Pat Stricker, RN, MEd

Senior Vice President

Every year the Office of the Actuary at the Centers for Medicare & Medicaid Services (CMS) releases an analysis of how healthcare dollars are to be spent in the decade ahead. According to CMS’ analysis for 2014 (the last available report of annual data) the National Health Expenditures (NHE) reached $3.0 trillion or $9,523 per person. That expenditure includes the cost of all healthcare goods and services, public health activities, government administration, the net cost of health insurance, and investment related to healthcare. Although the final 2015 NHE data is not yet available, CMS projects they will reach $3.207 trillion. With the U.S. Population hovering around 320 million, that means this may be the first year that healthcare spending will reach $10,000 per person.

 

This year’s study, released in July, projects a 5.8% average rate of national health spending growth for 2015-2025, which is almost identical to the rate they predicted last year for 2014-2024. This will exceed the expected average growth in gross domestic product (GDP) by 1.3%. Typically, if health spending increases more rapidly than the GDP, health’s share of the economy will grow, therefore they are predicting health’s share of the economy to increase to 20.1% by 2025 (up from 17.5% in 2014). This will mean that $1 of every $5 spent in the U.S. by 2025 will be on healthcare.

 

Since 1950, health spending increases have exceeded GDP by about 2.5%. However, in the past 30-40 years, the difference has been closer to 1-1.5%. In part, this decrease is attributed to changes in Medicare payments and increased cost sharing in private health insurance plans.The following gives a brief overview of the health spending trends from 1975 to 2014:

  • The data from 1975 to 1992 shows the growth of health spending exceeded the growth of GDP by 3.1% annually.
  • Through the remainder of the 1990s, the managed care revolution lowered spending by reducing prices.
  • In the late 1990s and early 2000s, provider consolidation and the loosening of managed care restrictions led to price increases and higher spending.
  • From 2004 to 2013, the growth rate of health spending slowed significantly.
  • From 2010-2012, the growth averaged 0.5%, increasing to 0.1% in 2013. These were extremely low compared to the 5.3% average growth rates for the previous five years, and were actually below GDP growth from 2011 to 2013. Experts noted that this slowdown may have saved as much as $770 billion.
  • In 2014 the health spending grew to 5.3%, up from 2.9% in 2013. This accounted for 17.5% of the GDP. This increase was primarily due to the major coverage expansions of the Affordable Care Act.

 

In 2014, businesses and households paid for 56% of health spending, while federal, state, and local governments paid 44%. However, this payment structure is changing. By 2025, federal, state, and local governments will be paying 47%, a 3% increase. This expected increase is a result of coverage expansions of the Affordable Care Act, the increase of baby-boomers into Medicare, and the gap between the cost of programs and the amount of Medicare funding.

 

So, is health spending growth leveling off? Is the recent low growth spending likely to persist?

The Actuaries say “no.” They feel recent low growth is partly due to loss of patent exclusivity for several branded drugs, which will not occur again for some time. They also predict that price increases will resume, due to the increased number of hospital and physician consolidations, which tend to drive prices higher, as well as increased utilization of other new expensive medications that have recently been released. In addition, they also see wasteful spending, that is not associated with improved health, as an ongoing problem that accounts for one-quarter, to one-third, to over one-half of healthcare spending. If this waste could be eliminated within 15 years that would reduce the spending growth by 2% annually. Administrative waste is also a continuing problem. The U.S. spends $361 billion annually on healthcare administration. This is more than double the amount spent on heart disease and three times that of cancer. Some estimates suggest that it could be cut in half by closely analyzing workflows, streamlining processes, and using more technology.

 

So, it seems that overall health spending is a large industry issue and there isn’t anything case managers can do to decrease these costs, right? Wrong! Case managers routinely help clients determine appropriate healthcare needs, including discussions about utilization, cost of services, treatment options, and sites for procedures, as well as arranging clinical trials, helping clients obtain medications, choosing physicians and facilities, etc. All of these activities, and a myriad of other interactions with clients, are directly related to the cost of healthcare. Case managers are constantly helping clients navigate through the healthcare system, working to assure they get the best quality care for the best value.

 

Let’s look at a few specific examples of how case managers effectively help reduce healthcare costs by working with clients to:

  • Reduce unnecessary utilization
  • Avert costly hospitalizations
  • Reduce inpatient lengths of stay
  • Eliminate hospital readmissions
  • Arrange clinical trials
  • Negotiate lower fees for needed services
  • Obtain free or discounted medications
  • Suggest lower cost alternatives
  • Help clients with high-deductible health plans reduce their out-of-pocket costs by suggesting lower cost alternatives with the same or better quality of care
  • Encourage and empower clients to use price transparency tools, so they can discover the cost of providers, treatment options, services, and facilities before receiving care

The cost of healthcare has always been hidden, secretive, and not discussed. People have agreed to diagnostic procedures, treatments, and surgical procedures without even asking what it costs. Yet they wouldn’t buy food in a grocery store without knowing the price. However, people are now beginning to expect and demand price transparency, especially those with high-deductible health plans who are responsible for higher out-of-pocket costs. Having this information gives clients the ability to make better informed decisions.

Healthcare price transparency is one of the four principles of Value-Based Purchasing (VBP), CMS’ long-standing effort to link Medicare’s payment system to a valuebased system to improve healthcare quality. (This topic was discussed in more detail in a previous article, The Effect of Price Transparency on Health Care Costs). Today, more than half the states have some type of legislation requiring healthcare cost transparency and cost comparisons and some provide websites that have comparative price information, e.g. New Hampshire, Colorado, and Maine.

Since case managers are always trying to help clients obtain the best quality care for the best value, they should check out online sites with free price transparency tools that provide pricing information and comparison to see if these sites would be beneficial to their clients.

  • Free tool from Healthcare Bluebook that allows consumers to check on prices for services in a specific area.
  • Free tool from FairHealth that allows consumers to estimate medical and dental costs.
  • Free tool from New Choice Health: Save money on medical procedures and healthcare facilities.
  • State sites, such as California Health Compare: Price and cost comparisons for providers, procedures, hospitals, surgeries, insurance plans, and quality programs. Check other specific state websites.

 

Healthcare spending cannot be reduced unless everyone does their part. While a single individual cannot make a significant impact on the overall healthcare costs, thousands of case managers working together to reduce costs  – wherever possible – each day – on each client, can certainly make a difference. So, let’s all take the challenge and do what we can to reduce the $3 trillion annual health expenditure!

 

If you think it’s impossible and not worth doing, remember what Mother Teresa said: “We ourselves feel that what we are doing is just a drop in the ocean. But the ocean would be less because of that missing drop.”

 

Article originally published in the July edition of CMSA Today