• Chart of the day: Medicare spending growth slowdown

    From recent analysis by Michael Levine and Melinda Buntin of the CBO:

    Mcare spending growth

    Spending growth has fluctuated over the past several decades, but previous declines were typically associated with significant policy changes (see Figure [in which I’ve added the question mark]). For instance, the drop that began in the early 1980s was caused partly by the anticipation and implementation of the inpatient prospective payment system. The sharp drop in the late 1990s was precipitated in part by the Balanced Budget Act of 1997, which enacted a broad range of changes in payments to providers. But the most recent slowdown in spending, which began in the mid-2000s, cannot be so readily explained by legislated changes in policy. […]

    Annual nominal growth in FFS spending per elderly beneficiary, which on average was very similar to the growth in per-person spending for all Medicare beneficiaries, was 7.1 percent from 2000 to 2005 and 3.8 percent from 2007 to 2010.2 The difference in growth rates between those two periods, 3.2 percentage points (rounded), constitutes the slowdown our study seeks to explain. […]

    To try to identify the causes of that slowdown, we performed a series of descriptive and statistical analyses based on a diverse array of data sources. However, those analyses did not yield an explanation for most of the slowdown in spending growth.

    Fully 75% of the 3.2 percentage point difference between 2000-2005 and 2007-2012 per beneficiary spending growth cannot be explained by payment rate changes, beneficiary demand due to age and health status, Part A only enrollment, prescription drug use, the financial crisis and economic downturn, supplemental coverage.

    Needless to say, this is a big and important mystery.


    • It’s a pretty strange report. They’re saying that spending growth decreased, but that it wasn’t either a decrease in prices or a decrease in utilization. Well, it has to be one or the other, doesn’t it?

    • The authors conclude that most of the slowdown in Medicare spending is attributable to a reduction in hospital admissions, which the authors attribute to a growth in outpatient services including outpatient surgery. In other words, the policy to encourage outpatient services has been a resounding success. That being the case, I’m at a loss to explain the recent efforts to drive physicians back to the hospital and with them the outpatient services that are the very reason for the slowdown in Medicare spending. Go figure.

    • Unfortunately I don’t have time to do more than speculate, but: Perhaps they’re underestimating the depth of the recession (and its attendent affects on patient demand for healthcare services) by using economic indicators (GDP, the U3 unemployment data, etc) that don’t accurately reflect the economic reality that most patients experience. For example, the media-reported unemployment rate (pretty sure this is the BLS’s U3 measurement, but please correct me if I’m wrong) has been gradually improving over the last several years, but much of this has been due to people simply dropping out of the workforce (i.e. they no longer collect UE benefits and/or have stopped looking for a job), which is reflected in the declining Labor Force Participation Rate. Furthermore, I’ve read, but don’t have the data on hand, that much of the job growth we have experienced has been of the low-pay, no-benefit variety. Similarly, we’ve had modest GDP growth for the last few years, and the stock market has returned to pre-recession levels, but I’m skeptical that the general public has seen any of the benefits that this would imply.

      As someone with personal and professional investment in the success of health reform generally and Obamacare in particular, I’m nonetheless skeptical that the current slowdown in spending growth is due to some grand health policy triumph, rather than the fact that life still sucks economically for many many people.


      • It does seem counter-intuitive, and the cardiologists and gastroenterologists I work with report that, since the recession, many of their patients are postponing their periodic visits and diagnostic tests to avoid co-pays and deductibles. But that’s not necessarily inconsistent with the authors’ conclusions, as the authors refer to a study of private insurance in which the study found that a reduction in the comprehensiveness of benefits, which the authors attributed to the recession, explains one-fifth of the slowdown in health care spending growth. I will repeat what is in my first comment: the authors conclude that most of the slowdown in Medicare spending growth is attributable to a reduction in hospital admissions, which the authors attribute to a growth in outpatient services including outpatient surgery. The policy of CMS over the past 20-25 years has been to promote outpatient services, a policy that has been a resounding success as confirmed by the authors. Yet, current policy is to reverse that successful policy and drive the physicians and their outpatient services back to the hospital (it’s called “integration”). This study by Levine and Buntin brings into doubt the merits of the current policy.

        • Thanks, Robert. It does seem counter-intuitive (from a Medicare cost containment perspective) to bring physicians back into the hospitals due to the price differences between HOPD and Phys Office visits in particular. But Medicare is also moving, via the 2014 IPPS/OPPS, towards “location agnostic” payment rates for certain services (starting with evaluation/management, but presumable expanding to other kinds). Another countervailing trend (at least anecdotally) is that hospitals are “going to” the physicians by buying their practices, putting them on salaries (with maybe some FFS add-ons) and converting their facilities to HOPDs. My employer has been using this strategy to some extent, but is aware that the feds are aware, i.e. its one of the issues the OIG identified in their 2013 work plan.

          I think someone on this forum, in a different post from yesterday (?) mentioned that the grand strategy for CMS could be to get physicians back into the hospital and paid on salary, so that hospital managers can use instutional leverage to curb physician-driven (“supply induced”) demand and thereby decrease the costs to the program. Seems plausible to me, especiall in light of the ACO model being pushed these days.


    • My first thought was that we need to know drug costs as well: Part A covers hospital services and Part B covers outpatient services (i.e. physician visits, a lot of rehab). It does appear, though, that Part D costs are also growing slowly (avg of 2.6% annually between 2007 and 2010). The proportion of prescribed drugs that are generics has increased from 63% in 2007 to 73% in 2010.


      I agree we need to address the increased market power of provider consolidation. However, I would also note that Medicare does have the pricing power to hold costs down, and Medicare patients can potentially benefit from care coordination. What will likely happen is that their use of inpatient services will go down and their use of drug and outpatient services will go up, and even if the net savings are zero, it’s still a better outcome.

    • But Medicare patients haven’t been particularly affected by the recession since they are generally also SS recipients. Those people who may be putting off elective and maintenance visits are mostly not MC.

      Physicians are a lot more aware of drug costs than they once were. In my state unless I write DNS on the Rx, the pharmacist will fill with a generic (because they get a higher filling fee for generics). I don’t think that we are quite as aware of test costs, but there has been some increased awareness and some desire to reduce at least the CYA testing component.

    • I understand a dynamic going on in California may effectively counter inpatient/out patient changes. The state system is written to exclude the fees charged by high-priced providers. The insurance covers lower cost providers and all of the higher fees of high priced providers will be covered by the patient. IIRC this has already caused major price reductions. Anyone out there have more information on this?

    • The graph is misleading and confusing because it doesn’t subtract out overall inflation. For example, in 1980 we see Medicare inflation of about 17%, but the CPI in that year went up 13%! Graph needs to be redone to be a lot more clear and non-misleading.

    • Facts aren’t relevant. Americans believed that AFDC was wiping out the budgets, “driving taxpayers to their knees,” even though at its highest (1970s) it used a mere 6% or the federal budget. People insisted that welfare “create a culture of dependency;” before “reform,” some 80% of AFDC recipients voluntarily quit welfare for work by the time their children began school. Whether it’s the luxurious lives of the poor or those stockpiles of WMD, we’re just not that into facts and reality.