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MedPAC Mulls Meaning of Rapid Rise in Health Spending

By John Reichard, CQ HealthBeat Editor

October 6, 2008 -- Wrestling with what to say that might help Congress address fast-growing health care outlays, the Medicare Payment Advisory Commission (MedPAC) took a look last week at some of the factors driving that growth: construction outlays growing at a faster clip than in other sectors of the economy; more rapid wage growth; and bigger gains in employment, for example.

But after poring over charts and statistics on the issue at a meeting last Friday, commissioners were stumped: Are these factors a good thing or a bad thing? To what extent are they worth mentioning? And if they are worth highlighting, how should they be addressed?

A panel on the issue noted that the commission has already gone over the familiar ground of health care gobbling up an ever larger share of Gross Domestic Product. This time, the idea was to look at some of the aspects of that growth, and whether it is sewing the seeds for additional future spending growth at a time when many policy makers are focusing on the need to trim the increase in the nation's health care tab.

A presentation by staffers Zachary Gaumer and David Glass went over the numbers. "Health care sector spending increased at twice the rate of all other sectors combined," they noted in a set of briefing papers. "Health care sector construction spending grew faster than the rest of the economy." And "health care sector employment grew faster than non-health care sectors."

Between 1999 and 2008, health sector spending grew 50 percent, while that of other sectors grew about 20 percent, they noted. Construction spending in the health sector grew a little over 50 percent while construction spending in the rest of the economy rose less than 20 percent. Employment grew 25 percent in health care, but only 5 percent elsewhere. Employment growth was greatest for imaging centers and the home health sector, in each case rising about 50 percent compared with the 25 percent growth for health care generally and the 5 percent growth in other sectors.

The staffers also noted U.S. Department of Labor projections that health care occupations will grow twice as fast as all other occupations by 2016: 27 percent in the case of health care support staff and 20 percent in the case of health care practitioners, compared with 10 percent for all occupations in the economy.

From 2003 to 2007, wages at hospitals and nursing facilities increased faster for non-clinical occupations than in the U.S. labor market overall.

The staffers posed the questions whether these growth rates are sustainable over time and what added value is the nation getting for these growing outlays for labor and capital.
The general tenor of the debate over rising outlays is that they are a bad thing but commissioners were leery about reaching such conclusions based on the data presented.

Commissioner Nancy Kane sought to add "balance" to such statistics in an upcoming report by MedPAC to Congress. "What are the projections of demand for hospital and nursing home care," she wondered.

Mitra Behroozi suggested that higher wage growth might be in the service of worthwhile investments in health care. As the sector tries to reap the rewards of adopting health information technology, it might have to pay more to draw experts in that field from other parts of the economy, she noted.

Vice Chairman Robert Reischauer described the data as "very interesting facts and figures" but said, "it tells us absolutely nothing about whether this is good or bad, whether it's too much or too little, whether it's growing too fast or about the right amount, or whether it's sustainable or unsustainable. I could have taken the agriculture sector and flipped the diagrams over ... because employment, capital costs have been going down and you wouldn't say 'Oh god, we must be starving at this point.'"

Reischauer added that he was worried about how the statistics were presented to Congress and the public and whether the data might distract from a more careful focus on underlying health care policies that need changing.

"Economies change all the time. Some sectors grow, others shrink," he said. "It has to do with the demand of individuals and the policies of government and we want to focus on those and why we believe those are distorted and this [the statistics] is really the result of that. You have to make that very clear," he said.

Peter W. Butler warned against concluding from the construction figures that lots of additional inpatient beds are being added to the system that will not be used and will needlessly drive up costs. Much of hospital capacity is shifting to outpatient services, he said. Much of current construction is "really almost reconfiguring the institutions to do something totally different from what they used to be doing."

But Arnold Milstein said it would be a big mistake not to highlight the issue of rising spending on capital and labor. "As tough as this area is going to be to navigate, it's worth navigating," he said.

Commissioners agreed, however, that one thing they could usefully do in talking about the issue is focus on aspects of health care spending that are wasteful and focus on their elimination. "The greatest contribution we can make is helping to devise systems which change the structure of our current delivery system in ways that it produces the same or better outputs for a third less inputs," Reischauer said.

MedPAC Executive Mark Miller sought to focus the commissioners on the need to better understand the value of spending on health care construction and whether it is going to meet objectives prized by policy analysts. "Thirty billion was spent last year on construction—how much of that went to mental health, how much of that went to manage diabetes, how much of that went for IT?" he asked. Answers to those kinds of questions need to be widely known to better shape policy, he suggested.

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