As healthcare reform falters in Congress, health spending projections released last week forecasted the nation's healthcare bill will steadily escalate in the coming decade and taxpayers will pay more of the tab.
With healthcare's share of the GDP seeing record growth and government financing set to soon account for more than half of all health spending, providers renew call to overhaul the system
Healthcare accounted for 17.3% of the nation's economy in 2009, an unprecedented 1.1 percentage point jump from 16.2% the prior year, according to projections released last week in the policy journal Health Affairs by federal economists and actuaries with the CMS.
The numbers renewed a call by hospital industry executives for some type of systemic reform—reform that seems increasingly less likely to be enacted by Congress this year (See story, p. 16).
The weak economy and steady health spending growth drove the dramatic shift, federal officials said. The nation's gross domestic product contracted 1.1% but spending growth on hospitals, physicians and other healthcare products and services rose to 5.7% in 2009 after growing 4.4% in 2008, the slowest rate in nearly 50 years (Jan. 11, p. 6), according to projections.
By the final year of projections in 2019, the forecast shows healthcare will account for 19.3% of the economy.
Total health spending reached $2.5 trillion and is expected to climb steadily to $4.5 trillion by 2019. The average annual growth in U.S. health spending through 2019 is projected to be 6.1% compared with an average annual growth in the gross domestic product of 4.4% through the same period.
More than half of U.S. healthcare spending will be publicly financed by 2012, as the lagging effects of the recession on household and business budgets leave more patients with safety net insurance, the new federal projections show. But as the weak economy rebounds, aging baby boomers will add new strain on taxpayer-subsidized healthcare, further increasing the public share of the nation's health tab over the next decade. By 2019, government financing will account for roughly 52% of the bill.
“It's not a particularly uplifting story,” said Robert Broermann, chief financial officer and senior vice president of Norfolk, Va.-based Sentara Healthcare, which owns seven Virginia hospitals. Broermann described the projected continued growth in health spending's share of the economy and the larger share financed by the public sector as “more of the same.” The trends, he said, cannot be altered without reform to “fix the fractured nature of this delivery system.”
Broermann said the shift toward greater public financing will squeeze hospital margins, fuel further cost-cutting among providers and shift some costs to private insurers, which are already under strain from escalating healthcare costs.
Last year, public health spending increased an estimated 8.7% compared with the 3% growth in private spending, the report said. The more modest private spending growth stems from an erosion of coverage, said Karen Davis, an economist and president of the not-for-profit Commonwealth Fund. “It's not that they're getting more efficient,” she said. “It's just that they're not getting care. We're losing coverage at a rapid rate. It's because private insurance is crumbling as people lose jobs.”
The unemployment factor
Spending by businesses and households is projected to slow further in 2010 to 2.8% as high unemployment persists and federal subsidies end to help laid-off workers maintain private benefits. Congress voted in December to extend through the end of this month eligibility for the subsidy and proposals to further continue the subsidy were announced last week by the Senate majority leader.
Projections show the weak economy pushed up enrollment and spending for Medicaid in 2009, which is jointly financed by states and the federal government. Projections show Medicaid enrollment and spending climbed 6.5% and 9.9%, respectively. Meanwhile, the number of privately insured patients is projected to have declined by 1.2% last year.
Medicaid's burgeoning enrollment and the economy's halting recovery have put stress on state budgets that is expected to worsen in December, when $87 billion in federal aid to bolster Medicaid budgets runs out.
The CMS projected state Medicaid spending will soar 42.1% in 2011 under the assumption that states will plug the financing gap created by the end of temporary federal subsidies. Meanwhile, federal Medicaid spending is projected to decline by 8.4% in 2011 after jumping 23% in 2009 and 10.8% in 2010 as a result of the economic stimulus aid.
However, several governors are banking on continued federal aid to bolster state Medicaid budgets. President Barack Obama called for a $25 billion extension of the temporary aid to states for Medicaid during the recession in his budget (See story, p. 8).
Revenue projections for 2011 are affected less by the overall economy's recovery than continued high unemployment rates, said Nick Johnson, director of the state fiscal project for the Center on Budget and Policy Priorities, a Washington-based public policy not-for-profit. States must balance their budgets, unlike the federal government, which can operate in the red, he said. “I think it makes a big difference who's paying the bills, because states have limited capacity to pay the bills.”
Nearly half of U.S. governors have released budgets and at least 11 have assumed the federal government will extend Medicaid assistance, according to the center. And even then, Medicaid spending may face cuts, as is the case under a proposal by Massachusetts Gov. Deval Patrick to cut $174 million in reimbursement even with extended federal aid, Johnson said.
Davis called the projected spike in health spending's share of the economy for 2009 breathtaking and said the surge underscored the need to reform health financing and access to address the nation's escalating healthcare costs.
Federal officials, writing in Health Affairs, swiftly acknowledged health reform's potential to “change the course” of health spending, but economists omitted from projections the proposals in bills that are stalled in Congress after Democrats lost their supermajority in the Senate.
Davis said necessary reforms should eliminate financial incentives for high-volume care and instead pay hospitals and doctors for the quality of care provided and promote medical homes and accountable-care organizations, which reward providers for reaching quality and spending targets. She said less administrative overhead could help curb costs and noted spending projections show a 6.5% annual average growth in spending for administration and the overall cost of private health insurance.
She noted the economy's contraction contributed to the historic increase but argued “fundamental” problems with healthcare delivery were also at fault. The deep recession highlighted healthcare's strain on public, business and household budgets, she said. “Fewer people are getting care and costs are accelerating,” she said. “It's definitely very troubling.”
Nick Turkal, president and CEO of 12-hospital Aurora Health Care, Milwaukee, said he hoped the CMS' latest projections would clear up the misperceptions about government participation in healthcare that have clouded the reform debate. “There seems to have been an impression during the healthcare reform debate that we are talking about taking a small amount of government participation in healthcare, and making it larger,” Turkal said. “This drives home that that is not the case.”
“My gosh, it's government-run healthcare now. That's the headline,” he said.
Turkal said observers all seem to agree that the U.S. healthcare system contains a fundamental mismatch between the amount of money being spent on care and the outcomes for patients, which are lower than other industrialized nations.
But the answer is not spending more money on healthcare, Turkal said. Rather, providers need to find ways to use the resources they're already receiving more responsibly, while government payers need to offer financial incentives to provide high-quality care.
“We have said from the beginning that we support healthcare reform because the current growth is not sustainable. The trend has to be changed if we are going to have a healthy economy in this country,” Turkal said.
Hugh Greene, president and CEO of three-hospital Baptist Health in Jacksonville, Fla., said the report's eye-opening figures are likely to reinvigorate national reform debate by focusing a spotlight on how much money Americans spend on their healthcare every year, even during a severe recession.
“There are those that celebrated that we dodged a healthcare reform law, at least for now. The problem is that the factors that drive the need” for reform have not gone away, Greene said. “The cost problem is not going to go away. In fact it's accelerating.”
While it might appear that an uptick in overall healthcare spending would benefit hospitals' bottom lines, hospital executives say the opposite is true because of how the growth is happening.
The expansions in Medicare and Medicaid are outstripping the enrollment increases seen by commercial payers, and those trends are only expected to accelerate in coming years. But government insurers' rates don't cover the cost of care, forcing providers to charge more than the cost of care for patients with private coverage, hospitals contend.
“The part that is growing fast is the part that pays you below cost. So volume is not a good thing if it's growth in the part where you are losing money,” Greene said. “I think this underlies the national concern about whether our system as we know it is sustainable.”
Another way to respond to the rise in low-paying government programs was to figure out how to decrease what it costs to provide the care, but executives say their hospitals are already in the midst of massive efforts to do just that, including finding ways to decrease hospital-acquired infections and costly readmissions.
In Jacksonville, Baptist Health recently struck an agreement to form a 50-50 joint venture with urgent-care provider Solantic that will make the system a partner with a network of nine area urgent-care clinics. Like many hospitals, Baptist saw that encouraging patients to find ways to receive care in an urgent-care setting was far cheaper and more efficient than in the ER.
“I'd like to think that all of us are trying to figure out how do we deliver more care efficiently,” Greene said. “But all the other factors are outpacing what we're doing currently.”
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