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The $500 Billion Medicare Slowdown: A Story About Part D


October 21st, 2014

A great deal of analysis has been published on the causes of the health care spending slowdown system-wide — including in the pages of Health Affairs. Much attention in particular has focused on the remarkable slowdown in Medicare spending over the past few years, and rightfully so: Spending per beneficiary actually shrank (!) by one percent this year (or grew only one percent if one removes the effects of temporary policy changes).

Yet the disproportionate role played by prescription drug spending (or Part D) has seemingly escaped notice. Despite constituting barely more than 10 percent of Medicare spending, our analysis shows that Part D has accounted for over 60 percent of the slowdown in Medicare benefits since 2011 (beyond the sequestration contained in the 2011 Budget Control Act).

Through April of this year, the last time the Congressional Budget Office (CBO) released detailed estimates of Medicare spending, CBO has lowered its projections of total spending on Medicare benefits from 2012 through 2021 by $370 billion, excluding sequestration savings. The $225 billion of that decline accounted for by Part D represents an astounding 24 percent of Part D spending. (By starting in 2011, this analysis excludes the direct impact of various spending reductions in the Affordable Care Act (ACA), although it could still reflect some ACA savings to the extent that the Medicare reforms have controlled costs better than originally anticipated.) Additionally, sequestration is responsible for $75 billion of reduced spending, and increased recoveries of improper payments amount to $85 billion, bringing the total ten-year Medicare savings to $530 billion.

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Resources Don’t Solve Design Flaws


October 21st, 2014

The first three sessions of a conference I recently attended tackled some complex and important questions: How do we extend health insurance to people such as migrant and informal workers who don’t fit neatly into mainstream coverage programs? As we increase our investment in primary care, how do we assure that the performance of the primary care system is at the highest possible level? What types of evidence should we use as we make decisions in a dynamic health care system with limited opportunities for “gold standard” randomized controlled trials?

These are excellent questions, and they were perfect topics for a cutting-edge conference discussing the challenges facing the U.S. health care system.

But this conference was not about the U.S. health care system. These were opening “satellite” sessions at the Third Global Symposium on Health Systems Research held in Cape Town, South Africa.

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Slow Health Care Spending Growth Moderates GDP Growth In The Short Term And Policy Targets Should Reflect This


October 16th, 2014

Economic growth is most often measured by growth in gross domestic product (GDP), which is the value of all final goods and services produced in an economy. Recent revisions to the first quarter 2014 estimates of U.S. GDP growth have raised concerns over the extent to which the Affordable Care Act (ACA) might be impacting economic growth.

The Bureau of Economic Analysis (BEA) first estimated GDP growth for the first quarter of 2014 to be 0.1 percent on an annualized basis. Then a revised second estimate was made, which indicated a decline in GDP of 1.0 percent on an annualized basis. Finally, on June 25 a second and final revised estimate of a 2.9 percent decrease on an annualized basis was released.

While revisions to initial estimates of GDP growth are not uncommon, one aspect of this second revision was, indeed, uncommon. Nearly two-thirds of the second downward revision (1.2 of the 1.9 percent) was attributed to health care spending being substantially lower in the first quarter of 2014 than was originally forecasted by the BEA.

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Reminder: Health Affairs Briefing: Specialty Pharmaceuticals


October 3rd, 2014

We live in an era of specialty pharmaceuticals — drugs typically used to treat chronic, serious or life threatening conditions such as cancer, rheumatoid arthritis, growth hormone deficiency, and multiple sclerosis.  Their cost is often much higher than traditional drugs, and they are set to account for more than half of all drug spending by the end of this decade.

The October 2014 edition of Health Affairs, “Specialty Pharmaceutical Spending and Policy,” contains a cluster of articles examining the host of issues related to specialty pharmaceuticals: from the promise they hold for curing or managing chronic diseases, to the risk they pose for exacerbating health care costs and disparities, and the challenges they present for policymakers striving to balance both.

Please join us on Tuesday, October 7, for a briefing on the October issue moderated by Health Affairs Editor-in-Chief Alan Weil.

WHEN: 
Tuesday, October 7, 2014
9:00 a.m. – 11:30 a.m.

WHERE: 
Hyatt Regency Capitol Hill
400 New Jersey Avenue, NW
Washington, DC, Lower Level

REGISTER NOW!

Follow Live Tweets from the briefing @Health_Affairs, and join in the conversation with #HA_SpecialtyDrugs.

Health Affairs is grateful to CVS Health for its financial support of the issue and event.

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IOM Report Calls For Transformation Of Care For The Seriously Ill


September 24th, 2014

The new Institute of Medicine (IOM) report on care near the end of life in the United States was released last week. I had the privilege of serving on the Committee for the last two years, involved both in the writing of the report itself and in coming to consensus on its recommendations.

The name of the report and the charge to the Committee from the IOM was focused on “end of life.” However, the title, “Dying in America,” is something of a misnomer. The report itself focuses extensively on people with serious and chronic illness with indeterminate prognoses, why the current health care system fails so consistently to meet their needs, and what must change to improve the situation.

Hospice is the gold standard of care quality for those that are predictably dying and clearly at the end of life, and we are fortunate as a nation to have such a strong (mostly home) hospice infrastructure, but that’s not where most of the problems lie. The problems lie in the lack of options for people who are either not hospice-eligible (prognosis uncertain or continuing to want and benefit from disease treatment) or are referred to hospice much too late in their disease course to influence their experience and their families’.

The new report builds on the 1998 IOM report “Approaching Death” and goes well beyond the usual nostrums of calling for reimbursement for advance care planning and decrying all the “waste” in health care spending during the last year of life.

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Health Affairs Briefing: Specialty Pharmaceuticals Spending And Policy


September 23rd, 2014

We live in an era of specialty pharmaceuticals — drugs typically used to treat chronic, serious or life threatening conditions such as cancer, rheumatoid arthritis, growth hormone deficiency, and multiple sclerosis.  Their cost is often much higher than traditional drugs, and they are set to account for more than half of all drug spending by the end of this decade.

The October 2014 edition of Health Affairs, “Specialty Pharmaceutical Spending and Policy,” contains a cluster of articles examining the host of issues related to specialty pharmaceuticals: from the promise they hold for curing or managing chronic diseases, to the risk they pose for exacerbating health care costs and disparities, and the challenges they present for policymakers striving to balance both.

WHEN: 
Tuesday, October 7, 2014
9:00 a.m. – 11:30 a.m.

WHERE: 
Hyatt Regency Capitol Hill
400 New Jersey Avenue, NW
Washington, DC, Lower Level

REGISTER NOW!

Follow Live Tweets from the briefing @Health_Affairs, and join in the conversation with #HA_SpecialtyDrugs.

Health Affairs is grateful to CVS Health for its financial support of the issue and event.

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Relative Value Health Insurance And Pay For Performance For Insurers: Complements, Not Substitutes


September 19th, 2014

Background

The quest for value dominates contemporary health policy.  Value, properly defined, is not about cost-savings but about the balance of costs and health benefits — improving the average cost-effectiveness of health interventions.  In choosing which care is funded, insurers are a crucial but commonly neglected driver of health system value.

Insurers can increase health system value by covering fewer cost-ineffective interventions or covering more cost-effective interventions.  Perhaps the earliest attempt to reform insurance, managed care, attempted to pursue both goals, but by the time it was implemented it widely focused (or was perceived to focus) on cost-containment.

A recent insurance reform proposal, known as Relative Value Health Insurance (RVHI), received considerable attention, for instance, in The Upshot, The Incidental Economist, and Forbes.  RVHI enables insurers to reduce their contractual obligation to cover “usual and customary” care.  This and similar earlier proposals rely on the insurers’ natural incentive to cut costs.  Less well-covered, however, are proposals to alter the very incentives of insurers to improve health, which we will call “pay-for-performance-for-insurers” (P4P4I).

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Reading Piketty In DC: Does Income Inequality Squeeze Health Spending?


September 16th, 2014

In the past year, an element of mystery and suspense has crept quietly into the long-running saga of health care spending growth, in most times a dreary tale of predictability and frustration.

The Congressional Budget Office (CBO)’s August forecast of significant reductions in Medicare spending growth in the next decade will help stoke a running debate about whether the spending slowdown that has outlasted the 2008-2010 recession is merely a delayed effect of the slump or a symptom of structural changes with a life of their own.

The mystery and suspense come from month-to-month uncertainties and inscrutable data about which way the trend lines are bending, and why.

Health Spending and Employment

A useful slant on the puzzle is offered in an August Health Affairs analysis by Dave Dranove and colleagues that examines small area variations in spending growth and correlates them with employment data. Dranove et al. found that relatively higher health spending occurred where employment levels were relatively high, and high unemployment translated into less spending on health. So whether it’s copays, deductibles, insurance contributions, or some other cost associated with obtaining care, personal income is a factor in spending levels, just as health costs are a factor in personal income.

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Examining The Present And Future Of The Health Spending Growth Slowdown


September 3rd, 2014

Each year, Health Affairs publishes national health spending projections for the coming decade by authors at the Centers for Medicare and Medicaid Services Office of the Actuary (OACT). The articles provide important documentation of past trends and insight about future spending, using transparent, vetted assumptions.

In this year’s study, Andrea Sisko and coauthors reveal that the recent slowdown in health care spending growth has continued. Specifically, the authors report that national health care spending in 2013 is predicted to have increased by only 3.6 percent — the fifth consecutive year of spending growth below 4 percent. [Editor's note: Health Affairs also publishes annual retrospective health spending reports from OACT -- the journal expects to publish OACT's final numbers for 2013 spending in December.]

When interpreting the data, it is important to distinguish between the spending growth driven by increased spending per beneficiary and growth driven by increases in the number of beneficiaries. This is particularly relevant for Medicare (which is experiencing an influx in baby boomers) and Medicaid (which is experiencing Affordable Care Act (ACA) driven enrollment growth). Certainly, aggregate spending is an important statistic. The budgetary implications of rapid Medicare spending growth due to growth in the number of beneficiaries are similar to the implication of spending growth driven by growth in spending per beneficiary.

Yet the normative interpretation of spending growth will depend dramatically on the cause. We should celebrate aging baby boomers, increases in longevity and wellbeing. Similarly, higher Medicaid enrollment was the intended outcome of the ACA and, at least in many circles, is considered a good thing (relative to growth in the number of uninsured). Of course, such an increase in enrollment creates pressure on public budgets.

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Projected Slow Growth In 2013 Health Spending Ahead Of Future Increases


September 3rd, 2014

Insurance Coverage, Population Aging, and Economic Growth Are Main Drivers of Projected Future Health Spending Increases

New estimates released today from the Office of the Actuary at the Centers for Medicare and Medicaid Services project a slow 3.6 percent rate of health spending growth for 2013 but also project a 5.6 percent increase in health spending for 2014 and an average 6.0 percent increase for 2015–23. The average rate of projected growth for 2013–23 is 5.7 percent, exceeding the expected average growth in gross domestic product (GDP) by 1.1 percentage points.

Increased insurance coverage via the Affordable Care Act (ACA), projected economic growth, and population aging will be the main contributors of this growth, ultimately leading to an expected 19.3 percent health share of nominal GDP in 2023, up from 17.2 percent in 2012.  This compares to the Office of the Actuary’s 2013  report, published in Health Affairs, predicting an average growth rate of 5.8 percent for 2012–22.

Every year, the Office of the Actuary releases an analysis of how Americans are likely to spend their health care dollars in the coming decade. The new findings appear as a Health Affairs Web First article and will also appear in the journal’s October issue.

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Transcending Obamacare? Analyzing Avik Roy’s ACA Replacement Plan


September 2nd, 2014

Avik Roy’s proposal, “Transcending Obamacare,” is the latest and most thoroughly developed conservative alternative for reforming the American health care system in the wake of the Affordable Care Act. It is a serious proposal, and it deserves to be taken seriously.

Roy’s proposal is a curious combination of conservative nostrums (limiting recoveries for victims of malpractice), progressive goals (eliminating health status underwriting, providing subsidies for low-income Americans), and common sense proposals (enacting a uniform annual deductible for Medicare).

Most importantly, however, Roy proposes that conservatives move on from a single-minded focus on repealing the ACA toward building upon the ACA to accomplish their policy goals. He supports repealing certain features of the ACA—including the individual and employer mandate—but would retain others, such as community rating and exchanges. As polling repeatedly shows that many Americans are not happy with the ACA, but that a strong majority would rather amend than repeal it, and as it is very possible that we will have a Congress next year less supportive of the ACA than the current one, Roy’s proposal is important.

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Key Takeaways From The Medicare Trustees’ Report


August 14th, 2014

Depending on which article you read, either the Medicare Trustees think the program is coming to an end, or the news is great and we don’t need to do anything.

The reality is that the recent Trustees’ report contains both positive and sobering news: while costs have been flat for the last two years and growth is expected to moderate for some years to come, Medicare’s financing is still not in good shape over the long run. Current law benefits exceed financing to pay for them, and the Hospital Insurance Trust Fund will be unable to pay full benefits in 2030.

We cannot assume the problem will resolve itself, and action is needed to ensure the program’s stability.  Moreover, health care remains a substantial portion of the national budget – a whopping 25 percent — and addressing federal fiscal imbalances must include health programs.

Below we provide our key takeaways from this year’s Trustees’ report.

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Health Affairs August Issue: Variations In Health Care


August 4th, 2014

Health AffairsAugust variety issue includes a number of studies demonstrating variations in health and health care, such as differing obstetrical complication rates and disparities in care for diabetes. Other subjects in the issue include the impact of ACA coverage on young adults’ out-of-pocket costs; and how price transparency may help lower health care costs.

For mothers-to-be, huge differences in delivery complication rates among hospitals.

Four million women give birth each year in the United States. While the reported incidence of maternal pregnancy-related mortality is low (14.5 per 100,000 live births), the rate of obstetric complications is nearly 13 percent.

Laurent Glance of the University of Rochester and coauthors analyzed data for 750,000 obstetrical deliveries in 2010 from the Healthcare Cost and Utilization’s Nationwide Inpatient Sample. They found that women delivering vaginally at low-performing hospitals had twice the rate of any major complications (22.55 percent) compared to vaginal deliveries at high-performing hospitals (10.42 percent

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The Medicaid Boom And State Budgets: How Federal Waivers Are Advancing State Flexibility


July 18th, 2014

Note: The authors would like to thank Erica Socker, Senior Research Associate, and Michelle Shaljian, Associate Director of Communications, for their review and editorial assistance.

According to data released by the Department of Health and Human Services, one in five Americans now receive their health insurance through a state Medicaid program. Despite this increase in enrollment, it is estimated that 6 million Americans will likely remain uninsured because 20 states have decided not to expand Medicaid as the Affordable Care Act (ACA) envisioned. There are at least four states that are considering expanding Medicaid but have yet to do so.

Medicaid expansion continues to be one of the most politically charged directives of the health care law, mainly because the Supreme Court decision left the choice to states. This decision has generated an ongoing debate about whether and how states should expand their Medicaid programs. For example, an intense debate has been underway in Virginia, over the decision to include Medicaid expansion in the state budget; putting Democratic Governor Terry McAuliffe at odds with the Republican State Legislature. Similar debates are occurring in states across the country, and are further complicated by states’ option to pursue alternative expansion approaches under a Medicaid waiver. For states that have not yet expanded the program, the success of these alternative expansion models may influence whether they can find a politically feasible path forward.

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Payment And Delivery Reform Case Study: Cancer Care


July 3rd, 2014

Editor’s note: In addition to Darshak Sanghavi, Mark McClellan, and Kavita Patel, this post is also authored by Kate Samuels, project manager at Brookings. It is adapted from a forthcoming full-length case study, the second in a series from the Engelberg Center’s Merkin Initiative on Physician Payment Reform and Clinical Leadership designed to support clinician leadership of health care delivery, payment, and financing reform. The case study will be presented during the Merkin Initiative’s “MEDTalk” event on July 9 from 10:30 AM to 12:30 PM EDT, featuring live story-telling and knowledge-sharing from patients, providers, and policymakers.

Oncology practices and hospitals across the nation struggle with providing sustainable, comprehensive, and coordinated cancer care. Clinical leaders with strategies and models to improve the quality and value of health care often don’t know how to navigate the landscape of payment and delivery reform options to sustain their innovations.

We use a case study approach to investigate and tell the story of the New Mexico Cancer Center (NMCC), an independent cancer center that is experimenting with innovative ways to improve patient-centered oncology care. We identify challenges for creating sustainable and supportive payments models, and we share the broader strategic and policy lessons for adopting alternative payment models.

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Behind The Numbers: Slight Rise In Health Care Spending Growth Projected


June 24th, 2014

PwC’s Health Research Institute (HRI) released its ninth annual Medical Cost Trend: Behind the Numbers report today. This forward-looking report is based on interviews with industry executives, health policy experts, and health plan actuaries whose companies cover a combined 93 million members. Findings from PwC’s Health and Well-being Touchstone Survey of 1,200 employers from 35 industries are also included.

HRI projects that after a five-year contraction in spending growth in the employer-sponsored market, the growth rate will rise to 6.8 percent in 2015, up from the 6.5 percent projected last year.

What are the biggest drivers of the growth in health care costs? We identify four cost inflators in this report, and I would like to highlight two. First, the economy. More than five years after the end of the Great Recession, the improved economy is finally translating into greater medical spending. Consumers are now addressing health issues they ignored or postponed previously.

Secondly, the high cost of specialty drugs. While only four percent of patients use specialty drugs, those medications account for 25 percent of total U.S. drug spending. And estimates are that U.S. specialty drug spending will quadruple by 2020

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Implementing Health Reform: Premiums And Choice In The 2014 Health Insurance Marketplace (Updated)


June 18th, 2014

In the fall of 2013 the headlines were full of stories of individuals facing steep premium increases as the Affordable Care Act’s market reforms went into effect. The question was raised repeatedly whether Affordable Care Act premiums were really affordable. Commentators observed that major national commercial insurers were avoiding the exchanges and that in some states the ACA marketplace offered few choices and little competition.

On June 17, 2014, the Health and Human Services Assistant Secretary for Planning and Evaluation (ASPE) released a report surveying Premium Affordability, Competition, and Choice in the Health Insurance Marketplace, 2014. ASPE examined over 19,000 2014 marketplace plans within the four bronze, silver, gold, and platinum metal levels in each of the 501 geographic rating areas in the 50 states and the District of Columbia; the office analyzed premium levels, available choices, and market variables that might affect cost. It is always possible to find negative anecdotes (particularly if one is not too careful in checking their veracity), but when we look beyond anecdotes at the actual data, it is clear that the ACA was largely successful in achieving many of its goals for 2014.

One of the primary goals of the ACA is to make health insurance affordable to lower-income Americans. During the 2014 open enrollment period, 5.4 million individuals selected a plan in the 36 states served by the federal exchange (which are the states primarily covered by the report since state exchange data is still being assembled and analyzed). According to the report, 87 percent of these individuals qualified for a premium tax credit. They paid a premium that was, on average, 76 percent less than the full premium that they would have owed before the premium tax credit was applied.

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Treated Prevalence Versus Spending Per Case: Responding To Starr And Coauthors


June 17th, 2014

I was surprised but pleased to see the Martha Starr, Laura Dominiak, and Ana Aizcorbe article in the May issue of Health Affairs replicating earlier work of Charles Roehrig and David Rousseau. These papers attempt to understand the role that treated disease prevalence and spending per case treated assume in accounting for the growth in average per capita healthcare spending. (Treated disease prevalence can increase when either a disease becomes more common or is diagnosed more frequently.) Starr and coauthors, like Roehrig and Rousseau, conclude that spending per case treated accounts for more of the growth in per capita spending than treated prevalence.

In our own work, my colleagues and I have addressed a different question. Our line of research focuses on changes in total health care spending – as opposed to per capita spending — over time. We have updated this work now through 2011 and our major conclusion remains the same; the rise in treated disease prevalence accounts for a slightly larger share of the growth in total healthcare spending than spending per case treated.

The three research teams employ different methods and use different spending measures. (In an earlier appendix, we described in detail the differences between our approach and that of Roehrig and Rousseau.) For example, our expenditures include home health and dental services, which are excluded in the paper by Starr and colleagues.

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The Payment Reform Landscape: Capitation With Quality


June 6th, 2014

When I began this blog series in February, I explained how Catalyst for Payment Reform (CPR) views different payment reform models along a continuum of financial risk. Thus far, we have used this series to explore the evidence behind “upside only” models that give providers the chance for a financial upside, but no added financial risk, or downside. We’ve looked at the evidence behind pay-for-performance and per-member per-month payments to support patient-centered medical homes. This month, we move across the risk spectrum to examine a model that offers both upside and downside financial risk for providers—capitation.

What is Capitation? Is It Widespread?

Capitation is nothing new when it comes to paying for health care. It had its heyday in the HMO era of the 1990 s, but something was seriously lacking in the capitation arrangements of the past that led to a strong backlash from consumers. Consumers feared their health plans were more interested in saving money than providing them with the quality care they needed; in a Kaiser Family Foundation Survey at the time, most reported they or someone they knew had a problem with their plan. Some of these fears proved to be warranted. Fortunately, since the 90s, payers and providers have worked to put quality safeguards in place.

When tracking value-oriented payment, CPR only examines capitation arrangements with a quality measurement and incentive component — what we call “capitation with quality.” CPR defines capitation with quality as “a fixed dollar payment to providers for the care that patients may receive in a given time period, such as a month or year, with payment adjustments based on measured performance and patient risk.”

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The Cost Of A Cure: Medicare’s Role In Treating Hepatitis C


June 5th, 2014

Editor’s note: In addition to Tricia Neuman, Jack Hoadley and Juliette Cubanski also coauthored this post.

For a patient with hepatitis C, a potentially deadly disease, the prospect of finding a cure with minimal side effects is a really big deal. Also a big deal is the cost of Sovaldi (sofosbuvir), an oral drug approved by the Food and Drug Administration in December 2013 for the treatment of chronic hepatitis C. Sovaldi has been priced by its manufacturer, Gilead, at $1,000 per pill, or an estimated $84,000 for its entire 12-week regimen. It joins the treatment arsenal with several older drugs generally thought either to be less effective or to have more side effects, and another newly approved drug to be taken in combination with other drugs. More drugs are expected to gain approval within the year.

Sovaldi’s price tag has drawn attention in part because an estimated 3 million Americans have the hepatitis C virus and could be considered candidates for new drugs. Patients will clearly benefit from a long-awaited cure, and public and private payers could potentially see a reduction in health care spending over the long term if Sovaldi successfully cures this disease and fewer patients require high-cost liver transplants. But private insurers and public programs will face significant budgetary pressures if a large number of patients receive this treatment at current prices.

To date, attention has focused on cost implications for private health plans, Medicaid, and the Department of Veterans Affairs (VA). For example, UnitedHealth reported that the cost of Sovaldi was “multiple times” its expectations. State Medicaid officials and Medicaid plans have warned that the cost of the new treatments will pose significant fiscal challenges to state budgets and plan payment rates, even though Medicaid receives a 23.1 percent rebate (discount) for all brand drug purchases. The VA has decided to cover the drug and secured from Gilead a discount of 44 percent, one that applies to certain other federal purchasers, but is targeting treatment to the sickest patients while waiting for less expensive drugs to become available.

Less attention has been paid to the cost implications for Medicare, where coverage of Sovaldi will fall under Part D, the program’s outpatient prescription drug benefit administered by private plans. Given the drug’s effectiveness, most if not all of Part D plans will likely cover Sovaldi. The anticipated impact on costs to Medicare will be revealed to CMS later this month, when plans submit premium bids for 2015. Plans will increase their bids to cover the expected costs of new treatments, which will raise costs for both the federal government and Part D enrollees who pay premiums. CMS will release the average Part D premium for 2015 in August.

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