“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.”