Why governments care about health and healthcare, how they are connected to government spending and priorities, and why addressing social determinants of health is so important for making lasting improvements, were the subjects I covered in a presentation at George Mason’s graduate policy school in September. My goal was to provide the soon-to-be policy analysts and advisers with a framework for understanding those issues so they will be able to provide useful recommendations to their future decision making bosses. (See the slide below for the topics covered in the presentation.) Links to videos of the talk are below, along with short descriptions – I think that Part 6 is particularly good. (Embedded views of the videos are at the end.)
I’ve had discussions with policy makers and corporate executives about these issues since their organization’s value propositions increasingly require demonstrating individual and population outcomes with specific metrics. Those requirements are part of the broader rapid movement of the U.S. healthcare system towards more accountability. Consequently, the connections among health, healthcare delivery, spending, community organizations, and social determinants of health are becoming a top priority for healthcare and life science leaders in companies and government agencies as they seek to increase value for their organizations and the people they serve.
Any thoughts you have about this talk, the connections among health, healthcare, spending, and community health factors (a.k.a. social determinants of health), would be greatly appreciated. And if there are any aspects of these issues where I can be of help to you or your colleagues – or you know of organizations or audiences that would also benefit from a similar presentation – please just let me know as I’d be happy to discuss that with you.
Part 3: Why spending on (and budgeting for) health and healthcare programs are unlike almost all other Federal programs, and why projecting spending is so challenging. https://youtu.be/lyaAjRzD0ic
Part 4: How government and private payers are seeking greater value and better clinical outcomes from their healthcare spending, and how data and analytics are increasingly important components of developing and evaluating those initiatives. https://youtu.be/7abj14xIcMw
Part 5: Examples of value based pricing initiatives and the importance of data and analytics for managing such programs, determining “success”, and sharing savings with physicians, other providers, or patients. https://youtu.be/MeLZA5wcpG8
Part 6: How health, healthcare, and spending on government health programs (and private insurance reimbursements) connect to each other, and how social determinants of health can drive clinical and economic outcomes, i.e., how a culture of health can be so important for transforming health in a community. This Part concludes with a brief discussion of the Affordable Care Act and the future of that program and the U.S. healthcare system. https://youtu.be/66zt_Rqf9hA
Enjoy. Pass along to your colleagues and friends. And as always, constructive comments are welcome!
The challenges of estimating future U.S. healthcare spending (and why projections are so often so inaccurate) is the focus of the third video segment from my guest lecture at George Mason University about Health and Budget Policy – see below. (The first two are in previous blog posts and are on the HealthPolCom YouTube Channel.)
The final two video segments on the topics of Medicaid, and the Changing U.S. Healthcare System will be posted next week. The five subjects covered in the video segments from the guest lecture are:
U.S. Spending on Health and Healthcare
Medicare and U.S. Healthcare Spending
Challenges for Estimating Future Healthcare Spending
Medicaid: Federal and State Fiscal Issues
Changing U.S. Healthcare System: New Payment and Delivery Models
Enjoy. Pass along to your colleagues and friends. And as always, constructive comments are welcome!
The second video from my guest lecture at George Mason University about Medicare and U.S. Healthcare Spending in now available – see below. (The first was an overview of Health Spending in the United States, and is in the previous blog and also on the HealthPolCom YouTube Channel.)
The other video segments from my guest lecture that I’ll be posting over the next week or so will be on the following subjects:
Challenges for Estimating Future Healthcare Spending
Medicaid: Federal and State Fiscal Issues
Changing U.S. Healthcare System: New Payment and Delivery Models
Enjoy. pass along to your colleagues and friends. And as always, constructive comments are welcome!
The 2014 Medicare Trustees’ Report was released yesterday. Amidst all the reporting was how the revised projections for the Medicare Trust Fund (for Part A) increased by 3 years from last year’s report. The Kaiser Family Foundation has a great summary of Medicare financing and projections for future spending, but below is another chart that shows the actual number of years of projected solvency for the Part A Trust Fund in the years since 1970 – in the years when the Trustees’ Report included such projections:
Two things to note about this chart: The dramatic leap up in 2010 mostly reflects a combination of the healthcare spending slowdown in the Great Recession and the legislative changes in the ACA that pared back Medicare payments. (Note – those payment reductions were included in Republican proposals for replacing/supplanting the ACA.)
Another interesting item in the Trustees’ Report that both Kaiser Family Foundation and Sarah Kliff have noted is an actual dollar decline in per Medicare beneficiary spending on hospital costs. This may be due to some combination of greater scrutiny for hospitalizations, greater efforts to avoid rehospitalizations, and medicines ability to treat more things as outpatients. However, it also might mean that Medicare enrollees are facing higher cost sharing if they are getting more treatments as outpatients, which are covered under Medicare Part B.
This all seems to confirm the old saying, “The more things change, the less they stay the same,” i.e., projections change as the underlying conditions don’t stay the same.
Dr. Hirsch’s insights are interesting and timely because California often precedes the rest of the country in adopting new approaches to healthcare delivery and financing problems. An example of this may be California’s 2006 Hospital Fair Pricing Act, which addressed very high hospital bills for the uninsured. This month’s Health Affairs includes an article that analyzes the impact of this law, and the authors’ findings contrast markedly with Steven Brill’s Time magazine article, “Bitter Pill: Why Medical Bills Are Killing Us.”
The California law is a significant step, and the Health Affairs authors describe it as a “detailed and well-structured approach.” The Act did have limitations: it only protects uninsured people with incomes under 350% of the FPL, the state has minimal enforcement activities, and it only covers hospital bills and not those from physicians or outside services. (Note: In 2011 the law was expanded to include bills from ED physicians.)
Since the ACA will leave many people without health insurance, the Health Affairs authors conclude, “Policy makers and health planners in other states searching for options to protect the uninsured should be encouraged by our findings and should seek to learn more about California’s approach and determine how they might adapt similar laws to their own state’s health care system.”
(Disclosure: I’ve known Dr. Hirsch for many years – and aside from out obvious East Coast-West Coast attire differences, we continue to share a similar hairstyle and are both working to improve healthcare quality and efficiency.)
*Scripps Coastal Medical Group includes more than 140 family medicine, internal medicine, obstetrics and gynecology, pediatrics, physical medicine and rehabilitation, rheumatology and general surgery clinicians practicing throughout San Diego County, and exclusively provides medical services through Scripps Health, a nonprofit integrated health system, under the Scripps Coastal Medical Centers brand.
I recently had the opportunity to give guest lectures at Georgetown University and the University of Virginia. At Georgetown I focused on employer’s perspectives on health promotion and disease prevention. (Videos of portions of that discussion are below.) At UVA’s Batten School of Public Policy I discussed fiscal issues and policies for government healthcare programs, e.g. Medicare and Medicaid. (A few slides from that discussion are below….. sorry no video.)
The opportunity to talk with our future clinicians, health system administrators, and policy makers was heartening and a bit terrifying. While the students are eager and passionate, I wonder about their historical understanding of our complex healthcare systems and the policies, programs, and initiatives that got us to where we are today. Too often I’ve seen proposals that are trying to resurrect a failed wheel, or undo something that solved a problem so effectively it no longer has a vocal advocacy. As Edmund Burke said, “Those who don’t know history are destined to repeat it.” And the US healthcare system(s) have enough challenges without spending resources on false paths.
Video Segments: Georgetown Univ. Health Promotion & Disease Prevention Guest Lecture
Selected Slides from UVA Batten School of Public Policy Guest Lecture
The data for 2011 US healthcare spending was reported in the January issue of Health Affairs. Below are some graphs showing how spending was distributed across the different categories of healthcare services in the years 2000, 2007, and 2011, as well as who paid for the spending. (My analyses and commentary follow these graphs. The source for all graphs is Health Affairs, 32, no. 1 (2013):87-99)
What Healthcare Spending Went For:
Where Healthcare Spending Funds Came From:Three highlights from the Health Affairs article are:
The distribution of healthcare spending for various services and providers has been relatively constant despite significant growth in total and per capita spending. (See chart below)
Growth in hospital spending slowed in 2010 and 2011 after bumping up in 2009. (Y/Y increases were 6.7% in 2009, and 4.3% and 3.9% in 2010 and 2011, compared to 3.9% for total National Health Expenditures for each of these years over the prior year.) The Health Affairs article notes that “The growth in use of hospital services remains low, with the number of inpatient days declining by 1.1 percent in 2011, following a decline of 1.6 percent in 2010, and the number of outpatient visits increasing by 0.7 percent, a slowdown from the increase of 1.5 percent in 2010.”
The percentages of healthcare spending coming from private businesses and households has decreased. This probably reflects higher government spending for the new Medicare prescription drug benefit and increased Medicaid enrollment during the economic downturn being only partially offset by private insurers shifting costs to individuals.
Effects of Health Reform (ACA)
While only a few of the ACA’s provisions went into effect during 2010 and 2011, there has been much speculation as to how (and how much) the ACA has or will change healthcare spending. The Health Affairs article includes data about changes in private insurance enrollment from the requirement that companies offer coverage for dependents up to age 26. But it also points out that this age group is relatively inexpensive to insure so it probably didn’t produce great changes in spending. However, Medicaid coverage and spending did change significantly, with more people in Medicaid programs due to the economic downturn, and the states’ costs increasing with the end of the temporary bump in Federal matching rates.
The Health Affairs authors don’t speculate about is how healthcare providers and organizations are shifting their operations and attitudes in anticipation of various of various new Federal programs, such as the Shared Savings Program for ACOs, value based payments, EMR Meaningful Use incentives/penalties, and penalties for avoidable adverse events. With private payers expanding clinical and economic accountability for healthcare providers through various payment innovations that are aligned with Medicare’s policies, the acceleration of system-wide transformations may be greater than projected – and lead to greater and earlier cost savings. I have written about the factors that may be moderating healthcare spending growth, and believe that the relatively slower rate in hospital spending and inpatient days reported in the Health Affairs article are the leading edge of this trend. However, as hospitals purchase physician practices they may establish local market power that limits competition, and the prices charged to Medicare by these acquired practices could increase as they shift from the category of clinicians’ office to hospital outpatient facilities. Conversely, to the extent that these integrated healthcare systems assume risk for savings and quality performance – probably with payments involving episodes or bundles of care – then these concerns will be diminished, although not eliminated if they can still limit price and quality competition and comparisons.
Looking Forward to Future Health Spending
The Health Affairs article speculates a bit about where healthcare spending is heading in the near future. And, as is typical when trying to predict the future, the article doesn’t completely agree with what others have written. Not to be critical of the Health Affairs authors, (or professionals at the Congressional Budget Office or other organizations), but modeling is hard. To illustrate how difficult this task is – and how it can lead to different predicted outcomes even with lots of historical data to work with – below is a map showing the multiple predicted paths for 2012 Hurricane Sandy.
Communicating the meaning of the latest data can also be confusing. For example, the New York Times and the Wall Street Journal delivered significantly different verdicts on the meaning of the Health Affairs article. The Times’ headline declared, “Growth of Health Spending Stays Low” and quoted the Medicare agency’s chief actuary as saying “’I am optimistic. There’s lot of potential. More and more health care providers understand that the future cannot be like the past, in which health spending almost always grew faster than the gross domestic product.’” Conversely, the Journal’s headline was “Health-Cost Pause Nears End,” and the article noted that the Health Affairs article, “…showed that the amount of spending to treat individuals, as opposed to spending on administration and insurance premiums, began to rise in 2011.” It then concluded that this was “signaling that cutbacks in health spending hadn’t become permanent.”
Predicting the Future is Easy
Predicting the future is easy. Accurately predicting the future is difficult. 2014 will almost certainly bring significant changes to how many people in the US get health insurance, how healthcare organizations deliver care, and how Medicare and Medicaid operate. Like CMS’ chief actuary, I am optimistic, even though I also recognize that he is also correct in that, “The jury is still out whether all the innovations we’re testing will have much impact.” But I also see his actuarial caution as a reason for optimism because I believe that modeling based upon few precedents causes projections to be overly cautious, which should mean that actual savings will be greater than expected.
The title of Jimmy Buffett’s song “Changes in Latitudes, Changes in Attitudes” is a good description of the fundamental changes occurring in the US healthcare system: Within the Federal Government – and Medicare in particular – widespread “Changes in Latitudes, Changes in Attitudes” are evident in the implementation of the Affordable Care and HITECH Acts, and the overall leadership of the Department of Health and Human Services. Healthcare leaders in private organizations – and state and local governments – are embracing these changes, which collectively are leading to better healthcare quality and lower costs…. Or at least slower increases in healthcare costs, a.k.a. a bending of the healthcare cost curve.
Changes in Attitude
Traditionally government programs have worked at a long-arms distance from private companies and organizations. For Medicare, this has meant that changes in rules and regulations were conveyed to healthcare providers and clinicians by publishing them in the Federal Register or as updates to the manuals used by Medicare’s bill-paying contractors. Private payers, (e.g. insurance companies), responded to these changes and updates because Medicare is the largest single payer for healthcare services. Providers and clinicians were thus always responding to a shifting quilt of payment rules and provisions – and more recently an additional layer of quality reporting requirements.
CMS and HHS have repositioned the government’s payment practices to serve an aligning leadership role that is minimizing confusion and complexity for providers and clinicians, while also promoting greater transparency and accountability. The government has accomplishing this by working with private payers (to the extent allowable by sunshine and antitrust laws) to give providers and clinicians more consistent guidance on payment policies and quality metrics, as well as incentives for improving the organization and delivery of care. An example of this is the Comprehensive Primary Care Initiative (CPCI). The goal of this program is to promote higher quality patient-centric primary care. To determine the CPCI locations, CMS used a bidding process where the seven winning regions were those that committed the highest concentration of insured people, i.e., a combination of private payer, Medicaid, and Medicare covered lives. All the payers in the selected locations agreed to work collaboratively to identify the primary care practices that would get incentive payments for improving the quality and the integration of care – with each payer determining the specific level of financial incentives and support for each of their covered lives in these practices.
The key facets for the CPCI program are:
Public and private sector payers are truly aligned for comprehensive healthcare transformation.
It is using market forces to promote this transformation.
It is a community based initiative that is engaging local leaders, and which requires their buy-in and shared ownership of the process and the outcome.
It is structured to seek both quality improvements and costs savings.
Other initiatives from the ACA-created CMS Innovation Center are seeking to partner Medicare with local providers and payers for payment mechanisms that will promote better quality and lower costs, i.e. higher value healthcare that achieves the improvements that people and communities want. Some of these programs involve bundling of payments around certain conditions, and the Innovation Center has explicitly stated a desire to consider providers’ ideas for new models of care and financing outside of the matrix of models it has already proposed. (It is doing this through Health Care Innovation Awards.)
At the same time, “regular” Medicare is shifting its attitude about poor quality care. For example, last fall new Medicare rules became effective that prohibit hospitals from receiving a second payment from Medicare if a patient with pneumonia, congestive heart failure, or after a heart attack is readmitted to a hospital within 30 days, i.e. a return to the hospital that is preventable with good post-discharge care coordination and follow-up. This is just one of many new financial incentives – both positive and negative – involving actual quality of care that Medicare is moving forward with based upon various provisions of the ACA. (Private payers are implementing similar quality of care related payment policies.)
Changes in Latitude
While Jimmy Buffet was talking about geographic lines of latitudes, Medicare and HHS have exhibited changes in latitude for the requirements placed on many healthcare providers and clinicians – particularly those participating in programs designed to deliver higher quality care. In addition to the Innovation Center examples cited above, Medicare’s new Shared Savings Program enables Accountable Care Organizations (ACO) to be structured in a wide variety of ways as long as they meet certain requirements and commitments. And one area where they are permitted full autonomy is how an ACO distributes any shared savings (or other financial incentives) to the healthcare professionals and provider groups within or connected to the ACO. While Medicare wants to be informed about these internal incentive structures – presumably to guide the development of future value-promoting programs – Medicare is not dictating this crucial facet of an ACO’s operations.
This attitude for considering such wide latitude of ideas illustrates the sea-change shift that has occurred within the government bureaucracy that has traditionally sought to evaluate “new ideas” primarily by comparing differences in existing care delivery models across the spectrum of the US healthcare system. However, CMS’ Innovation Center does not have full autonomy for conducting Medicare demonstration projects since it is required to focus on new models for paying healthcare providers, e.g., doctors and hospitals. Because of this limitation (and related anti-kickback laws) the Innovation Center cannot do demonstrations that alter benefit structures, or empower ACOs to create new financial incentives for patients by changing co-payments or other cost sharing requirements. In contrast, private payers are implementing financial incentives to prompt patients to use certain providers, select primary care physicians to help guide them through complex care situations, or adhere to medical therapies for chronic conditions, etc. Perhaps in the future, (either directly or as part of the latitude for accountable healthcare systems), Medicare will be able to test modifications of beneficiaries’ cost-sharing to expand how patients are engaged for improving the quality of care and sharing cost savings.
While the changes occurring within CMS, private payers, and healthcare deliver organizations across the country are very exciting and have great potential, not every initiative or transformation will be 100% successful. This is to be expected, and it will present the opportunity to learn from whatever shortfalls occur – as well as organizations that exceed expectations. This knowledge will be important for creating new initiatives and modifying existing ones as they move forward. Hopefully, other organizations committed to improving care and lowering costs in the public’s interest will be on board with CMS’ new attitude, support the inevitable challenges that law ahead, and seek to calm the waters of public discourse rather than whip the storms like Thor.
The growth in healthcare spending has slowed in recent years. Many experts and pundits have sought to explain why – while also worrying, (or predicting), that this slowing is only temporary, i.e. past performance will predict the future.
Healthcare Delivery and Financing are Dynamically Evolving
The future will be significantly different than the past because our healthcare system, society, and economy are evolving into what might be called a “New Normal” state. Assuming current priorities and pressures continue, public and private sector organizations at all levels will increasingly emphasize value¹ in their decisions about spending and preferences for healthcare services – including choices about substituting one treatment option for another. For public entities, these choices involve coverage and budgeting for programs ranging from Medicare, Medicaid, and Veterans’ healthcare, to benefits for government employees – as well as rules for insurance exchanges. For private organizations, these choices range from health insurance benefits provided by large employers to the decisions individuals make for their insurance coverage – as well as the clinical and lifestyle choices individuals make inside and outside doctors’ offices.
While those choices will collectively mold our future healthcare system, many changes have occurred in the last five years that are creating a new environment for making these choices and pushing us into a “New Normal” state, i.e., these evolutionary forces have already started bending the cost/spending curve. This progress towards more value oriented healthcare will continue unless the driving forces are hampered, hindered, or blocked by future actions.
“The Times They Are a-Changin” Robert Zimmerman
Listed below – in my estimated rough order of importance – are reasons why healthcare spending has slowed and will continue to be less than had been projected.
Dipping Economy: The economic slowdown has decreased the amount of healthcare people are seeking – as well as creating a temporary disruptive environment for making other changes in stakeholders’ attitude and latitudes of practice. Whether the decrease in healthcare utilization is because people have mostly declined or delayed unnecessary or truly discretionary healthcare services and treatments, or are foregoing many important preventive actions and therapies – which will lead to higher costs and morbidity in the future – remains to be determined.
Private Insurance Benefit Design Changes: People with private insurance have shifted to higher deductible plans², (a.k.a. consumer directed plans), which have lower monthly premiums and higher deductibles, and sometimes increased co-payments/co-insurance. This change has been in both employer sponsored plans – where individuals may not have a choice – as well as for people (and families) buying insurance as individuals or through small business plans. Like #1 above, economic incentives have led people to be more selective in what healthcare services and products they are using, but the wisdom of these choices and their long-term effects on costs and quality of care (and life) are not yet fully understood.
Medicare Outpatient Prescription Drug Benefit: The Medicare outpatient prescription drug benefit, (a.k.a. Part D), started in 2006. If the general premise that prescription medicines are the most clinically and cost-effective form of healthcare is correct, then the greater use of prescription medicines by Medicare enrollees should be reducing spending growth in other Parts of Medicare, e.g. hospitalizations and doctor visits.
Mindset Changes for Patients and Clinicians: The economic downturn, various provisions of the Accountable Care Act, and changes in healthcare benefit design – particularly more high deductible health insurance plans – are making patients and clinicians more attuned to the economic implications of healthcare choices and the value of integrated, multidisciplinary, (a.k.a. team-based), care delivery. Resistance to shifting to such integrated care from the old one-patient/one-doctor Marcus Welby, MD-esque mindset will impede progress in some areas – particularly the adoption of EMRs and regional health information systems, which require up-front spending, and where the long-term benefits are derived from providers participating in such team-based care paradigms.
Change to Healthcare Delivery System:
Integrated care delivery systems and the purchase or affiliation of physicians’ practices;
Geographically uneven changes;
Accountable Care Organizations (ACOs);
Patient Centered Medical Homes (PCMH);
Concierge medical practices;
Greater use of tele-medicine for remote monitoring, management, and consultations;
Greater use of non-physician clinicians, community based healthcare coordinators, and home care services – including more old-fashioned house calls.
Change to Financial Incentives: (Besides high-deductible insurance plans)
Pay for Reporting (P4R) – usually tied to quality metrics, but also used for EMR capabilities;
Pay for Performance (P4P) – similar to P4R, but for actually performance, not just reporting;
Global or bundled payments, e.g. ACOs shared savings and risk sharing arrangements with Medicare and private payers;
Non-payment for “never events”.
Trans-Fat Labeling: FDA regulations have required food labels to list trans-fats since 2006, which has had a two-fold effect which should be driving down long-term health spending: Making people more aware of trans-fats as an unhealthy choice, and inducing food companies to both remove trans-fats from their products and advertise that fact. The results have been significant. Earlier this year the CDC reported that blood levels of trans-fats have declined from 2000 to 2009: “The 58 percent decline shows substantial progress that should help lower the risk of cardiovascular disease in adults”. I suspect that CBO or others didn’t project savings to Medicare or Medicaid from the food labeling requirement. However, shifts to healthier lifestyles will need more environmental changes like these, e.g. bike sharing programs; walking paths; programs connecting individuals with shared goals; healthier food options at cafeterias, restaurants, and grocery stores, etc.
Price Transparency and Accountability for Outcomes: More transparency about prices and quality of care delivered by individual clinicians and providers is placing greater pressure on healthcare prices. In addition, since healthcare prices in the US are higher than in other countries, globalization will increasingly create downward pricing pressure – especially for products and services where people, (or their specimens), can easily travel to other countries, such as for elective surgery, or DNA testing. [Note – accountability for quality, accuracy, and fraud prevention will be necessary to ensure that foreign services with lower prices represent higher value rather than just greater waste and harm to patients.]
Innovations – Better Therapies, Diagnostics, and Prevention:
Healthcare innovations range from biopharmaceuticals, genetic tests, HIT/tele-medicine, to validated best practices including checklists and clinical decision support. Some innovations increase costs. Some improve clinical outcomes. Some do one but not the other. Some do both. As metrics demonstrating the value of innovations become more granular and can be determined more rapidly, clinicians and providers will be under greater pressure to demonstrate – and be accountable for – the outcomes they are delivering. However, this will only occur in a balanced way as long at patient-centric quality outcomes are measured alongside economic outcomes. The danger is that clinical outcomes will only be determined on a population basis, but then applied to patient care decisions without considering individual patient characteristics or priorities.
Smoking Restrictions. Restrictions on smoking in public places is reducing exposure to second-hand smoke. Some studies have shown rapid declines in heart attacks for people working in restaurants and bars after smoking in those workplaces was prohibited. (FYI – LEED certified residential buildings treat second-hand cigarette smoke as a pollutant and often prohibit smoking inside the entire building – including people’s apartments, as well as outside doors and windows. And the DC Department of Health has been publicizing the toxic nature of second-hand cigarette smoke from adjacent apartments.)
Tougher Enforcement Against Fraud and Abuse. Cracking down on fraud and abuse may be reducing healthcare spending by deterring such criminal activity. These efforts have been aided by improvements to healthcare IT – and this will only improve in the future.
There certainly should be a 12th reason – since all good lists have 12 items – but I can’t think of one right now…. Any suggestions?
Not a Simple Picture
The dynamic interactions among many of the factors listed above makes it very difficult to determine the contribution each one makes to reducing healthcare spending for a particular condition, population, or US healthcare spending overall. For example, improvements to healthcare IT are enabling improvements to delivery system operations and financial incentives – which are also linked to each other. Each of these also affect the mindsets of patients and clinicians, i.e., HIT systems are elevating patients’ and clinicians’ expectations for better information about treatment options and less waste. And financial incentives are evolving to support the use of such information to achieve better outcomes. Together these and other changes are altering patients and clinicians attitudes and actions towards the entire healthcare system to be accountable for delivering greater value. This hyper-cross-connected situation is analogous to the biomedical research field of systems biology, which is seeking to understand how multiple physiological systems cause specific diseases – and how combination therapies may be needed to treat such complex illnesses.
1. Value in healthcare can be a tricky concept, but it generally encompasses the clinical and economic outcomes produced by the intervention compared to the total costs, risks, and potential adverse effects of the treatment option.
2. Haviland A., et. al., “Growth Of Consumer-Directed Health Plans To One-Half Of All Employer-Sponsored Insurance Could Save $57 Billion Annually,” Health Affairs, May 2012 31:5,1009-1015
Predicting the future is easy. Predicting the future accurately, is hard.
Public policy deliberations about initiatives for improving healthcare delivery and financing are often handcuffed by an over-reliance on the accuracy of projections. This happens because estimates of costs, disease prevalence, utilization rates, etc. are embraced as descriptions of inevitable futures, rather than as well-executed analytical projections with inherent probability ranges. This metamorphosis from estimation to “factation” occurred though a predictable sequence:
Quantitative analyses yield estimates;
Estimates are published or presented;
Summaries of estimates are extracted from tables and slides;
These summaries – or “bottom lines” – are rhetorically converted by the media and others from “projections” and “estimates,” to what “will happen,” as in, “healthcare spending will be….” without any recognition of the underlying assumptions or likelihood of significant deviation.
And just like that, well constructed estimates built on assumptions of “what would happen assuming” scenarios are treated as inevitable and de facto futures. (Note – This scenario can also occur for private sector initiatives.)
“Everyone is entitled to his own opinion, but not to his own facts.” US Senator Daniel Patrick Moynihan
Experience Can Lead to Clarity of Vision
Henry Aaron, the very experienced and respected Brookings Institution scholar, eloquently commented at an April 19th Atlantic Magazine Forum on the challenges of projecting healthcare spending – and particularly the expectations for savings from the ACA. [Click below for video of his Q&A on this topic – go to time code 36.00 minutes – or here for the Forum’s webpage and select Panel 1.]
Below are some of Henry Aaron’s comments:
“There is an enormous range of uncertainty. A very flat probability distribution that stretches a long way on both sides of the central estimate that CBO is making.”
The ACA “is first and foremost a declaration that the status quo is intolerable. And that we have to begin to try to do different things both to improve coverage and to change the delivery system… ”
And he concludes, “The key aspect of the bill is that we have started on a journey of change in our delivery system. A lot of the elements can’t be stopped. They have deeper roots than legislation. But don’t underestimate the importance of this legislation and the message that it sends.”
We Don’t Want to Repeat History – But Projections Are Dependent on Historical Precedents
The fewer precedents for a proposed change, the harder it is to accurately model the change’s effects. But failing to recognize this limitation of the process is to not learn from history. Below are several examples of how projections have deviated far from their original estimates or have changed as the underlying assumptions are updated:
CBO projections for the 10 year savings from the ACA’s Independent Medicare Payment Advisory Board went from about $15 Billion in 2010, (shortly after the law’s enactment), to $2.8 billion in May 2011, to $3.1 billion in March 2012.
The Balanced Budget Act of 1997 included provisions to increase geographic access to Medicare managed care plans – which the law also renamed Medicare+Choice (M+C). However, the opposite occurred. As noted in a 2002 research paper, “[T]he number of contracted M+COs has dropped, from a high of 456 in December 1998 to 253 in December 2001. Total enrollment in M+COs has dropped from 6.7 million in December 1998 to slightly over 6 million in December 2001.”¹ In addition, beneficiary cost sharing went up for those individuals who remained in M+C plans rather than return to “traditional” Medicare. [Note – the M+C program was significantly revised and renamed Medicare Advantage (MA) in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. These changes created significant growth in enrollment so that today about 25% of Medicare enrollees are in MA plans.]
The overall costs and individual monthly premiums for the Medicare Part D prescription drug program have been much lower than projected. Competition from a greater number of plan choices may have kept the monthly premiums down, and it seems that lower enrollment numbers have kept the government costs below projections.
Estimates for national healthcare spending created in 2007 were significantly higher than what occurred in 2008-2010 – in part because of the unforeseen economic downturn. (I’ll discuss this and other factors in greater detail in my next post.)
Bottom Line: Don’t be Fooled – Don’t be Foolish
Policy makers should strive to obtain the best possible analyses to guide, (but not dictate), their planning and actions. They should also scrutinize and question the assumptions underlying those analyses so when important factors change, they aren’t fooled into foolishly thinking that the previous projections are still valid.
“Half of what we know is wrong, we just don’t know which half.”
Day One Lecture to First Year Medical Students
1. Graham S. Updating Medicare Managed Care. Health Policy Newsletter 2002; 15(1): Article 13. Retrieved 5/19/2012 from http://jdc.jefferson.edu/hpn/vol15/iss1/13.