Government experts recently published projections for national health spending between 2013 and 2023. After five years below 4%, a team of nonpartisan economists forecasts 6% annualized growth through 2023. Their projections calculate healthcare expenditures totaling $5.2 trillion in 2023, representing 19.3% of the gross domestic product.
Inefficient health spending is not our destiny. The government's analysis neglects fundamental shifts in healthcare supply-demand relationships driven by market demands for greater healthcare value.
The government's analysts employed multivariate regression that incorporates the Congressional Budget Office's 10-year economic forecast. This year's report chronicles 2012's actual health expenditures and forecasts 2013 to 2023 spending by adjusting 2012 results for anticipated changes in care volume and costs.
Historical analytic models falter when new companies and new business models disrupt industry norms. The intensity of change makes established metrics and data relationships unreliable. The authors note the point, but ultimately punt:
“The impacts of reform on the behavior of consumers, insurers, employers, and providers will continue to unfold throughout the projection period and beyond. In particular, the supply side effects of the ACA remain highly speculative and are not included in these estimates.” (Italics are mine.)
The report's most glaring over-projection occurs in the percentage of GDP devoted to health spending. Actual health expenditures peaked at 17.9% of GDP in 2011 and fell to 17.2% in 2012. That means health expenditures in 2012 grew at a slower rate than GDP for the first time in several decades. Expect more of the same.
Health reform's most remarkable feature is the extent to which private market activity is driving innovation and system transformation. Innovative companies are restraining health expenditure growth by providing better, more appropriate care at lower prices.
Positive disruption of current delivery models is shifting resources from inefficient providers to value-based competitors delivering better healthcare at lower prices. By employing analytic methodologies that over-emphasize historic data relationships and government funding patterns, the CMS analysis overlooks how value-based competition is transforming U.S. healthcare delivery.
The CMS' pattern of over-projecting health spending illustrates the danger of groupthink. Analysts can't measure what they don't see. The CMS reports focuses on ACA “waves” and misses the powerful “tide” of market-driven reform.
Despite aging demographics, U.S. health spending will continue to moderate and become a lower percentage of the GDP. The market will redirect unproductive healthcare resources toward more productive industries that stimulate economic growth. That is disruption's beneficial purpose.
David Johnson spent 28 years as an investment banker at Merrill Lynch, Citigroup and BMO Capital Markets before launching 4Sight Health, a healthcare consulting firm.