Is This Time Different? The Slowdown in Health Care Spending

Brookings Papers on Economic Activity
A. Chandra, J. Holmes, J. Skinner

Why have health care costs moderated in the last decade? Some have suggested that the Great Recession alone was the cause, but health expenditure growth in the depths of the recession was nearly identical to growth prior to the recession. Nor can the Affordable Care Act (ACA) take credit, since the slowdown began prior to its implementation. Instead, we identify three primary causes of the slowdown: the rise in high-deductible insurance plans, state-level efforts to control Medicaid costs, and a general slowdown in the diffusion of new technology, particularly for use by the Medicare population. A more difficult question is: Will this slowdown continue? On this question we are pessimistic, and not entirely because a similar (and temporary) slowdown occurred in the early 1990s. The primary determinant of long-term growth is the continued development of expensive technology, and there is little evidence of a permanent slowdown in that pipeline. Proton beam accelerators are on target to double between 2010 and 2014, while the market for heartassist devices (costing more than $300,000 each) is projected to grow rapidly. Accountable care organizations (ACOs) and emboldened insurance companies may yet stifle health care cost growth, but our best estimate over the next two decades is that health care costs will grow at GDP plus 1.2 percent, a rate lower than previous estimates but still on track to cause serious fiscal pain for taxpayers and workers who bear the costs of higher premiums.

Association Between Physician Supply, Local Practice Norms, and Outpatient Visit Rates Medical Care

Medical Care
Yasaitis LC, Bynum JP, Skinner JS

There is considerable regional variation in Medicare outpatient visit rates; such variations may be the consequence of patient health, race/ethnicity differences, patient preferences, or physician supply and beliefs about the efficacy of frequently scheduled visits. The objective of the study was to test associations between varying regional Medicare outpatient visit rates and beneficiaries' health, race/ethnicity, preferences, and physician practice norms and supply.

Out-of-Pocket Spending in the Last Five Years of Life

Journal of General Internal Medicine
Kelley AS, McGarry K, Fahle S, Marshall SM, Du Q, Skinner JS

A key objective of the Medicare program is to reduce risk of financial catastrophe due to out-of-pocket healthcare expenditures. Yet little is known about cumulative financial risks arising from out-of-pocket healthcare expenditures faced by older adults, particularly near the end of life.

Impact of Payment Reform on Chemotherapy at the End of Life

Journal of Oncology Practice
Colla CH, Morden NE, Skinner JS, Hoverman JR, Meara E

In physician offices, where drugs generate the majority of revenue and prescribing patterns can determine physician income, use of chemotherapy at the end of life fell significantly after reimbursement reductions; no concurrent change occurred in hospital outpatient departments. These results suggest that payment reform may be used to better align appropriate financial incentives with better quality of care.

Technology Growth and Expenditure Growth in Health Care

Journal of Economic Literature
Chandra A and Skinner J

In the United States, health care technology has contributed to rising survival rates, yet health care spending relative to GDP has also grown more rapidly than in any other country. We develop a model of patient demand and supplier behavior to explain these parallel trends in technology growth and cost growth. We show that health care productivity depends on the heterogeneity of treatment effects across patients, the shape of the health production function, and the cost structure of procedures such as MRIs with high fixed costs and low marginal costs. The model implies a typology of medical technology productivity: (I) highly cost-effective "home run" innovations with little chance of overuse, such as anti-retroviral therapy for HIV, (II) treatments highly effective for some but not for all (e.g., stents), and (III) "gray area" treatments with uncertain clinical value such as ICU days among chronically ill patients. Not surprisingly, countries adopting Category I and effective Category II treatments gain the greatest health improvements, while countries adopting ineffective Category II and Category III treatments experience the most rapid cost growth. Ultimately, economic and political resistance in the United States to ever-rising tax rates will likely slow cost growth, with uncertain effects on technology growth.

Spending Differences Associated With the Medicare Physician Group Practice Demonstration

JAMA
Colla CH, Wennberg DE, Meara E, Skinner JS, Gottlieb D, Lewis VA, Snyder CM, Fisher ES

The Centers for Medicare & Medicaid Services (CMS) recently launched accountable care organization (ACO) programs designed to improve quality and slow cost growth. The ACOs resemble an earlier pilot, the Medicare Physician Group Practice Demonstration (PGPD), in which participating physician groups received bonus payments if they achieved lower cost growth than local controls and met quality targets. Although evidence indicates the PGPD improved quality, uncertainty remains about its effect on costs.

Decision-Making Process Reported by Medicare Patients Who Had Coronary Artery Stenting or Surgery for Prostate Cancer

Journal of General Internal Medicine
Fowler FJ, Gallagher PM, Bynum JP, Barry MJ, Lucas FL, Skinner JS

Patients facing decisions should be told about their options, have the opportunity to discuss the pros and cons, and have their preferences reflected in the final decision.

Sources of Regional Variation in Medicare Part D Spending

New England Journal of Medicine
Donohue J, Morden NE, Gellad WF, Bynum JP, Zhou W, Hanlon JT, Skinner JS

Sources of regional variation in spending for prescription drugs under Medicare Part D are poorly understood, and such variation may reflect differences in health status, use of effective treatments, or selection of branded drugs over lower-cost generics.

Adverse Effects of Robotic-Assisted Laparoscopic Versus Open Retropubic Radical Prostatectomy Among a Nationwide Random Sample of Medicare-Age Men

Journal of Clinical Oncology
Michael J. Barry, Patricia M. Gallagher, Jonathan S. Skinner, and Floyd J. Fowler Jr

Robotic-assisted laparoscopic radical prostatectomy is eclipsing open radical prostatectomy among men with clinically localized prostate cancer. The objective of this study was to compare the risks of problems with continence and sexual function following these procedures among Medicare-age men.

Withholds to Slow Medicare Spending: A Better Deal Than Cuts

Journal of the American Medical Association
Skinner JS, Weinstein JN, Fisher ES

CONSENSUS HAS EMERGED ON THE NEED TO SLOW Medicare spending growth, but there is no agreement on how best to do so. Although many approaches have been suggested, Congress is almost certain to consider across-the-board cuts in reimbursement rates. It is not hard to understand why: cuts are easy to implement and appear to deliver clear savings. But cuts in fees are a poor long-term solution to the problem of increasing health care costs. They make it more likely that physicians will decide not to accept new Medicare patients; further penalize already efficient systems; cause some to increase utilization to make up for revenue losses; and— most importantly—do little to encourage the collaborative efforts needed to improve health, better coordinate care, reduce regional duplication, and help beneficiaries avoid unnecessary care.

In this article, a “withhold” approach is proposed to slow Medicare spending. The objective is to achieve just as much savings while allowing motivated hospitals, physicians, and others who deliver Medicare services a way to recover the cuts and thus maintain, or even increase, their incomes. The idea is to return the withheld money—with interest—if cost growth in the health care region, or within the hospital or physician network, is less than expected. In the absence of such savings, Medicare keeps the money. Either way, Medicare saves.

Hospital quality and the cost of inpatient surgery in the United States.

Annuals of Surgery
Birkmeyer JD, Gust C , Dimick JB, Birkmeyer NJ, Skinner JS

Payers, policy makers, and professional organizations have launched a variety of initiatives aimed at improving hospital quality with inpatient surgery. Despite their obvious benefits for patients, the likely impact of these efforts on health care costs is uncertain. In this context, we examined relationships between hospital outcomes and expenditures in the US Medicare population.

Technology Growth and Expenditure Growth in Health Care

Journal of Economic Literature
Amitabh Chandra and Jonathan Skinner

In the United States, health care technology has contributed to rising survival rates, yet health care spending relative to GDP has also grown more rapidly than in any other country. We develop a model of patient demand and supplier behavior to explain these parallel trends in technology growth and cost growth. We show that health care productivity depends on the heterogeneity of treatment effects across patients, the shape of the health production function, and the cost structure of procedures such as MRIs with high fixed costs and low marginal costs. The model implies a typology of medical technology productivity: (I) highly cost-effective “home run” innovations with little chance of overuse, such as anti-retroviral therapy for HIV, (II) treatments highly effective for some but not for all (e.g., stents), and (III) “gray area” treatments with uncertain clinical value such as ICU days among chronically ill patients. Not surprisingly, countries adopting Category I and effective Category II treatments gain the greatest health improvements, while countries adopting ineffective Category II and Category III treatments experience the most rapid cost growth. Ultimately, economic and political resistance in the United States to ever-rising tax rates will likely slow cost growth, with uncertain effects on technology growth.

The pragmatist’s guide to comparative effectiveness research

The Journal of Economic Perspectives: a journal of the American Economic Association
Chandra A, Jena AB, Skinner JS

All developed countries have been struggling with a trend toward health care absorbing an ever-larger fraction of government and private budgets. One potential solution is to rely more heavily on studies of the costs and effectiveness of new technologies in an effort to ensure that new spending is justified by a commensurate gain in consumer benefits. For most nonhealth commodities, markets function sufficiently well to perform this function unassisted. But in a market such as health care, effectiveness studies can (in theory) shed light on what patients would have demanded in the absence of moral hazard and adverse selection.

Geographic Variation in Diagnosis Frequency and Risk of Death among Medicare Beneficiaries

JAMA
Welch GH, Sharp SM, Gottlieb DJ, Skinner JS, Wennberg JE

Because diagnosis is typically thought of as purely a patient attribute, it is considered a critical factor in risk-adjustment policies designed to reward efficient and high-quality care.

McAllen and El Paso Revisited: Medicare Variations Not Always Reflected in the Under-65 Population

Health Affairs
Franzini L, Mikhail OI, Skinner JS

Medicare spending for the elderly is much higher in McAllen, Texas, than in El Paso, Texas, as reported in a 2009 New Yorker article by Atul Gawande. To investigate whether this disparity was present in the non-Medicare populations of those two cities, we obtained medical use and expense data for patients privately insured by Blue Cross and Blue Shield of Texas. In contrast to the Medicare population, the use of and spending per capita for medical services by privately insured populations in McAllen and El Paso was much less divergent, with some exceptions. For example, although spending per Medicare member per year was 86 percent higher in McAllen than in El Paso, total spending per member per year in McAllen was 7 percent lower than in El Paso for the population insured by Blue Cross and Blue Shield of Texas. We consider possible explanations but conclude that health care providers respond quite differently to incentives in Medicare compared to those in private insurance programs.

Measuring Racial Disparities in the Quality of Ambulatory Diabetes Care

Medical Care
Bynum JP, Fisher ES, Song Y, Skinner JS, Chandra A

Improving the health of minority patients who have diabetes depends in part on improving quality and reducing disparities in ambulatory care. It has been difficult to measure these components at the level of actionable units.

Medicare Payments for Common Inpatient Procedures: Implications for Episode-based Payment Bundling

Health Services Research
Birkmeyer JD, Gust C, Baser O,  Dimick JB, Sutherland JM,  Skinner JS

Aiming to align provider incentives toward improving quality and efficiency, the Center for Medicare and Medicaid Services is considering broader bundling of hospital and physician payments around episodes of inpatient surgery. Decisions about bundled payments would benefit from better information about how payments are currently distributed among providers of different perioperative services and how payments vary across hospitals.

Regional Variations in Diagnostic Practices

New England Journal of Medicine
Song Y, Skinner JS, Bynum J, Sutherland J, Wennberg, JE, Fisher ES

Current methods of risk adjustment rely on diagnoses recorded in clinical and administrative records. Differences among providers in diagnostic practices could lead to bias. We used Medicare claims data from 1999 through 2006 to measure trends in diagnostic practices for Medicare beneficiaries. Regions were grouped into five quintiles according to the intensity of hospital and physician services that beneficiaries in the region received. We compared trends with respect to diagnoses, laboratory testing, imaging, and the assignment of Hierarchical Condition Categories (HCCs) among beneficiaries who moved to regions with a higher or lower intensity of practice.

Looking Back, Moving Forward

New England Journal of Medicine
Skinner, JS , Staiger D and Fisher ES

The recent Senate election in Massachusetts may reshape or delay health care reform, but we still face the twin challenges of unsustainable cost increases and uneven quality that plague U.S. health care. Recent controversies have left many people confused about how we might wisely move forward. One such controversy is the debate over the “value index,” a reimbursement approach that would adjust providers’ payments on the basis of regional performance on quality and cost measures. Legitimately concerned that careless implementation of a value index might hurt some preeminent teaching institutions, some leaders of academic medical centers have responded to this proposal by questioning the validity of existing measures of cost performance, many of which have been generated from Medicare data by our Dartmouth research group.