Economix Blog: The Bad Economy Behind the Health Care Slowdown

In today’s paper, I took a look at a major innovation in health care delivery, one that Obama administration officials think might play a big role in holding down health costs in the future. It is called accountable care, and the general idea is to enlist doctors and nurses in the fight to control spending.

But how much have such shifts away from fee-for-service medicine already contributed to the big slowdown in health care costs?

That has been one of the biggest puzzles in health economics — indeed, in all of public economics — in the last few years. Policy makers broadly consider rising health costs to be the single biggest long-term budget challenge, and those same rising costs are eating away at workers’ wages. Economists figured that Americans would spend less on health care because of the deep recession and sluggish recovery. But health costs have slowed even more than they expected given the size of the downturn, leading many to surmise that other factors were at work.

A new study from the Kaiser Family Foundation helps sort out definitively what is the bad economy and what is not. All in all, Kaiser estimates that 77 percent of the cost slowdown is due to the recession, with the remaining quarter due to “continuing changes in the way health care is delivered, but also to rising levels of patient cost-sharing in private insurance plans that discourage use of services.”

A quarter might not seem like much, but in an interview, Drew Altman, the president of the Kaiser Family Foundation, described it as “the whole ballgame” for holding down costs as time goes on. “It’s more than just the A.C.A. reforms, those are just beginning,” he said, referring to the Affordable Care Act. “But in the long run, those are the most important ones, because they have the force of Medicare and national policy behind them.”

He expects that higher co-payments and deductibles — cases in which an insured person needs to pay more for health care out of pocket — will have a major, underappreciated role in holding down costs in the future, too. “It’s this quiet revolution in insurance,” he said.

In the last few years, accountable care organizations have represented a little revolution of their own, moving from being a mere idea to covering millions of Medicare and privately insured patients.

The one I profiled works like this: Advocate Health Care, a major health system in the Chicago area, struck a deal with the insurer Blue Cross Blue Shield of Illinois. The two jointly picked about 380,000 people who were insured by Blue Cross and used Advocate’s doctors or hospitals. They then projected their expected health costs. If Advocate can keep costs below that amount, the insurer and the provider split the savings. If it cannot, its revenue is at risk.

That gives Advocate a huge financial incentive to prevent illness, reduce complication rates and cut out unnecessary procedures and tests, all while keeping those 380,000 people coming back to Advocate doctors. And it makes the most expensive patients, often those with multiple chronic conditions, like diabetes and heart disease, centers for cost savings.

Thus far, the experiment seems to be working. Advocate has started initiatives to prevent asthma attacks, end elective inductions of labor before 39 weeks of pregnancy and reduce readmissions to the hospital after a patient is discharged, among others. Those changes have resulted in a cost reduction of about 2 percent over all.

Many other health systems have made more incremental steps toward what health economists like to call value-based care, such as accepting bundled payments for a patient’s course of treatment, rather than charging an insurer per procedure. Medicare and Medicaid have also been pioneers in paying for quality, not quantity. For instance, Medicare recently instituted a policy of penalizing hospitals when patients are readmitted after being discharged. Hospitals might not like it. But there are signs it is squeezing spending out of the system.

Indeed, in a recent interview, Secretary Kathleen Sebelius of the Department of Health and Human Services cited falling readmission rates as one of the strongest early signs that the Affordable Care Act is working to bend the health care cost curve.

Article source: http://economix.blogs.nytimes.com/2013/04/24/the-bad-economy-behind-the-health-care-slowdown/?partner=rss&emc=rss