Week in DC: Controlling the cost of healthcare

Sara PtakowskiLoren Adler, a Research Director from the bipartisan Committee for a Responsible Federal Budget, discussed one of the week’s recurring themes, talking about the rising proportion of US GDP consumed by healthcare spend over the past 4 decades (currently 20%) and the implications of this escalation have on the government’s overall fiscal policy.  In fact, the 10 year cost of Medicare alone (a federal program) is the largest component of all healthcare dollars public or private. He demonstrated that at this rate, healthcare is beginning to crowd out discretionary government expenditures and the tradeoffs are becoming more explicit – forcing the government to choose healthcare over education, infrastructure, and the like.

Adler addressed the fact that there has been the slower growth rate in healthcare spend in the past 5 years. Yet while the trend is encouraging, the reasons for the slowdown are largely unexplained despite many efforts to do so. Potential explanations include the recession, a lack of new technologies particularly as certain blockbuster drugs are hitting patent cliffs, heightened consumer awareness with the proliferation of high deductible health plans, and overall structural changes to the way that healthcare is delivered.

Not all of these structural changes are created equal though – some are merely one-time cuts as part of the Affordable Care Act (ACA), while others like readmission penalties and Accountable Care Organizations (ACOs) may fundamentally change the delivery of care and reduce utilization. However, the longstanding fee-for-service model of healthcare reimbursement still incentivizes quantity over quality on the provider side. And on the patient side, a lack of true cost-sharing particularly in the Medicare system does little to discourage over-utilization. To curb further government spending on healthcare, the Medicare system would benefit from stronger ACOs and a move to a value-based performance payment program from the current Sustainable Growth Rate model.

All of these points serve to demonstrate that there is still a great deal of work to be done on truly bending the cost curve on healthcare in the United States. Without the ability to codify the reasons for the recent slowdown it will be difficult for payers, providers or the government to capitalize on and continue that trend.  While this has major implications for the healthcare industry in particular, from a policy perspective unchecked growth will be unsustainable without significant impact on other areas of the American government.

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