CMS data: Health care spending continues to rise

January 1, 2017

Robert A. Dowling, MD, summarizes key findings from the recent CMS report “National Health Spending: Faster Growth In 2015 As Coverage Expands and Utilization Increases."

Dr. DowlingA recent national survey by Deloitte and Associates (bit.ly/DeloitteMACRA) suggests there is a significant lack of awareness and readiness among physicians about the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) and its potential long-term impact on reimbursement. The recent election results and aftermath have cast even further doubt on the future of health insurance and reimbursement reform, but nevertheless suggest that health care policy activities (legislation and regulation) will remain at the forefront for the foreseeable future.

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Why? Because health care is expensive and getting more expensive. It is important for practicing physicians on the front lines of care delivery to have a passing knowledge of the cost of health care from a larger perspective than their own practice. The Centers for Medicare & Medicaid Services just released its annual report, “National Health Spending: Faster Growth In 2015 As Coverage Expands and Utilization Increases” (Health Aff [Millwood], Epub ahead of print, Dec. 2, 2016). In this article, I will summarize some of the key findings of the report and explain its relevance to practicing urologists.

Just how much do we spend on health care? According to the report, spending on health care in the U.S. reached $3.21 trillion in 2015. That represents almost $10,000 per person, or 17.8% of the U.S. gross domestic product. For context, health care expenditures in this country are usually compared to those of other economically developed countries. While our delivery systems are significantly different, it is possible to compare costs and in some cases outcomes. According to the Organisation for Economic Co-operation and Development, the U.S. leads all peer countries in health care spending as a percentage of GDP (bit.ly/OECDhealthspending)-more than twice the average and one and a half times more than the second-costliest country (Switzerland).

Spending per capita shows similar relative spending. Growth in spending is up slightly from last year at 5.8%, slightly more than CMS predicted earlier this year (5.5%), higher than 2014 (5.3%), and significantly higher than growth in 2013 (3.8%). While some argue that these growth rates have slowed since the passage of the Affordable Care Act, U.S. health care is expensive and getting more expensive by any index.

Next: What is driving spending growth?

 

What is driving spending growth? To understand the answer to this question, it is important to understand categories of spending. Hospital care (32.3%), physician services including buy-and-bill drugs (20%), and retail prescription drugs (10%) are the major cost components and together make up 62% of national health expenditures (figure 1). Growth in prescription drug spending last year was the highest of any spending category at 9%, but lower than in 2014 (12.4%) (figure 2). Hospital costs rose 5.6%, about the same as costs in aggregate. Physician costs reached their highest growth rate in 7 years at 6.3%.

What’s behind this growth in cost of physician services? According to the report, the most important factor is not the effect of an aging population or increase in prices-it is the utilization and intensity of those services, accounting for about half of the 6.3% growth and up sharply from 2014. This finding is evidence that our fee-for-service model is still driving significant growth in spending.

Where does the money for health care come from? Private health insurance is the largest payer and accounts for 33% of spending; spending from this source increased 7.2% in 2015, up from 5.8% in 2014 (figures 3, 4). The main driver of this growth was increased enrollment from employer-sponsored plans and the Affordable Care Act. Medicare is the second largest payer, accounting for 20% of spending, but growth was slower in 2015 (4.5%) than 2014 (4.8%). Included in this payer category is Medicare Advantage, which now comprises about 32% of Medicare spending. Medicaid spending-also driven by the Affordable Care Act-grew 9.7% in 2015 and now makes up 17% of national health costs. Finally, out-of-pocket spending share of health care expenditures dropped to 11% as growth in this category continued to be slower than growth in general.

Next: Who are the real sponsors of health care spending?

 

Who are the real sponsors of health care spending? According to this report, the federal government is still the largest sponsor (29%); households (28%), private businesses (20%), and state and local governments (17%) make up the rest. These relative shares have remained fairly constant in the last few years, even as growth in spending by the federal government has increased more than the other categories. Of course, an alternative view is that the citizens of the U.S. are the real sponsors of health care spending, be it through federal taxes; take-home pay for out-of-pocket costs including insurance premiums, payroll deductions, and other insurance costs; local income, hospital, and other taxes; and indirect costs for the uninsured.

What does this mean for your patients and practice? First, health care insurance, delivery, and payment policies will probably continue to dominate the conversation because health care is expensive, becoming more expensive, and touches almost everyone in the U.S. Urologists should have a working knowledge of these costs and their relevance to the patients they care for. Second, because growth in spending on physician services is accelerating, and appears to be largely driven by increased utilization, policy makers will probably continue to scrutinize this category of spending and attempt to identify opportunities to slow that growth. This finding supports the case to shift from “fee-for-service” to “fee-for-value” payment models.

Finally, it is worth remembering who pays the bills (the “sponsors”) and through what vehicle (the “payers”). Urologists should have a detailed understanding of their “payer mix” and follow the national conversation about insurance and Medicare reform in proportion and to the extent that their livelihood and patient populations are linked to policy decisions.

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