At first glance, the news seemed promising.
In its annual spending report issued last week, the CMS announced that healthcare spending grew only 6.1% in 2007, a slight decrease from 6.7% in 2006 and the slowest rate of growth in nearly a decade. Although the slowdown was attributed mainly to slower growth in retail prescription drug spending and spending associated with administering Medicare health benefits, the news didnt exactly leave hospitals and other healthcare experts jumping with joy.
Thats because most experts know that no matter what the numbers say, there is still a great deal of work ahead to reform a healthcare system that is still fundamentally brokenand is facing one of the worst economic recessions in decades.
The numbers show that the rate of expenditures has slowed down. Because of the economy, its going to slow down even more dramatically in the next few years, said Steven Safyer, president and chief executive officer of 1,094-bed Montefiore Medical Center in New York.
Only looking at the dollars you spend wont accomplish what you want to accomplish in healthcare reform, Safyer said. We need to raise the bar and get better outcomes in a more responsible and less expensive way, and that requires changing the system, not just cutting expenditures. Thats the bigger challenge for the new president.
Even the CMS researchers acknowledged that the slowdown needed to be taken into context with the health of the rest of the economy. Do we feel glad that in 2007 the cost growth showed the lowest overall slowdown in a decade? The tentative answer is yes, CMS Chief Actuary Richard Foster said at a news conference. However, a 6.1% growth rate is still 6.1%, which is still faster than the growth rate of the gross domestic product.
According to the CMS report, health spending growth overall outpaced the economy, consuming a larger portion of GDP in 2007, reaching 16.2%, up from 16% in 2006.
Foster said he didnt expect the rate to stay that low either. Increased use of generic drugs, for example, was cited as one of the reasons for the 2007 slowdown in drug price growth, along with increased safety concerns for prescription drugs. But as Foster pointed out, the generic drug rate cant keep growing indefinitely. I wouldnt expect the good news to continue.
Financial concerns indeed are a major worry for CEOs, according to an exclusive look at the American College of Healthcare Executives latest annual survey of CEOs, p. 14.
The CMS report should serve as a reminder that healthcare is one of the most pressing issues facing the new administration, said Todd Eberly, assistant professor of political science and coordinator of public policy studies at St. Marys College of Maryland in St. Marys City. Rising healthcare costs put pressure on states in the form of increased Medicaid costs, it puts pressure on the federal budget due to rising Medicaid and Medicare costs, and it puts pressure on taxpayers as they are tasked with funding Medicaid and Medicare while facing ever-rising costs for private healthcare.
But while the 2007 data may be useful from a historical standpoint in crafting future healthcare reforms, they do not necessarily reflect the economic downturn of the past four to six months, providers emphasized in interviews.
In light of the recent economic crisis, Caroline Steinberg, vice president for trends analysis with the American Hospital Association, said she didnt think the 2007 data were a good indicator of future healthcare trends in 2008 and beyond. The report says that healthcare has been recession-proof because it continues to see growth, she said. However, given the unprecedented increase in unemployment rates and drop in stock-market prices in recent months, I dont know whether those old assumptions will hold up in this current recession, she said.
Even the spending trends on hospitals, whose growth rate increased despite the overall slowdown in the healthcare market, dont tell us much, Steinberg said.
Hospital spending, which accounts for about 30% of total healthcare spending, in 2007 increased 7.3% to $696.5 billion, which represented 5% of the GDP in 2007. This marked the third straight year of relatively stable spending growth in the sector, the study found.
Spending in other categories in 2007 showed an increase despite the overall downturn in growth. Medicare spending grew 7.2% to $431.2 billion, accounting for 3.1% of GDP, after an 18.5% increase in 2006 that was partially driven by the implementation of Medicare Part D.
Meanwhile, spending for the Medicaid program grew 6.4% in 2007, reaching $329.4 billion, or 2.4% of the GDP.
Physician and clinical services spending grew 6.5% in 2007 to $478.8 billion, representing 3.5% of the GDP.
Increased growth in Medicaid supplemental payments was the main factor in the growth for hospital spending. These payments are made separate from and in addition to payments made at a state standard Medicaid payment rate, and are intended to cover shortages in regular payments. Medicaid was the largest growth for any major payer for hospitals, taking up 17% of total hospital spending, said the studys lead author Micah Hartman, a statistician with the CMS.
In wake of the current economic climate, some providers are wondering if this overall growth seen in 2007 for Medicaid spending will continue.
Andrea Walsh, executive vice president and chief marketing officer of HealthPartners, a not-for-profit healthcare organization based in Bloomington, Minn., said the groups flagship, 416-bed Regions Hospital, St. Paul, Minn., has been feeling the immediate impact of state budget cuts, especially with respect to Medicaid.
Just a few weeks ago, our governor cut our disproportionate share payments and hospital medical education training payments by $4.7 million, Walsh said. As a whole, the hospital industry shouldered more than 50% of the state budget cuts to health and human services, she said.
Medicaid payments may be in for a boost, as President-elect Barack Obama is reportedly proposed states get more money for healthcare as part of his economic stimulus package, which could flow through the Medicaid program (See story, p. 8).
Perhaps the more telling figures on healthcare spending trends will appear in about a month, when the CMS releases its projections for 2008 through 2018. The forthcoming report could be particularly useful in predicting future healthcare trends if it casts a light on two important issues: what effect the 2007 reduction in the growth of prescription drug spending could have on reducing Medicare growth, and whether the percentage of the gross domestic product spent on healthcare in 2008 and beyond is higher than in 2007, according to Bob Roth, a partner at Crowell & Moring in Washington.
While everyone in healthcare seemed to have an opinion about the 2007 figures, no clear consensus emerged among hospital executives and other experts on the reports usefulness in assessing the long-term economic impact of the healthcare industry, and in a broader capacity, crafting future reforms. Or, whether the economic pattern would cause healthcare costs to go up or down in the years ahead.
As an example, Americas Health Insurance Plans hailed the fact that private health insurance premiums rose just 6% to $775 billion in 2007, a noticeable decline from the recent peak of 10.7% in 2002. This is a result of innovative programs on the part of health plans to reduce the rate of growth of healthcare costs, prove healthcare quality and streamline administrative processes, Karen Ignagni, president and CEO of AHIP, said in a written statement.
Eberly had a slightly different view of this finding, however. Expenditures for private health insurance may have grown by only 6%, but that was because fewer small businesseswhich face higher costs for health insuranceoffered health insurance to their employees, he said.
To Kenneth Raske, president of the Greater New York Hospital Association, the numbers in the CMS latest spending report were basically meaningless, mainly because they dont reflect the current recessional climate.
The days of steady growth rates to hospitals marked by the CMS in its annual spending reports will soon be over, Raske said. Were experiencing a significant amount of contraction to the healthcare system, in wake of the recent economic crisis, which is in turn creating more cautious behavior on behalf of the hospital industry, he said.
In light of these recent developments, Raske predicted that in 2008 and 2009 the spending figures issued by the CMS will blow the 2007 numbers away. In future years, hospital growth will drop substantially, with growth being marginally positive, he said.
Montefiores Safyer confirmed that at least in New York, everyone has slowed down capital expenditures and taken a hard look at their budget and planned expansions, going into next year. Its much more difficult for hospitals to borrow money, and our cash is down because our investments are down. I worry about vulnerable hospitals, those teetering on the brink of bankruptcy, or poor payer mixes or support systems, he said. Indeed, hospitals started scaling back on spending last year (Nov. 24, 2008, p. 6).
Montefiore is a strong hospital and it will weather the storm, Safyer said, but were in a storm, he said. In previous years, the hospitals capital budget has totaled about $120 million. Comparatively in 2009, we plan on a $70 million capital budget. While the hospital hadnt been planning a new building or large facility, if we were, I think we would have postponed it.
In addition, Medicaid, the chief contributor to accelerated hospital spending in 2007, is in deep trouble because of state budget troubles, Raske said.
Other providers, including Darr Hall, chief financial officer of 124-bed Nanticoke Memorial Hospital in Seaford, Del., seemed less convinced that the economy would continue to affect healthcare trends. Thats because in his view, healthcare utilization is not affected by economic crisis, he said in an e-mail. For that reason, its unlikely that hospitals will invest in fewer capital projects as the economy worsens. At least at Nanticoke, We will continue to invest in replacement of necessary equipment, Hall said.