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David Cutler, a healthcare economist and professor at Harvard University
Cutler

Economy less of a factor in slow growth for healthcare spending, new studies say


By Melanie Evans
Posted: May 6, 2013 - 7:45 pm ET
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The recession's drag on health spending did not fully explain the recent record slow growth in health spending, according to the latest studies that aim to identify what, if anything, suggests the slowdown may last.

The papers, published in the journal Health Affairs, will be welcome news to those looking for signals that payment and delivery forms are beginning to have an effect on spending, although the researchers stop short of saying so.

The research points to a smaller role for the economy than other recent attempts to pinpoint what was behind three consecutive years of record slow growth in U.S. health spending. Authors of the new papers say there is reason to believe that as the economy recovers, health spending won't rebound to the pace that has absorbed workers' raises, pushed households into bankruptcy and left lawmakers and businesses struggling to absorb increased costs.

One paper found the economy accounted for roughly one-third, or 37%, of the slowdown, while cuts to Medicare and a decline in privately insured patients accounted for another 8%. “The evidence is at least as strong that it's structural as it is cyclical,” said David Cutler, a healthcare economist and professor at Harvard University who co-authored the paper.

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U.S. spending on hospitals, clinics and other areas of healthcare slowed as the economy struggled through the most recent recession, which lasted 18 months and ended in June 2009. National health spending grew at a record-slow pace of 3.9% in 2009 and the same pace in 2010 and 2011, the most recent year for which federal estimates are available.

“It's fairly unusual when we're surprised by how low medical cost increases are,” Cutler said. “Usually, we're surprised by how high they are.”

Cutler said the results should underscore that health spending growth is not unstoppable. “We need to be mindful that we can influence this,” he said. “It's not just some ethereal thing that's happening out there.” Continued slow spending could save the CMS $770 billion over a decade, the paper said.

Cutler, along with co-author Nikhil Sahni, a Harvard senior researcher, said fewer brand-name and new drugs; greater out-of-pocket spending by patients; and efforts among providers to boost efficiency may help account for the unexplained 55% of the slowdown.

A second paper analyzed spending by 150 large employers from 2007—the recession began in December that year—through 2011. The analysis showed health spending slowed in 2010 among workers who did not lose a job (or insurance) in the downturn and when households did not see higher deductibles or other out-of-pocket costs.

Larger deductibles, more co-insurance and higher copayments accounted for about 20% of the slowdown. Michael Chernew, a Harvard health policy professor and co-author of the paper, said the research suggests that the slowdown was due to more than the weak economy or workplace health benefits that increase households' out-of-pocket spending.

That suggests that sluggish spending growth could continue, he said, but he cautioned that results do not suggest the industry has fully addressed waste and inefficiency that add unnecessarily to U.S. health spending. “In no way do I mean to imply or believe that we should declare victory and go home,” he said.

Instead, Chernew said, the results appear to underscore a shift in culture among hospital officials and physicians who have grown more focused on greater efficiency in the last five years. “It remains to be seen how persistent those types of changes are, which is why I do think we need to build a system with the right incentives and information flow,” he said.

The paper was co-authored by Alexander Ryu, a Harvard Medical School student; Teresa Gibson, a Harvard health policy lecturer; and M. Richard McKellar, a Harvard research associate.

The new research suggests a less-bleak future than a recent analysis by the Kaiser Family Foundation and the Altarum Institute that credited the economy for 77% of the recent moderate spending growth. Health spending will return to 7% annual growth as hiring and the economy gain steam, Kaiser Foundation executives wrote in the Washington Post.

Charles Roehrig, director of the Altarum Center for Sustainable Health Spending, said the Kaiser and Altarum analysis assumes a temporary surge in health spending with an economic rebound just as health spending dropped sharply with the recession.

Health economists who reviewed the papers said that with so many factors that may contribute to a slowdown, pinpointing the source is difficult.

The economy, healthcare reimbursement, hospital management, drug pipelines and other factors influence spending, said Dr. Art Kellermann, the Paul O'Neill-Alcoa chair in policy analysis for RAND Corp. “There's a real element of reading the tea leaves in any of this.”

Kellermann said he remains unconvinced that structural changes have led to a slower rise in health spending. “I don't consider that the changes that have occurred to date come close to meeting the criteria of fundamental,” he said. Kellermann argued that reimbursement incentives continue to reward hospitals and doctors for the volume of care they provide without regard to the appropriate use of tests, devices, visits or drugs. “The last thing we can afford at this point is to celebrate or be complacent.”

Mark Pauly, an economist and healthcare management professor at the University of Pennsylvania, said he is closely watching another indicator of healthcare's growth and costs: hiring. Employers slashed jobs during the recession and nearly four years after the recession ended, the unemployment rate has not yet dropped to the rate seen in the months before the recession began, yet healthcare steadily added jobs.

“I think that's a better predictor of what health spending will be,” he said. “I'll know we're at a new normal when the sector stops creating new jobs.”

Follow Melanie Evans on Twitter: @MHmevans


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