AAmericans are worried about inflation. The prices of housing, clothes and food in supermarkets are impressive and threaten the re-election of President Biden. But there is one completely unexpected exception to inflation lately: health care.
For decades, growth in U.S. health care costs outpaced general inflation—until relatively recently. Excluding 2020 and the Covid spending spike, health care spending has remained at or below 18% of GDP since the Affordable Care Act went into effect in 2010. This is the longest period of growth without spending since at least 1965 d. and the acceptance of Medicare and Medicaid. These overall numbers were bolstered by reports that Medicare spending per person has been flat for more than a decade and recent data showing that premiums for employer-sponsored private insurance have increased by 3.7% over the past decade, which is much slower than the 8.4% between 1999 and 2011.
The experts seem confused. The Congressional Budget Office recently admitted that their 2010 projections significantly overstated spending between 2010 and 2020, with Medicare and Medicaid spending in 2019 a whopping 17% lower than expected. CBO admitted that they did not foresee and could not explain the lower costs. Similarly, the New York Times claims that “no one knows why” per capita Medicare spending has not increased in 14 years.
All this spending control also seems hard to reconcile with the CBO’s finding that the Center for Medicare and Medicaid Innovation (CMMI), an agency created by the ACA to test various programs to reduce Medicare costs, actually increased government spending by over 5 billion dollars. Or that we went through a once-in-a-century pandemic that affected millions while 10,000 baby boomers signed up for Medicare every day as they got older and sicker.
But this is not really an inexplicable paradox. I got a call a few months ago that I think helps explain a key part of why health care spending growth has been so much lower than projected.
The Department of Orthopedics at the University of Pennsylvania approached me about using what I know about behavioral economics to get 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 head of orthopedics – a man who pioneered hand transplants – was interested in cost savings.
When the ACA passed more than a decade ago, few orthopedists — indeed, few doctors — cared about overall health care costs, much less taking the initiative and responsibility for reducing them. During the ACA debate, the American Medical Association’s lobbying focused on getting doctors higher payments by eliminating the rate of sustainable growth that each year threatened massive cuts in physician pay.
Cost control is on every orthopedist’s mind today, and he’s not the only one. The attitude of American doctors and other clinicians has changed from ignoring the costs to trying to reduce them. Instead of inventing more expensive medical tests and treatments, doctors now ask whether a test or treatment will improve a patient’s health and how a service can be delivered more effectively by changing where and how it is administered.
The catalyst for this shift in attitude is payment, driven by the evolving shift from fee-for-service to value-based payment (VBP), from paying doctors to do more tests and treatments to paying to improve health and prevent costly flare-ups. diseases. In fact, CMMI was responsible for shifting Medicare from essentially non-value-based payments — in which providers are held accountable for the quality and total cost of care — in 2012 to more than 30% of payments by 2016. It was the largest change in Medicare payments in history and was a catalyst for change in the broader health care system.
However, the shift to value-based payment has been much slower than many of us hoped and predicted. Today, 60% of physician payments remain fee-for-service.
However, value-based payment is more influential than this number suggests. One reason is the contagion or spillover effect. Several years ago, Medicare initiated a demonstration project for bundled payments for hip and knee replacements. Bundled payments are a one-time payment that covers all costs associated with the procedure — hospital costs, including operative, recovery and hospital room costs; artificial joint and blood transfusion; surgeon and anesthetist fees; post-procedure physical therapy and doctor visits; and complications for 90 days after surgery. By keeping costs below the bundled payment amount, the hospital and doctors could keep the savings.
Suddenly financially incentivized to think about cost reduction, surgeons were more willing to negotiate lower costs for artificial knee and hip implants, move surgery out of the hospital to cheaper ambulatory surgery centers, move physical therapy out of expensive rehabilitation facilities in the patient’s home and focus more on reducing costly complications such as surgical site infections. And there were no negative effects. Orthopedists didn’t start operating on more patients to make more money or take only healthy, low-risk patients to cut costs and make more money.
Overall, there were savings in the first year, but they were not quite statistically significant: about 2%. More importantly, it found that orthopedic surgeons did not change their practices to reduce costs for Medicare-only patients in the bundled payment program. They also changed for other patients for whom they did not receive financial incentives to save money. Saving money in the bundled payment program was also strongly associated with saving hospitals money for other joint replacement patients outside of the bundled payment program. Indeed, the program appears to have caused a change in the standard operating procedures for medical management of hospitals and surgeons, regardless of how they are paid. Their new medical “habits or standard practices” spilled. (Importantly, CBO and other evaluations of this bundled payment program have used blinkers in their savings calculations. They recognize spillover effects but fail to include them in the savings calculation because they are only interested in patient savings (in the specific Medicare program rather than overall health savings. This inevitably leads to an underestimation of the financial and behavioral impact of the VBP program.)
Similarly, a decade ago, a government program called MSSP ACOs—the Medicare Shared Savings Program for Accountable Care Organizations—incentivized doctors to manage their patients, especially their sickest patients, to prevent exacerbations that send them to the emergency room and in hospital beds. Groups of doctors in this program began to get data about how they practice medicine, who their sickest patients are, and began to change the way they care for patients.
Better patient management often results in fewer emergency room visits and hospital admissions. Over the past six years, the program has saved money. In fact, in 2022, 482 ACOs caring for nearly 11 million Medicare patients have saved $1.8 billion. This constitutes just under 3% of the total health care costs for all these patients. Amazingly, the top performers were able to save 10% of costs or more. In addition, the MSSP was financially beneficial to physicians. Nearly two-thirds of ACOs have earned bonus payments for their cost reductions. And it found that ACOs comprised of more than 75% primary care physicians saved “more than twice as much” as the average — likely because they better managed patients with more chronic conditions.
As my orthopedist colleague demonstrated, it took time to change physicians’ attitudes about costs and the way they care for patients. But it is happening and accelerating. Now we need to quickly expand these Medicare MSSP ACOS and bundled payments for surgery so that they are not 40% but become 60% or 70% of the total payment over the next three or four years. We also need to get more practices paid through VBP. This may require the mandatory participation of all practices. Equally important, VBP cannot be a Medicare-only initiative. VBP should be extended across all insurers. Finally, the VBP programs of United, Aetna, Humana, and other insurers should also work cooperatively with Medicare—use the same program design and incentive mechanisms—so that physician and hospital incentives are aligned and don’t drive providers crazy. health services with minor but time-consuming and wasteful variations.
Perhaps if these changes are made, we could see health care costs – with the exception of drugs, the costs of which I expect to increase – remain flat over the next decade. This would be nothing more than a miracle, which the experts would again struggle to explain.
Ezekiel J. Emanuel is an oncologist, vice chancellor for global initiatives, co-director of the Institute for Health Care Transformation at the University of Pennsylvania, and author of several books, most recently Which Country Has the Best Health Care in the World? (Public Policy Books questions, 2020).