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U.S. Healthcare Cost Back on Up Swing… on way to $5.4 Trillion (USD)

By: | Tags: , , , , , , , , , , , , , | Comments: 0 | August 6th, 2015

Since 2009 healthcare cost appeared to be changing their mid-range trend line. Some, including the President of the United States, have tried to connect that “drop” in the cost of healthcare to the passage of the Affordable Care Act of 2010 (ACA and sometime referred to as “ObamaCare”); however, most know that ACA did literally nothing to control cost, or did very little to reform how we pay for healthcare. In fact, some could say, and I have said that the ACA will actually add to long-term healthcare cost, and certainly to higher administration costs for healthcare services. This does not account for the dramatically increasing cost of operations to small and mid-size medical offices and professionals due to: increased regulations, mandates regarding patient privacy, environmental controls, electronic prescriptions, electronic medical records, changes in reporting and finally new financial billing via new medical coding – all added costs that have had to be absorbed.

Some have suspected that the relative taming of healthcare inflation over that last 5 years was a change in the dynamics. Some, like me, have said that it was more financial pressures that forced Americans to make very hard choices; delaying medication, cutting pills to make them last or delaying surgeries or procedures. A phenomenon of the ACA, better primary care, was a partial cause of this; however, much higher deductibles and smaller medical provider panels are also a clear factor. Experience tells us that that delayed care will have a higher cost factor and more severe economic consequences in years to come.

Recently, The Office of the Actuary in the Centers for Medicare & Medicaid Services (CMS) released its annual projections of healthcare spending for categories within the National Health Expenditure Accounts. These accounts track health spending by source of funds (for example, private health insurance, Medicare, Medicaid), by type of service (hospital, physician, prescription drugs, etc.), and by sponsor (businesses, households, governments). The latest projections begin after the latest historical year (2013) and go through 2024.

The report projects health spending in the following decade, 2014-2024, will grow by an average rate of 5.8% per year (4.9% on a per capita basis). In this projection and the U.S. Government actuaries calculate that health spending will grow 1.1% faster than Gross Domestic Product (GDP) per year over this period; as a result, the health share of GDP is expected to rise from 17.4 % in 2013 to 19.6% by 2024.

Let’s put this in perspective – the U.S. Federal Reserve tells us that inflation since 2009 has ranged from a negative (-)0.4% in 2009 to a high of 3.2% in 2011, with an average of 1.54%, with actual “projection” for 2015 of 1.2% inflation. To compare apples to apples, healthcare cost increased 5.5% in 2014 alone when U.S. inflation was 1.6%. That means that on the average even with sub-4% inflation over the same period healthcare cost will increase at a rate of 50-300%+ higher rate than inflation. The trend lines are clear, the lows in healthcare cost trends are behind us for this cycle.

Not all the cost will be borne by individuals. The government portion of healthcare, this includes both national and state expenditures will increase from 43% of all healthcare cost to 47%. In 2014 this government portion of cost increased by a staggering 8.2% year over year. At the end of 2024, U.S. healthcare expenditures will be a few decimal points away from 20% of the total U.S. economy.

Some will say that this entire trend is a major improvement from the 1990s when healthcare costs were going up by 10% year over year or more. I recall perfectly, as that is when I moved into the healthcare industry; it was less than a $1 trillion dollar industry in 1991. Today, healthcare expenditures are $3.2 TRILLION (USD), and we are on our way in 2024 to an estimated $5.4 trillion (USD).

So, now that I have reported the news, what is the solution? I am not running for president, I can’t, but the solutions, based on my 25 years of experience in all segments of healthcare, lay in front of us; we need a series of changes, beyond the ACA. To really change the dynamics of healthcare we must change how we pay for medicine. Here are just a few examples of what we can do if we try:

a. Create a real healthcare market place, an open market place for medical services, devices and treatments.

b. Eliminate the deceptive, contorted and secretive (to patients) way we pay hospitals and providers – sometimes as low as 30% of billed charges. This is no way to run a business or be in business.

c. Use more managed care options (including ACOs) and let competition between providers, provider networks and insurance companies drive prices. Managed care companies and providers do compete on quality and value. I have seen this every day.

d. Allow liberal use of health savings accounts, and allow the consumer to pay for care. We have to connect the payment (cost) to who actually receives the care, the consumer. If the consumers don’t see the real cost, they will not make the decision on what is the best value for them. Today, we treat the premium as an upfront cost, and the service almost as “all you can take.” More care is not always better care, my doctor friends tell me.

e. Eliminate all certification of needs (CONs) for those parts of industries that are not “cost based.” We need new technologically, up-to-date facilities and to stop protecting legacy hospitals, diagnostic facilities, nursing homes and home care operators, both for profit and non-profit.

f. We need to allow for national reciprocity for telemedicine. If a state medical board is not up to best practices, then we need to fix it. This is a barrier to better care.

g. We must reward people for getting and staying healthy. We use “rewards” to change behavior, why not healthcare? Let’s reward people to stop smoking, losing weight, reducing body mass index (BMI), for walking; for ALL the things that will make their life better, and reduce healthcare cost in the long run for all of society.

h. Provide incentive-based pay for doctors using the improvement in the patient’s “wellness,” the quality of care provided and customer satisfaction results. Pay providers to keep their patients healthy and not just treat them when they are sick.

i. Let’s use technology better; we are not using all the tools modern technology allows. Providers should be able to connect securely to patient health records anywhere and anytime. We should really make the medical record the patient’s record, and allow it to move with them, one central depository that doctors and providers contribute to, but is owned by the patient. Such a product will allow the patient total control and communication on all things related to patient wellness.

– Noel J. Guillama, President

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