The much-anticipated strain on the publicly funded healthcare dollar driven by the next generation of seniors didnt seem so imminent after last weeks annual release of the CMS 10-year projections of healthcare spending. But industry executives wondered if the governments prognosticators were being myopic.
Slow: Budget danger ahead
CMS says 10-year healthcare spending to reach $4.3 trillion by 2017, but execs seek longer-term planning to curb costs
Healthcare spending growth, projected by CMS economists to be steady at around 6.7% per year, will reach $4.3 trillion by 2017 and gobble up nearly one-fifth of the nations economy, which by comparison is only expected to grow 4.7% annually over the period, according to the CMS report, which was published online by Health Affairs. The $4.3 trillion healthcare bill nearly doubles the $2.2 trillion that is projected to be spent in 2007.
Perhaps the best part of the news was that the moderating growth rates are larger than what were observed in 2004, 2005 and 2006, but lower than the average difference from general economic growth of 2.7 percentage points over the past 30 years, according to the report.
Nevertheless, combine those burgeoning numbers with the very real cuts proposed in the fiscal 2009 budget and an anticipated clamp down on Medicare and Medicaid funding in the years ahead, and it amounted to a recipe for cognitive dissonance in Washington healthcare-advocacy circles.
Here you have a sector of the economy that is one of the largest, said Caroline Steinberg, vice president for trends analysis at the American Hospital Association. The irony here is you are talking about an engine (for producing) jobs as a bad thing. Healthcare is an engine of the economy, but yet it is always seen as a drain when it is in fact a driver.
The report offered little encouragement as the nation analyzes, debates and struggles with ways to reform the healthcare systems ever-expanding waistline. CMS economists are by nature exceedingly conservative when they look forward, basing their predictions in large part on the status quo and what has happened in the past. In their minds there is no room for hopeful expectations, such as a new president in 2009 who will overhaul the delivery system. Rather than forecasting a major shift in the traffic pattern, the report dispassionately anticipates every small pothole in the road without suggesting how to navigate around them.
One of the challenges we always face is that the government only requires and does projections 10 years out, and the issues of access and how long-term-care needs (are to be met) have to project out more than 10 years, especially when you have such a great demographic shift as what is coming in this country, said Robert Kramer, president of the National Investment Center for the Seniors Housing & Care Industry, a not-for-profit advocacy group for investors, lenders and developers to the senior housing and care industry. We have to look more broadly at what the use patterns are going to be and project more than 10 years and have a national conversation about how we are going to pay for this.
Total hospital spending growth is expected to slow from 7.2% in 2008 to 6.4% by 2017. By 2017, hospital spending is expected to reach more than $1.3 trillion, or 30% of overall healthcare spending. During the projection period as the leading edge of the baby boomer generation becomes eligible for Medicare, acceleration in Medicare hospital-spending growth is projected to overtake a corresponding slowdown in private hospital-spending growth.
The deceleration in hospital spending is linked in part to disposable income, which has been shown to be a really good predictor of health spending in general and particularly hospital spending, said Sean Keehan, an economist in the CMS National Health Statistics Group and an author of the report. Although there is generally a five-year lag before it is seen in the projections, it has to do with people having lower incomes using hospitals less, and more as income grows, he said. That could be caused in part by insurers offering less-generous benefits during economic downturns, he added.
Although the aging population is expected to shoulder a small amount of blame for future healthcare spending, it will have a substantial influence on the public share of spending growth, according to the report. In total, public funds, which are projected to contribute $1 trillion of the total $2.2 trillion in healthcare spending in 2007, or 45%, will fund $2.1 trillion of the $4.3 trillion spending in 2017, or 49%, according to the report. More specifically, by 2017 Medicare beneficiaries are projected to make up 17.5% of the population while consuming 21% of the nations health spending bill. In 2006, Medicare patients were projected to constitute 14.6% of the population and 19% of healthcare spending. Medicaid spending was expected to increase as a share of national health spending from 14.8% in 2006 to 16.8% in 2017.
The steady shift of the burden of healthcare spending on the public sector noted in the report only validates perceptions that healthcare policy increasingly is made in Washington. Its a reflection of the growing importance of Medicare, Medicaid and tax policy on healthcare expenditures, said Thomas Getzen, executive director of the International Health Economics Association and professor of health insurance at the Fox School of Business at Temple University in Philadelphia. Once the government accounts for 60% of health expenditures, they are the ones driving the bus, and, frankly, neither you nor I know what is going to happen.
In general, healthcare-spending growth is a force that is difficult to stop, Getzen said.
Theres a momentum behind the expenditures that you wont be able to bring down just because the economy went into recession or because of subprime mortgages, Getzen said. I expect we will have additional payer problems because of the U.S. economy. But spending has this momentum in it, and it takes awhile to tighten the belt.
The report amounts to a yearly physical of the healthcare industry, monitoring the vital signs that could potentially derail it down the line. It is not perfect, but it is the best weve got, said Melinda Beeuwkes Buntin, co-director of the Bing Center for Health Economics and director of public-sector initiatives for RAND Health.
Buntin said the report only confirmed what most health economists already knowthat only a small though not insignificant portion of spending growth can actually be blamed on the baby boomers. Contributing more are burgeoning medical costs, which have their own reasons. Its a classic debate in health economics, but I think it is largely attributable to new technology, including pharmaceuticals, she said. There are a lot of things we would like to believe drive costs down, but in general, better costs more.
Indeed, prescription drugs are one component expected to grow the largest over the projection periodfrom 6.7% in 2007 to 9.7% in 2017the CMS Keehan said. Initial deceleration attributed mainly to new generic drugs will rebound because of lower treatment thresholds for some conditions such as high blood pressure. Also, the number of new drugs coming onto the market is expected to accelerate after several fallow years, he said.
The projections dovetail with the conclusions of the Congressional Budget Office in a January paper examining technological change and the growth of healthcare spending. About half of all growth in health spending in recent decades was associated with technological advances, the CBO said. The CBO attributed most of the remaining growth to rising income, changes in insurance coverage and rising prices in the healthcare sector.
The CMS projections nonplussed industry executives and analysts.
I think we continue to struggle with the lens they are looking through, the AHAs Steinberg said. I dont think the buckets they put things in are useful anymore. Instead of separating out the spending growth between physicians, hospitals and technology, government economists should be examining the value of healthcare spending and projecting where the nation can get the most bang for its healthcare buck, such as obesity or cardiac disease, she said.
While prescription drug spending is expected to grow the fastest, the nursing home sector is expected to grow the leastaveraging 5.3% annually over the projection period, Keehan noted. Medicaid is expected to remain long-term cares largest payer, funding 43% of all such care. The slowdown in nursing home spending will be offset by home healthcare spending.
Although the home health sector is projected to see a 0.7 percentage point decline in growth, it is expected to grow to 9.2% in 2007, and is expected to be among the fastest-growing health sectors over the projection period with anticipated average annual growth of 7.7%, according to the report. Medicare and Medicaid are expected to drive much of the expansion, paying the bills for a whopping 84% of the services in 2017 compared with the 75% portion that the public payers are projected to fund in 2006.
That is somewhat baffling to Amanda Thomas, director of research for the National Association for Home Care and Hospice. In fiscal 2007, home health was expected to receive a 3.6% slice of the total $428 billion Medicare pie, but by 2014, the same sector is projected to receive only 3.1% of $682 billion, according to her calculations based on President Bushs budget proposal for fiscal 2009.
Nevertheless, Thomas said she took heart in the expected spending growth forecast by the CMS. It shows that the industry is being valued as a promising alternative to long-term-care facilities, longer stays in hospitals and increased patient freedom, Thomas said. What is challenging for us is that while we see numbers like these, we also see projected cuts from the presidents budget, or other proposed legislative cuts, that continue to try to limit the growth of the home health industry.
The National Investment Centers Kramer added: We have to realize that the next 10- to 15-year period has to be a time of preparation for figuring out as a country how we are going to meet long-term-care needs. The danger in these sorts of reports is that everybody gets numbed by them. You could almost lose context for the numbers.
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