path to lasting cost containment. Recently, though, there has been progress. The forthcoming issue of Health Affairs, “Tackling the Cost Conundrum,” explores the slowing growth of health care expenditures of late and examines whether it is a temporary or lasting phenomenon; the issue also examines major cost drivers and presents proposals for putting Medicare on a more sustainable path.

Please join Health Affairs Founding Editor John Iglehart on Tuesday, May 7, at the National Press Club in Washington, DC, for a Health Affairs briefing at which we unveil the May 2013 thematic issue, “Tackling the Cost Conundrum.”

WHEN & WHERE:
.
Tuesday, May 7, 2013
9:00 a.m. – 12:30 p.m.
National Press Club
529 14th Street NW (Metro Center)
Washington, DC
Register Now

Follow live Tweets from the event @HA_Events, and join in the conversation with the hashtag #HA_Costs.

A new Health Policy Brief from Health Affairs and the Robert Wood Johnson Foundation discusses per capita caps, a proposed reform to Medicaid that would limit the amount of federal spending per beneficiary. The proposal’s supporters contend that it could help control the growth of federal spending on Medicaid. Critics disagree, saying that instead of slowing the rate of spending growth, it would only shift the costs to the state, ultimately limiting poor Americans’ access to care.

More than two-thirds of Medicare beneficiaries have multiple chronic conditions, such as heart disease and diabetes, and that number is projected to rise significantly in the U.S., given our aging population. The Chronic Conditions Dashboard, recently launched by the Centers for Medicare & Medicaid Services (CMS), is the first in a series of planned web-based enhanced data analytic and visualization tools.

Use of the data available from the Dashboard can help policymakers, local health leaders, and health systems improve care coordination and health outcomes, and can help slow the increase in expenditures for Medicare beneficiaries living with multiple chronic conditions. The Dashboard was developed to be user-friendly and incorporated strong health information privacy protections, as individually-identifiable information cannot be accessed. The release of the Chronic Conditions dashboard supports the Administration’s Health Data Initiative that seeks to release more health-related data in more usable formats to support health promotion and care innovation.

Does the United States have at its disposal a method for predictably controlling the cost and improving the quality of our health care? Can we begin by budgeting or Indexing Health Care expenditures in the Medicare HMO program now called Medicare Advantage (MA) to grow at the same rate or more slowly than the gross domestic product (GPD)?

The Indexed Health Care proposal that I outline below builds on the success of MA, but it also calls for important reforms in that program. After indexing MA costs to GDP growth, the next steps should be to progressively convert Medicare from fee-for-service to prepaid capitated payments, and to index Medicare and all federal health care expenditures – including tax expenditures – to GDP growth. The private health care sector must be persuaded to move from FFS to capitated payments.

The Mental Health Parity and Addictions Equity Act of 2008 (MHPAEA) prohibits group health plans that cover mental health and substance abuse treatment from imposing higher cost-sharing requirements for these benefits, as compared to cost-sharing requirements for other conditions. Rigorous studies from Oregon and the Federal Employees Health Benefits Program have not found that similar parity requirements resulted in increased costs.

A recent report from the Health Care Cost Institute (HCCI) has been widely interpreted as suggesting that the MHPAEA and an interim final rule (IFR) implementing the statute caused an increase in hospital inpatient admissions for psychiatric conditions. However, the report does not support this interpretation.

The HCCI released its report on trends in inpatient psychiatric admissions as if it evaluated the impact of the MHPAEA. But the report simply juxtaposes a longstanding trend of increasing hospitalization for psychiatric conditions between 2007 and 2011 with the observation that the MHPAEA and its Interim Final Rule (IFR) were implemented at the end of 2010 and in 2011. This tells us nothing useful about the impact of the MHPAEA. In contrast, the FEHB Program and Oregon studies, which did not find cost increases attributable to parity, analyzed time periods just prior to policy implementation and just following implementation, and they controlled for the secular trend of increasing psychiatric admissions, using a difference-in-differences analytic strategy.

The April issue of Health Affairs, released today, examines how all high-income countries are struggling to achieve the “Triple Aim” — better health and better health care at lower cost. The articles in this issue find that the United States and other high-income countries have much to learn, with the “trade” in strategies and tactics likely to flow both ways.

Join us on Thursday, April 11, for a briefing on the April issue. Support for the new Health Affairs volume was provided by The Commonwealth Fund, Britain’s Nuffield Trust, and the Institute of Global Health Innovation at Imperial College London.

Drug Payment And Pricing — How Do US Practices Compare With Other Countries?

A featured study by Panos Kanavos of the London School of Economics and Political Science and coauthors compared prescription drug prices among selected countries that are members of the Organization for Economic Cooperation and Development in 2005, 2007, and 2010. Depending on how prices were adjusted for the volume of drugs consumed in the various countries, drug prices in the United States were between 5 percent and nearly 200 percent higher than in the other nations studied. A key contributing factor is that the United States takes up new and more expensive prescription drugs faster than other countries. The authors recommend that the United States require pharmaceutical manufacturers to provide more evidence about the value of new drugs in relation to cost before use of such drugs is reimbursed.

You are invited to join us on Wednesday, April 11, when Health Affairs will hold a briefing to discuss its April 2013 issue, “Triple Aim Goes Global.”

The April issue examines how all high-income countries are struggling to pursue better health, better care, and lower cost – and to bring all of these goals into alignment. The issue received funding support from The Commonwealth Fund, the Nuffield Trust, and Imperial College London.

The briefing will take place at the Barbara Jordan Conference Center at the Kaiser Family Foundation, 1330 G Street, NW, in Washington, DC, on Thursday, April 11, 2013, 8:00 a.m. – 12:30 p.m.