All Americans are worried about inflation. The prices of housing, clothing and food at supermarkets are shocking and threatening President Biden’s re-election. But there is one completely unexpected exception to recent inflation: health care.
For decades, growth in health care spending in the US has outpaced overall inflation until relatively recently. With the exception of 2020 and the COVID cost surge, health care costs have remained at or below 18% of GDP since the enactment of the Affordable Care Act in 2010. This is the longest period of cost-free growth since at least 1965. and enactment of Medicare and Medicaid. These overall figures are bolstered by reports that per capita Medicare spending has remained stable for more than a decade, and recent data shows that premiums for private employer-sponsored insurance have increased at a rate of 3.7% over the past decade. Growing very slowly, 8.4% between 1999 and 2011.
Experts appear to be stunned. Recently the Congressional Budget Office acknowledged that their 2010 predictions significantly overestimated spending between 2010 and 2020, with Medicare and Medicaid spending in 2019 an incredible 17% lower than projected. The CBO admitted that they did not have estimates and could not account for the underspending. Similarly, The New York Times claimed that no one knows why Medicare spending per capita has not increased in 14 years.
CBO found it difficult to even reconcile all this cost control with the Centers for Medicare and Medicaid Innovation (CMMI), an agency created by the ACA to try out various programs to reduce Medicare costs, Which has actually increased government spending by more than $5 billion. Or that we lived through a once-in-a-century pandemic that affected millions of people, while 10,000 baby boomers were enrolling in Medicare every day because they were aging and sick.
But this is not really an inexplicable paradox. A few months ago, I got a call that I think helps explain an important part of why health care cost growth has been so much lower than anticipated.
The chair of orthopedics at the University of Pennsylvania approached me about using my knowledge of behavioral economics to motivate surgeons to reduce the cost of hip and knee replacements and other surgical procedures. His goal was to reduce surgical costs by 10%. I was surprised that a chairman of the department of orthopedics, who had pioneered hand transplants, was interested in cost savings.
When the ACA passed more than a decade ago, few orthopedists, few physicians, were actually interested in overall health care costs, let alone taking initiative and responsibility for reducing them. During the ACA debate, American Medical Association lobbying focused on achieving higher physician payments by eliminating the perpetual growth rate, which threatened massive physician pay cuts each year.
Today, controlling costs is on every orthodontist’s mind, and they are not alone. The mindset of American physicians and other physicians has changed, from ignoring costs to trying to cut them. Instead of locating more expensive medical tests and treatments, doctors are now asking whether a test or treatment will improve a patient’s health and how to do so more efficiently by shifting where and how a service is administered. May go.
The catalyst for this change in attitude is driven by the growing shift from fee-for-service toward value-based payment (VBP), which involves paying physicians to perform more tests and treatments to improve health and prevent costly disease. Involves paying to stop. , In fact, CMMI was responsible for moving Medicare from essentially no value-based payments, in which providers are responsible for the quality and total cost of care, in 2012 to more than 30% of payments by 2016. This was the largest change in Medicare payments in history. and was a catalyst for change in the broader health care system.
However, the value-based payments transition has been much slower than many of us hoped and predicted. Today, 60% of physicians are paid as fee-for-service.
Still, value-based payments have been more influential than this number suggests. One reason for this is the effect of contagious infection or spread. Several years ago, Medicare began a demonstration project of bundled payments for hip and knee replacements. Bundled payment is a single payment that covers all the costs associated with a hospital procedure, including the operation, recovery, and hospital room; artificial joints, and blood transfusion; surgeon and anesthesiologist fees; physical therapy and doctor visits after the procedure; and complications up to 90 days after surgery. By keeping costs below the bundled payment amount, hospitals and doctors can keep savings.
Suddenly financially incentivized to think about reducing costs, surgeons were more willing to negotiate lower costs for artificial knee and hip replacements, moving surgeries out of hospitals and into lower-cost ambulatory surgical centers. Relocating was to move physical therapy out of expensive rehabilitation facilities and into patients’ homes. , and focus more on reducing costly complications such as surgical site infections. And there were no negative effects. Orthopedics did not start operating on more patients to make more money or only took on healthy low-risk patients to lower costs and make more money.
Overall, in the first year, there were savings, but they were not very statistically significant: about 2%. More importantly, orthopedic surgeons did not change their practices simply to reduce costs for Medicare patients in the bundled payment program. He also made changes for other patients for whom he was not receiving financial incentives to save money. Saving money in the bundled payment program was also associated with hospitals saving money for other joint replacement patients outside the bundled payment program. In fact, it appears that the program prompted changes in the standard operating procedures for hospitals and surgeons for medical management, regardless of how they were being paid. their new medical habits or standard practices spilled over, (Importantly, CBO and other evaluations of this bundled payment program used blinkers in calculating savings. They acknowledged spill-over effects but failed to include them in calculating savings because they only looked at specific patients. were interested in savings to the Medicare program, not overall health savings. This essentially underestimates the financial and behavioral impact of the VBP program.)
Similarly, a decade ago a government program called the Medicare Shared Savings Program for MSSP ACOs accountable care organizations encouraged physicians to manage their own patients, especially their sickest patients, by saving them from emergency rooms and hospitals. Can be sent to the beds. Physician groups in this program began to get data on how they practiced medicine, who their sickest patients were, and it began to change the way they cared for patients.
Better management of patients often reduces the number of emergency room visits and hospitalizations. The program has saved money over the past six years. In fact, in 2022, 482 ACOs caring for nearly 11 million Medicare patients could save $1.8 billion. This was only less than 3% of the total health care costs for all these patients. Surprisingly, the best performers were able to save 10% or more in costs. And, the MSSP was also economically beneficial for physicians. About two-thirds of ACOs earned bonus payments for their cost reductions. And it turned out that ACOs that included more than 75% of primary care physicians saved more than double the average, perhaps because they better managed patients with more chronic diseases.
As my orthopedist colleagues demonstrate, it has taken time to change physicians’ attitudes regarding cost and how they care for patients. But it is happening and accelerating. We now need to rapidly expand these Medicare MSSP ACOs and bundled payments for surgery, so that they become not 40% but 60% or 70% of total payments over the next three or four years. We also need to get more payments through VBP. This may require making participation in all practices mandatory. Equally importantly, VBP cannot be a Medicare-only initiative. VBP needs to be extended to all insurers. Finally, the VBP programs of United, Aetna, Humana and other insurers need to work together and use similar program designs and incentive arrangements with Medicare so that physician and hospital incentives are aligned and health care providers are compensated for small but timely benefits. Don’t go crazy with over-consumption and wasteful diversions.
Maybe if these changes are made we could see health care costs except for drugs, the costs of which I expect, increase steadily for the next decade. This will be no less than a miracle, which experts will once again have difficulty in explaining.
Ezekiel J. Emanuel is an oncologist, vice provost for global initiatives, co-director of the Health Care Transformation Institute at the University of Pennsylvania, and author of several books, most recently Which Country Has the Best Health Care in the World? (Public Affairs Books, 2020).
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