Reform Update: Brookings effort aims to slow spending on Medicare

For a moment, set aside the debate over what happened since the recession to slow health spending to record lows. The slowdown held health spending to roughly the same rate of growth as the economy for two consecutive years after the recession, the most recent data show.

Now, economists, policymakers and consultants working with the Brookings Institution say that's where they want it to stay—for Medicare, at least.

Brookings' Engelberg Center for Health Care Reform this week released a comprehensive proposal for changes to Medicare, Medicaid and private insurance benefits that would reduce federal spending by about $300 billion over a decade.

The proposal would build on accountable care and bundled payments, both of which Medicare is testing under the Patient Protection and Affordable Care Act.

And with health spending already sluggish, the authors said, new policies that will hold down spending won't be so disruptive.

“Our report comes at a time when health care spending growth generally and Medicare spending growth in particular have slowed, and when some promising reforms are already being implemented in the private and public sector toward the goal of better, more personalized care at a lower cost,” the report said.

National health spending increased 3.9% in 2011 for the third consecutive year compared with 7.2% average annual growth between 2000 and 2008, the first full year of the recession.

Economist and federal actuaries credit job losses and the recession for the sluggish health spending, but some have also questioned whether new policies or private cost-cutting initiatives played a role.

Nonetheless, the goal is ambitious when health spending has outpaced the economy most years since 1960, and healthcare now accounts for 17.9% of the gross domestic product compared with 5.2% nearly 50 years ago. Federal officials project that will increase to 19.6% by 2021 as the economy recovers, the baby boomers age and more people gain insurance under the healthcare reform law.

Brookings' proposal would also set the bar for Medicare spending growth lower than current law or budget proposals by the House Republicans.

The Patient Protection and Affordable Care Act requires the Independent Payment Advisory Board to propose Medicare spending cuts if spending exceeds the growth in gross domestic product plus 1 percentage point, starting in 2018. Rep. Paul Ryan, (R-Wis.) in March proposed growth in the GDP plus 0.5 percent as a possible rate by which to increase premium subsidies under his plan to overhaul Medicare.

The Brookings' proposal follows two states that have said health spending should more closely track economic growth. Maryland last month asked federal officials to approve plans that would limit hospital spending increases to the state's economic growth rate and save $1.2 billion over three years. Last year, Massachusetts said it would set the state's economic growth rate as a target for health spending. In five years, the state will lower the target to 0.5% below the state's gross product.

Brookings would cap increases for Medicare managed care subsidies to the growth in U.S. gross domestic product. The same limit would eventually apply to growth in spending per person for seniors in proposed Medicare Comprehensive Care plans, which would pay hospitals and doctors by capitation, or traditional Medicare.

Policymakers have had little success at slowing health spending so far with efforts to promote new delivery models such as care coordination, for which evidence of savings is limited, said Mark Pauly, one of the report's authors and a University of Pennsylvania Health Management professor. A spending target “may be where we're headed,” he said. “Nothing else is working.”

Pauly said he is resigned to the shift in policy, though it may not withstand political pressure and does raise questions about quality oversight. “You have to be able to measure quality accurately and you also have to decide how to trade it off,” he said. “What if wait times increase, but the government saves a lot of money?”

A permanent slowdown is also necessary, said Dr. Arthur Kellermann, the Paul O'Neill-Alcoa Chair in Policy Analysis at the Rand Corp. Health spending that grows faster than the economy erodes household income and public budgets at the expense of education, infrastructure and other investments.

Kellermann said that will require new incentives for hospitals and doctors. “The faster we can get away from fee-for-service the better,” he said. “Paying doctors to do more instead of to do better clearly doesn't work.”

Patients must be empowered and engaged as well, he added. “I think more Americans are going to say: 'It's my money and it's my health—I want to have a bigger say in this.'”

Better prevention and population health management and more high-value innovation, he said, will also help curb spending growth that is eating away at the nation's economic health. “In my mind, we do need to set limits on it,” he said. That idea can be frightening, he added, but the goal is to “realign incentives to reward high value and innovation and make healthcare a more competitive market. It's not a competitive market.”

Medicare's most ambitious effort to test accountable care through the Center for Medicare and Medicaid Innovation won't delay use of new quality measures for the second year, which began in January. The CMS said in a letter to the CMMI's Pioneer accountable care organizations that potential bonuses for the second year would be tied to quality performance. During the first year, Pioneers could qualify for bonuses by reporting quality scores. ACOs must also reduce spending to earn bonuses. The CMMI's Pioneer ACOs in February asked federal officials to allow reporting for another year.

Some health systems that own insurance companies will compete for market share in new insurance exchanges to open in October under the Affordable Care Act. Others say too many questions about demand and prices in the new markets will keep them from entering the market the first year.

The Altarum Institute and Henry J. Kaiser Family Foundation said health spending will accelerate as the economy recovers, based on an analysis that found the economy accounted for 77% of the slowdown. Other factors could be managed care, higher out-of-pocket costs, more efficient use of information technology and more systemic changes, the report said. “However, the major elements of the ACA—including significant cost savings in Medicare and the creation of new health insurance exchanges—have in general not yet been fully implemented, and could dampen growth in the future,” the report said.

Follow Melanie Evans on Twitter: @MHmevans