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Health care spending shows slowing trend

Behavior changes and recession key as costs taper off

Philip Scott Andrews

Ads in Washington by CareNotCuts.org, which is lobbying Congress against cutting Medicare and Medicaid. Evidence suggests changing behavior of health care providers and consumers partially accounts for slowing of the health spending growth rate.

WASHINGTON - The growth of health spending has slowed substantially in the last few years, surprising experts and offering some fuel for optimism about the federal government’s long-term fiscal performance.

Much of the slowdown is because of the recession, and thus not unexpected, health experts say. But some of it seems to be due to changing behavior by consumers and providers of health care - meaning that the lower rates of growth might persist even as the economy picks up.

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Because Medicare and Medicaid represent two of the largest contributors to the country’s long-term debts, slower growth in health costs could reduce the pressure for enormous spending cuts or tax increases.

In 2009 and 2010, total nationwide health care spending grew at less than 4 percent per year, the slowest annual pace in more than five decades, according to the latest numbers from the Centers for Medicaid and Medicare Services. After years of taking up a growing share of economic activity, health spending held steady in 2010, at 17.9 percent of the gross domestic product.

The growth rate mostly slowed as millions of Americans lost insurance coverage along with their jobs. Worried about job security, others may have feared taking time off work for doctor’s visits or surgical procedures, and or skipped nonurgent care when money was tight.

Still, the slowdown was sharper than health economists expected, and a broad, bipartisan range of academics, hospital administrators, and policy experts have started to wonder if what had seemed impossible might be happening - if doctors and patients have begun to change their behavior in ways that bend the so-called cost curve.

If so, it was happening just as the new health care law was coming into force, and before the Supreme Court could weigh in on it or the voters could pronounce their own verdict at the polls.

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“The tectonic plates might be beginning to shift,’’ said Karen Davis, the president of the Commonwealth Fund, a nonprofit research group in New York. “It’s hard to believe everything that’s been tried over the last decade to slow spending wouldn’t be making a difference.’’

Experts were surprised, for instance, at a drop in spending on some hospitalized seniors - people enrolled in Medicare, whose coverage the recession should not affect. They also noted that some of the states where health care spending slowed most rapidly were states that were not hit particularly badly by the recession, suggesting that other factors were at play.

“The recession just doesn’t account for the numbers we’re seeing,’’ said David Cutler, a Harvard health economist and former adviser to President Obama. “I think there’s much more going on.’’

The implications of a bend in the cost curve would be enormous. Policymakers on both sides of the aisle see rising health care costs as the central threat to household budgets and the country’s fiscal health. If the growth in Medicare were to come down to a rate of only 1 percentage point a year faster than the economy’s growth, the projected long-term deficit would fall by more than one third.

The growth of health costs slowed in the 1990s as health maintenance organizations became more popular. That played a role in both gains in household income - less money on employer-provided health benefits means more money for raises - and in budget surpluses, economists argue.

Some experts caution that there remains too little data to determine whether the current slowdown will become permanent, or whether it is merely a blip caused by the economy’s weakness.

“If there’s something else going on, we don’t know what it is yet,’’ said Gail Wilensky, a health economist who headed Medicare and Medicaid during the administration of President George H.W. Bush. “The most honest thing to say is that, one, the reduction in use is greater than the recession predicts; two, we don’t understand why yet; and three, you’d be foolhardy to say that we can understand it.’’

Many experts - and the Medicare and Medicaid center itself - point to the explosion of high-deductible plans, where consumers have lower premiums but pay more out of pocket, as one main factor. The share of employees enrolled in high-deductible plans surged to 13 percent in 2011 from 3 percent in 2006, according to Mercer Consulting.

That leaves thousands of consumers with an incentive to think twice about heading to the doctor. One study by the RAND Corp. found that health spending among people who shifted into a high-deductible plan dropped 14 percent - though the study also found that enrollees cut back on some care that tended to save money in the long run, like vaccinations.

A second factor is a dearth of expensive, novel drugs coming onto the market, experts said, as well as growing pressure to use generics. “There just aren’t as many blockbusters,’’ said Cutler, the Harvard economist.

Finally, and most important, health economists point to a shift toward accountable care, in which providers are paid for the quality of care, not the quantity.

There are about 164 “accountable organizations’’ in the United States, according to research by Leavitt Partners. Hundreds of other insurers and health systems have implemented some of the features of accountable care, like assigning specially trained nurse practitioners to patients with multiple chronic conditions to make sure they take their medications and to prevent hospitalizations.

Many health care experts said they believed that the shift toward publicizing medical error rates and encouraging accountable care seemed to be paying dividends - and that providers were making changes in anticipation of the health care overhaul, which further emphasize accountable care.

“In Massachusetts, we had a lot of political pressure to understand the growth in costs as unsustainable,’’ said Sandra Fenwick, the chief operating officer of Children’s Hospital Boston, which has implemented more than 100 reforms, saving millions of dollars, in the past four years. “We had to figure out how we were going to be part of the solution, not part of the problem.’’

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