No more Independent Payment Advisory Board. The individual mandate is on the way out. Congress is doing next to nothing about sky-high drug prices.
And last week, the Trump administration signaled that it wants to relax Affordable Care Act rules that prohibit new physician-owned hospitals. In theory, such hospitals offer more competitive prices for routine procedures. But in practice, studies have shown they are more likely to lead to unnecessary use and cherry-picking easy-to-treat patients.
It's too early to say the era of cost control, which stretched roughly from 2010 to 2016, is over. But as the latest CMS cost projections suggest, the U.S. appears headed into another period when healthcare spending routinely exceeds the economy's overall rate of growth.
Some of this new spending is inevitable. The baby boom generation, retiring at a rate of 10,000 persons a day, is heading into its high healthcare cost years. An aging society of necessity devotes more of its economic output to maintaining health.
Technology continues to push the frontiers of medicine in more expensive directions. We can do more things that extend life and improve the quality of life. But these advances are coming at a very high price.
The lessons of the past decade suggest policymakers have the capacity to legislate programs that partially offset these trends. The proof comes from a simple statistic: in 2010, healthcare made up 17.4% of the U.S. economy. In 2017, it was 18%, a rate of growth so slow—just one-tenth of 1 percentage point per year on average above economic growth—that it never triggered the IPAB's requirement to impose mandatory cost controls. No one was ever appointed to its board.
The budget law enacted earlier this month had a number of significant victories for healthcare providers and the patients they serve. Most of them did not increase costs. Rather, they renewed funding for programs like children's health insurance and community health centers and offered extra payments to safety-net hospitals that were already embedded in the system and are good long-term investments in cost control.
The budget law also included some new programs that give insurers and providers better tools for managing patients more effectively. The bipartisan Creating High-Quality Results and Outcomes Necessary to Improve Chronic Care Act will help Medicare and Medicare Advantage plans oversee the 5% of elderly patients who account for half of program spending. The law also expands their ability to deploy value-based insurance design, which allows higher co-pays on drugs and services of limited medical value.
Even accountable care organizations, an Obama-era innovation, got a small boost. Those taking on downside risk will now have the right to offer patients assigned to the ACO a $20 incentive payment for using proven prevention services. Hospitals and physicians involved in the shared-savings program will be able to expand use of telehealth and learn in advance which patients have been assigned to their ACO.
Sadly, some of the law's offsets, like slashing a billion dollars over the next decade from public health and prevention programs, could wind up adding to overall costs. The cheapest disease to treat is one that never starts.
But none of these changes—in either direction—are game-changers. The CMS economists' projections for the next decade show healthcare costs rising at 5.5% a year on average, 1 to 1.5 percentage points faster than the rest of the economy. Total spending will rise to 19.7% of gross domestic product by 2026.
This isn't fated. Must medical prices necessarily rise 2.7% a year in the 2020s compared to 1.1% in 2014-16? Must drug spending continue to grow nearly 7% a year, faster than any other sector of healthcare?
Over the past decade, the CMS actuaries and economists have consistently overestimated healthcare spending. Alas, given the current makeup in Washington, the risk now is that they are missing the mark on the downside.