Cooler health care inflation may stick around

5:37 PM, Dec 25, 2013   |    comments
(Photo: Todd Plitt, USA TODAY)
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USA TODAY - Health care inflation has reached a 50-year low - and with even more fundamental forces than Obamacare at work, the slowdown is likely to persist for several years.

Some reasons are familiar, like the slowdown in prescription drug spending following expiration of patents on blockbuster drugs, exposing brand-name medicines such as cholesterol remedy Lipitor to generic competition.

Medical device prices are also rising more slowly than inflation, as Advanced Medical Device Association senior executive vice president David Nexon says stiff competition and cost-cutting by hospitals is taking away manufacturers' pricing power. And consumers appear to be buying care more carefully because of insurance changes that boost co-payments and deductibles, according to researchers at Harvard and the Kaiser Family Foundation.

Most of all, hospital cost gains are slowing down. Reasons include ACA-related changes in Medicare policies cutting reimbursements by $17 billion, according to a Nov. 20 report from the White House. Over time, hospital cost growth is likely to be held down by a shift toward outpatient care and a drive by hospitals to better coordinate care, said Caroline Steinberg, vice president of trend analysis for the American Hospital Association.

"We, collectively, slowed health care spending,'' said Michael Chernew, an economist who is professor of health care policy at Harvard Medical School. "Whether we cut spending more is more of a policy choice than a pre-determined outcome.'"

Overall health care spending will rise faster in the next few years than in the last few, as tens of millions of previously uninsured people get covered under the new law, he added.
But inflation in medical prices has dropped steadily since the recession, reaching an annual rate of 1%, according to the Bureau of Labor Statistics. In the last 12 months, the price of prescription drugs and medical devices rose 0.5% and 0.7%, the price of doctors' services rose 1.4% and prices for hospital and related services rose 4.9%, the BLS says.

The Obama administration claims the ACA is driving the largest part of the changes, citing research by Chernew and others. Republican skeptics have pointed to studies by the Centers for Medicare and Medicaid Services and the Kaiser Foundation that blame the lingering effects of the recession. Both Kaiser and Chernew agree that part of the slower inflation is due to patients' cutting back as they bear more of the costs and is likely to be permanent.
The biggest part of health care spending is hospital care and hospitals are holding down costs in several key ways, said Steinberg.

One is by shifting more patients to outpatient settings. The hospital chain Tenet Healthcare said inpatient admissions dropped 2.6% in the third quarter while outpatient admissions rose 3.5%. For the first nine months of this year, Tenet said inpatient revenue dropped 1.6% while outpatient revenue climbed 6.6%.

Another is a slow-moving change in reimbursement models, by both Medicare and private insurers, to demand better-integrated care and higher quality that heads off complications and readmissions.

The ACA provided incentives for Accountable Care Organizations, an idea first proposed during the Bush administration, which prod hospitals and doctors to work together to boost quality and cut costs. Providers share in the savings they achieve using ACOs under the law. The concept is still in a testing phase.

One early adopter is New Jersey's Hackensack University Medical Center, where a pilot ACO coordinated care for 12,000 Medicare patients and saved $15 million in its first 15 months beginning in April 2012, said Morey Menacker, president of Hackensack Alliance ACO. The money was saved with tactics like using electronic medical records to eliminate redundant tests and training nurses to coordinate care for people with chronic diseases like congestive heart failure, Menacker said.

The key to whether low medical inflation can last will be finding new cost-containing steps every year, Harvard's Chernew said. Inflation will surge back if the industry loses its will to push for changes, he said, much as inflation bounced back in the late 1990s after health-maintenance organizations that cut costs earlier in the decade went out of favor, he said.

(Copyright © 2013 USA TODAY)

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