Health Care Cost Inflation Returns

True, that....

Call it the return to the old normal.

With the slow recovery of the U.S. economy, the advent of some blockbuster drugs and the entry of more than 8 million newly-insured persons, healthcare cost inflation is ticking back up. Writing in Health Affairs, CMS' actuaries are projecting a 5.8% year-over-year rate of inflation that reminds them of the years prior to the Great Recession. This rate is projected to grow faster than the Gross Domestic Product (GDP), which means that by 2024, the U.S. will be devoting 19.6% of its economy to healthcare.

Some eye-catching observations:

1) If it weren't for consumer cost-sharing, the inflation rate would be even higher;

2) Drug treatment for a single disease - Hepatitis C -  is driving prescription drug costs "sharply higher" and adding to the overall 5.8% rate;

3) No mention of the impact of the administration's innovations, like accountable care organizations;

4) Substantial uncertainty.

The Population Health Blog's take:

In a highly competitive global economy, even single point increases in healthcare costs underlying the manufacture of items that make up the GDP, automobiles or washing machines, is bad news.  If the projections are true, business leaders could reconsider the merits of overseas outsourcing or start dropping employer-based health insurance.

Costs in 2015 and 2016 will be lower than the 5.8% rate, which means it won't hurt enough to make healthcare a big factor in the 2016 elections.  While the Affordable Care Act remains a rhetorically rich target environment, the PHB expects politicians on both sides of the partisan divide to find better red meat elsewhere, like building thousand-mile walls or buying hundreds of millions of solar panels.  So, if you're an investor in healthcare stocks, continue to go long.

Any good news in other sectors of the economy could paradoxically make healthcare costs look comparatively worse. As energy and housing costs creep along at a lower rate, consumers are going to see a greater percent of their income going toward healthcare - either in the form of health insurance premiums or out-of-pocket cost-sharing.  If (and that's a big if) the U.S. economy can return to its efficient cost-cutting ways, expect the healthcare debate to heat up and for calls for a government-sponsored option to increase. 

The mean increase of 5.8% is an average.  Some segments of the insured population will see higher costs and others will see lower costs "around" the mathematical mean.  Which voter block "loses" by paying more than the 5.8% could drive the coming debate as it shifts from insurance coverage to affordability and access.  Case in point: the PHB's spouse is registered to vote and she's not happy with the guesswork behind our pricey monthly insurance premium.

While Americans have reasons to be reluctant to travel overseas for cheaper surgery, they'll be far less so for access to a course of just-as-good medications that are under foreign price control.  Call it medication tourism.

And finally.... uncertain abounds.  No one saw that Hepatitis C would have such a near-term impact.  Who knows what else is out there?  A new epidemic?  Another cure?

Stay tuned!

Twelve Health Care Predictions for 2014

While the Disease Management Care Blog eschewed forecasting for 2013, it has decided to reverse course and inaugurate the 2014 blogging season with a contrarian duodecimal exercise in futurism.

Will this antidecimal augury align with the mysterious cosmic order and governing perfection?  Let the thousands of DMCB readers (more on that in a future post) be the judge in January 2015......

1. Obamacare will neither succeed nor fail.  This hugely complex law will have too many outcomes, statistics and analyses that will be subject to too much spin by both supporters and detractors. Like puppies clamoring for the mother's attention, the loudest wins, but only in 15 minute media increments.

2. Inflation returns, with a vengeance: While we won't know it until well into 2015 or 2016, 2014 will be the year that the sleeping giant of healthcare costs awakens. Millions of new insureds in an improving economy will finally get their pent-up pricey preference-sensitive health care needs fulfilled.

3. All boats benefit.....While the PHM industry will continue to extol its cost-savings value proposition, its investors will profitably ride the rising tide of overall increased health spending.

4. Duh, it's the delays stupid: While low income Americans will appreciate having access to subsidized health insurance and Medicaid, the middle class' unsubsidized sticker shock will threaten the fall 2014 elections. Caught between conflicting advice of insurance actuaries and political hacks, the White House's regulatory choices will be obvious.

5. Unfavorable prognosis for physician income means an emerging bull market for concierge medicine: Past attempts to replace the SGR never fail to disappoint and 2014 will be no exception. That, however, will only be on the icing on the bitter cake of foregone co-pays and coinsurance by patients who chose all those stinky bronze plans.  As a result, more docs will bail on their insurance contracts and open "concierge" practices.

6. Navigators Ver. 2.0: Knowing that 2014 could be a high water mark for top-line income from newly insured patients, hospitals will step up and hire their own "navigators." Unsurprisingly, they will not seek out the healthy millennials. And insurers, thanks to the "3Rs" that are largely backed by Uncle Sam, won't care about the resulting adverse selection.  

7. Snowden blow-back: as the promise of big-data grows, fearful health care consumers will be even less inclined toward allowing access to their health information.  Too bad they won't be given a say.

8. Innovator's Dilemma for health tech: solutions that are simple, transparent and modular will continue to make 'from the bottom' inroads into a tech industry that - like early data storage - is too complex, opaque and entangled.

9. Speaking of health tech, patient-monitoring solutions that offer more insight and less data will grab market share.  Instead of a series of blood glucose results dumped into an electronic inbox, think algorithms that suggest insulin dose adjustments.

10. Thanks to the battered healthcare.gov brand, conservatives will be better positioned to thwart other "big government" proposals in 2014 outside of health care (for example, education, carbon markets or immigration reform). Progressives will focus on simpler stuff, like increasing the minimum wage and keeping The New York Times afloat, but miss a decades-long setback of Obama-inspired liberalism.

11. ACOs stumble: Far more ACOs will fail than succeed in hitting their risk-share thresholds because docs can't say no, one patient at a time. As a result, we'll see these organizations begin to cut costs by parting company with some of their recently hired physicians, further fueling the concierge medicine movement.

12 Commercial scientific misconduct: Unable to resist the allure of bonus payments (like this) or the branding that is dependent on the public release of quality outcomes, at least one large health entity will be caught committing "reporting fraud."

A Medical Education Bubble Portends Lower Health Care Cost Inflation?

The Disease Management Care Blog spent part of its day in front of its internet enabled World Headquarters' computer screens. As a result, it was able to tune into todays dreary Sebelius Senate Finance Committee testimony.

It wish it hadn't. Between the spin, gotcha's and speechifying, it's obvious that the political rancor is here to stay. And in the end, it makes little difference who is "wrong" or "right" about Presidential reinterpretations of the history about "keeping your plan" or some regulation about "grandfathering." What is more disconcerting is how the partisan divide is gumming up the gears of a well-intentioned if flawed piece of legislation that is now hitting one fifth of the U.S. economy.

Which makes this New England Journal article on the possibility of a "medical education bubble" so timely. According to David Asch et al, "bubbles" occur when a product (in this case the training to be a practicing physician) far outstrips the underlying economic demand (i.e., physician services). Based on this chart that trends medical educational debt to income, student debt has gone up, while future income potential is stalling. In other words, there is a growing disconnect between what physicians can charge patients and what medical schools are charging their students.

The DMCB was not surprised at the rising cost of medical school and financial sacrifices necessary to do a residency, but it was less aware of how slowing health care costs are playing out in our nation's medical schools.

The good news is that this bubble is another indication of slowing health care inflation.

Most agree that the individual insurance market was broken, Medicare's expenses remain ultimately unsustainable and Obamacare will continue a long-established trend of making consumers assume a greater share of health care costs thanks to significant out-of-pocket expenses. The bubble phenomenon suggests we may be getting a handle on that.

Bad for medical schools, but good for the country - especially since the tenor of today's hearing suggest Congress is unlikely to come up with any new solutions in the near term.

Does ANYONE Really Know Projected Health Care Costs? Nope!

You sure about that?

According to the White House, the Affordable Care Act (ACA) is obviously responsible for the significant decrease in health care cost inflation over the last three years.
The respected health economist Victor Fuchs, writing in the New England Journal, disagrees.  He points out:

1) there is a strong relationship between growth in the U.S. gross domestic product (GDP) and growth in health care spending: for the last 60 years, when one goes up, the other follows suit.  While the prevalence of illness drives the consumption of health care, it turns out that the prevalence of illness plus a rising income is a stronger driver of health care consumption*.

It's far more likely that the lackluster economy has been responsible for the low rate of inflation.

2) Two to three years is not enough time to guage the impact of any single intervention on health care spending. In his NEJM article, Dr. Fuchs presents a graph showing the relationship between a two year period of spending and what follows over the next twenty years.  It turns out it's a very poor predictor.

So, even if the ACA could have an impact, it's far too early to tell.

In the meantime, skeptics like Bob Laszewski, are pointing to richer mandated insurance benefits and are confidently predicting that health care costs are destined to increase.  Former CBO Director Douglas Holtz-Eakin worries young healthy adults won't sign up, which could further fuel health insurance premium increases.

Who to believe?  A partisan White House?  Skeptics who want a return to market-based insurance?  The DMCB's solution is to believe Dr. Fuchs and confidently state it doesn't know which way things are going to go.

*The only exception to the association between GDP and health care costs was during the mid-1990's when managed care had its stranglehold on the delivery system

Image from Wikipedia

Are Rising Health Care Costs As Bad As We Think They Are?

When pundits claim that health care spending is out of control, what do they mean?

Does it mean that Massachusetts' outlawing of hospitals' excessive price increases is a good thing? That rolling back the Affordable Care Act will automatically usher in a new round of price gouging? That when the DMCB generates another medical co-pay, the DMCB spouse is right to wave a copy of the bill around and demand that the DMCB do something now to reform the U.S. health care system?

As the Disease Management Care Blog understands it, what the pundits, Massachusetts legislators, patient advocates and the DMCB spouse mean is that more and more of our nation's gross domestic product (GDP) is being spent on health care services.

That assumes we'd all be better off if the U.S. were spending its national treasure on stuff like manufacturing, technology, education and innovation. So, instead of committing just under 18% of our output on hospital care, physician services, nursing homes, medical devices and drugs, we'd all be better off if we spent it on the production of solar panels, Facebook, public school vouchers and iPhone apps.

That way we wouldn't be struggling with the prospect of another 1% gain on GDP (to 19%) and the looming possibility that we'll soon be spending a whopping fifth of our economy on health care.

But is the spending on health care really that bad?  As noted here, the DMCB pointed out that non-government-insured health care costs have been moderating for years.  What's more, recent year-to-year increases in health care spending in the U.S. are actually lower than much of the developed world.

And now there's one more reason to doubt the prevailing wisdom about rising health care costs. Charles Roehrig, Ani Turner, Paul Hughes-Cromwick and George Miller of the curiously name Altarum Institute point out that the normally rising and falling GDP associated with routine economic cycles can make steady health care costs look relatively worse or better than they appear.

To dampen the impact of a cyclic economy on the assessment of health care spending, the authors compared health spending to U.S. "potential GDP." Apparently, this obscure economic metric has been used by economists to portray what GDP would be if the economy were operating at full employment of the current population and without any idle production capacity.  This metric has the advantage of "smoothing out" many of the peaks and valleys of the normally measured GDP.

Using potential GDP as the comparative baseline, the authors found that health care spending growth gained less than 1% of the economy starting in July of 2005, well before the onset of the Great Recession of 2008. In other words, during that time, the health care industry grew pretty much at the same rate as the "potential" GDP. 

What's more, in June of 2009, health care cost growth gained an additional 1% of potential GDP, only to fall back below 1% again in May of 2011.  Most of the increases seemed to be accounted for by Medicare Part D spending; if that particular cost is backed out, excess growth would have been 1% or less throughout the measurement period.

The authors can only hypothesize on why health care costs didn't outstrip the U.S. economy. While it could be partially accounted for by the rising numbers of uninsured (who would have avoided going to hospitals or seeing doctors), the authors point out that other trends could have played a role: changing physician practice standards, increasing numbers of salaried physicians, market pressures pushing down on fee schedules, increases in patients' out-of-pocket expenses making them less likely to access the care system, new care models (including disease management?), the increasing use of generics, previously expensive drugs going off patent and the drop-off in the number of "blockbuster" pharmaceuticals.

This means when the economy bounces back and/or Obamacare results in more insured Americans, there is no guarantee that underlying health care inflation will return.