Thrown a curve

The landmark 2010 healthcare law will not slow the nation's ballooning healthcare spending in the coming decade, and it will drive spending away from hospitals and toward physicians and pharmaceuticals, according to projections from the government's healthcare actuaries.

The latest estimates of the impact of the Patient Protection and Affordable Care Act indicate that healthcare spending will continue to increase markedly in almost every respect through 2020. Those increases run contrary to one of the central promises of the law's advocates, including President Barack Obama: that it would slow the rise of ever-higher healthcare costs. The findings, calculated by the CMS' Office of the Actuary, were published last week in the journal Health Affairs.

“Many people would argue, and I'm one of them, that this law hasn't had a very significant effect in bending the cost curve in any direction,” Richard Foster, chief CMS actuary, said in an interview Wednesday following a news conference on the report.

The overall annual growth in healthcare spending, from all sources, will accelerate from a low of 3.9% in 2010—when spending was muted by the recession—to a high of 8.3% in 2014, according to the CMS actuary's office. Annual increases will drop to 6.2% by 2020. Also, health spending will grow 5.8% annually through 2020, which is 1.1% faster each year than the projected growth in the gross domestic product. The projection also found healthcare spending as a share of GDP will grow in the coming decade from 17.6% in 2009 to 19.8% by 2020, which will increase overall spending from $2.6 trillion in 2010 to $4.6 trillion in 2020.

Those estimates may still severely underestimate future healthcare outlays because they assume that planned Medicare cuts in physician payments will occur as planned at the end of 2011. Foster, whose estimates are required to track provisions of federal law, as written, has acknowledged that Congress is unlikely to allow the CMS to cut Medicare physician payments by 29.5%.

Supporters of the law, however, rejected the numbers as inaccurate because the report did not include any expected savings from a variety of cost-saving initiatives that will launch in the coming years. The administration is still finalizing the rules for the first such initiatives that supporters of the 2010 overhaul hope will exert a significant enough cumulative impact to slow the growth in healthcare costs.

“As for bending the cost curve, I have faith in the delivery system reforms we put into the Affordable Care Act,” Rep. Pete Stark (D-Calif.), a leading congressional advocate of the healthcare law, told Modern Healthcare. “Critics will try to poke holes at every turn, but the reality is we need time for implementation to show us what works and what doesn't.”

It will take years to launch, test and scale initiatives such as Medicare's accountable care organizations, payment bundling and value-based purchasing, according to healthcare experts. But neither the White House or HHS officials offered any estimated timeframes for when such cost-control measures—assuming they deliver their intended savings—will begin slowing or reversing the accelerating rise in healthcare spending.

“(T)hese provisions of the law represent ideas that hospitals, doctors and employers all over America have been putting into practice for years, where they've been able to increase the quality of healthcare and reduce costs,” Nancy-Ann DeParle, White House deputy chief of staff, wrote on the administration's healthcare blog on the day the projections were released. “We are confident that these reforms—in addition to those in the law—will help make our healthcare system more efficient, provide better healthcare to millions of Americans and bring down healthcare costs for all of us.”

Some provider advocates likewise expressed hope that the payment and delivery reforms contained in the law will deliver their promised savings. Others, though, said the findings affirmed their reservations.

The 2010 healthcare law “was basically a coverage bill,” Mary Grealy, president of the Healthcare Leadership Council, a coalition of healthcare chief executives, said in an interview. “We just didn't get to the other half, which would be aimed at the cost-drivers in the system.”

Grealy said the healthcare system will not control ongoing steep increases in spending until additional legislation reshapes the dominant public insurance plans to give patients more options and incentives for patients to choose lower-cost care.

The estimates also provided fodder for the law's critics.

“Simply put, this report states the obvious that Americans have known for more than a year—the $2.6 trillion law only makes the fundamental problem of sky-rocketing healthcare costs worse,” Sen. Orrin Hatch (R-Utah) said a in written statement to Modern Healthcare.

Although the effectiveness of the healthcare law to reduce overall spending remains uncertain, its impacts on hospitals are clear. As overall healthcare spending accelerates, hospital funding increases will remain largely static.

For instance, in 2014—when a healthcare-wide burst in spending is expected because of provisions in the healthcare law—the report anticipated hospital spending would barely grow faster than it would have without the law. Meanwhile, physician and pharmaceutical spending will grow significantly faster than they would have in the law's absence.

The authors of the report credited the swing in spending to an expected drop in the number of people seeking uncompensated emergency department care and a commensurate increase in office-based physician care, as 30 million people gain insurance coverage by 2020. Also, most of the new beneficiaries' expected youthfulness and good health will minimize demands by the newly insured for increased hospital services, the CMS actuaries predicted.

The projected swing toward physicians matched the expectations of hospital advocates. However, stagnant growth rates, even when coupled with planned cuts to hospital reimbursements under Medicare in the coming years, are not major concerns, said Caroline Steinberg, vice president of trends analysis at the American Hospital Association.

“Hospitals will roughly come out even,” she said. As patients and spending move to care settings outside hospitals—and with payers increasingly tying reimbursement to outcomes—the trend of hospitals buying physician practices, already in full swing, is likely to accelerate. “One of the main drivers of integration is the expected transformation of healthcare,” Steinberg said.

The actuaries also projected the changes to the healthcare system through 2010 will result in 13 million people losing employer-sponsored insurance. Most of those workers are expected to regain coverage through either coming state health insurance exchanges or through an expansion of Medicaid by about 20 million beneficiaries. Foster described that movement away from employer-sponsored coverage—primarily by large employers of low- income workers—as “in the best interests” of employers and workers because many of the plans expected to disappear offer only minimal-coverage insurance, or so-called mini-med plans. The law will ban such plans by 2014.

But Grealy of the Healthcare Leadership Council worried that beneficiaries' access to care could suffer when they are moved from such private insurance plans to public insurance programs.

“If you are on a government plan, as opposed to having private insurance, your healthcare provider options are much more likely to be limited by fewer providers accepting those lower payments,” Grealy said.

The projected loss of employer-provided insurance generally dovetailed with Congressional Budget Office estimates that about 7% of employees would switch from employer-provided coverage through the insurance exchanges by 2014. The projected impact is markedly lower than suggested by a June employer survey by consulting firm McKinsey & Co. The research firm found that up to 30% of companies might discontinue health insurance benefits, reduce the benefits, or limit benefits to only some employees, because of provisions of the healthcare law.

The McKinsey findings were ripped by the administration and congressional Democrats as inaccurate, but Rep. Michael Burgess (R-Texas) said he believes they are closer to the truth, based on unreleased company documents requested by Democrats on the House Energy and Commerce Committee. The documents, obtained by the committee when large firms began restating their earnings in 2010 to reflect expected costs under the newly enacted healthcare law, showed several large firms had calculated their potential savings from moving employees from company-provided insurance to state exchanges. “Those savings were really big numbers,” Burgess said.

Defenders of the healthcare law highlighted the actuaries' projection that 11 million other workers would gain employer insurance, raising the overall number of people with such insurance to 168 million by 2020.