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Health Spending Slowdown May Last Beyond Economic Rebound, More Analysts Say

By John Reichard, CQ HealthBeat Editor

May 7, 2013 -- The current health spending slowdown may persist after the U.S. economy rebounds, with a potentially dramatic impact on deficit reduction efforts, three leading policy analysts concluded in separate studies released this week.

A host of fundamental changes in the health care system, such as slower-paced innovation in the pharmaceutical and medical imaging spheres, increased cost-sharing by patients, and greater provider efficiency account for most of the recent slowdown—not the recession—said the author of one of the studies, David Cutler. The Harvard University economist spoke at a Washington, D.C., forum sponsored by Health Affairs, which featured his study in its May issue.

The 2007–09 recession, a one-time event, accounted for 37 percent of the slowdown between 2003 and 2012," Cutler and coauthor Nikhil Sahni wrote in study. Sahni is a senior researcher in the economics department at Harvard.

"The evidence thus suggests at least as strong a case for structural changes as for cyclical factors" relating to the economy, they said.
One of the structural changes relates to a growth in high deductible health plans. "These deductibles are now greater than most families have in the bank," Cutler told the forum. "I say this is unrelated to the recession because nobody that I know of when they are making a forecast about the future thinks that if economic growth returns very rapidly, cost sharing is going to come down," he added.

"If these trends continue during 2013–22, public sector health care spending will be as much as $770 billion less than predicted," the authors said in the study. "Such lower levels of spending would have an enormous impact on the U.S. economy and household finances."

In 2021, they would wipe out 20 percent of the expected budget deficit in the year 2021, "the equivalent of doing a massive deficit reduction effort," Cutler said.

The findings were released on the same day the Congressional Budget Office estimated that deficit spending is $231 billion lower so far in fiscal 2013 than in the same period in fiscal 2012.

While more analysts seem to think the slowdown doesn't just stem from people having less money to spend because of joblessness or shrinking incomes, some warn that the current wave of optimism may be overblown.

Speculation that the nation's health spending problem has somehow been solved or cut down to size is unrealistic, said a Kaiser Family Foundation study released April 22, which concluded that 77 percent of the slowdown stems from the weak economy.

It would be a mistake to think deficit reduction is fading as a political issue even if some recent trends and studies are creating some cautious optimism.

But the idea that the spending slowdown isn't going away soon got backing in two other studies released this week.

Chernew Weighs In

Harvard health policy professor Michael Chernew, vice chairman of the Medicare Payment Advisory Commission, said in a study conducted with other Harvard researchers that from 2009 to 2011, per capita national health spending grew about 3 percent a year compared to an average of 5.9 percent annual growth during the previous ten years.

Their study examined two factors that might account for the slowdown: job loss and benefit changes that shifted more costs to insured people. "We conclude that such benefit changes accounted for about one-fifth of the observed decrease in the rate of growth," they said.

The researchers tried to find a group that was not as affected by the recession in their study. So they looked at spending patterns among workers who did not lose their health coverage. They found that "spending growth slowed even for this population," Chernew told the forum.

So the slowdown had to involve factors other than the direct effects of job loss, he said. That suggests "other factors, such as a reduction in the rate of introduction of new technology," were also at work.

"Our findings suggest cautious optimism that the slowdown in the growth of health spending may persist—a change that, if borne out, could have a major impact on U.S. health spending projections and fiscal challenges facing the country," the study said.

Chernew said "I share David's [Cutler] sense of good news. This is a really big deal." But simply because spending growth is slow does not mean policymakers should stop efforts to make spending more efficient, he warned.

"There's more going on than just the recession," added John Holohan of the Urban Institute, who led a third study.

In reviewing health spending growth over the last decade, Holohan and fellow Urban analyst Stacey McMorrow found that that growth began to slow well before the most recent recession.

Medicare spending growth began to slow in 2004, he said. "A variety of payment policies for imaging, home health, durable medical equipment and Medicare Advantage have contributed to slower Medicare spending growth," according to the Institute's study.

"State Medicaid programs have also tightened payment policies, expanded managed care, and increased community-based long-term care alternatives under intense budgetary pressures. Moreover, slower growth in prescription drug spending has affected all payers due to the development of fewer blockbuster drugs, the adoption of tiered formularies, and increased substitution of generics for brand-name drugs," the study added.

The analysts at the Urban Institute were more skeptical that changes such as medical homes and accountable care organizations are driving the slowdown. Their study instead pointed to trends over the past decade such as "declines in real incomes and a shift towards less generous insurance arrangements," that have "slowed the growth in provider revenues and forced cost-containment efforts. Some of the more recent payment and delivery system reforms may help to sustain this slow growth, but this remains to be seen."

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