Medicare’s cost surprise: It’s going down Believe it or not, Medicare spending per patient is falling. What lessons can the rest of the health care system learn? By DAN DIAMOND 09/12/2018 05:36 AM EDT
One of the best-kept secrets in American health care might be that Medicare spending — in important ways — is going down. If that surprises you, it’s probably because you’ve read about Medicare’s budget-busting growth. And at the top line, that‘s true enough: Medicare’s overall costs have soared, increasing about 50 percent during the Obama administration alone. Baby boomers are signing up for Medicare at the rate of 10,000 people per day, and they‘re expected to live longer, sicker lives than any previous generation. Medicare’s actuaries estimate that if current trends hold, the increasing number of beneficiaries will push the system into insolvency in 2026.
But there’s a sliver of hope buried in federal data: During the Obama era, Medicare’s per-person spending barely budged, inching up only about 1 percent per year. That’s less than the rate of inflation, meaning that per-person Medicare costs, when adjusted for inflation, have been going down.
As a result, even as policymakers worry that escalating Medicare spending could sink the federal budget, some researchers are more interested in unlocking what’s behind this notable success. Key among them is Melinda Buntin, a witty and engaging economist now at Vanderbilt, who published some of the initial findings about Medicare’s cost slowdown and has made studying it the center of her work. One question Buntin and her colleagues are focused on solving: How did the federal program achieve lower per-person spending for its mix of retired and disabled patients, even as private insurers continued to spend more and more on their younger and healthier customers? If they can figure it out, it might just point the way for the rest of the health care system to finally rein in health care costs on a national scale. “I’m an optimist,” says Buntin, who points to data that show — for the first time in decades — the economy is actually growing faster than Medicare’s per-person spending. “If we can keep that [Medicare] spending growth below GDP growth, that’s good for taxpayers too,” Buntin adds.
Solving a mystery Buntin’s initial findings appeared in 2013, early in the Obama administration’s second term, when it became clear that health care cost increases were slowing down — but it wasn’t clear why.
The slowdown’s implications were enormous for a slew of policies, such as how much funding was needed for the Medicare program. The political stakes were also significant; the Affordable Care Act was being rolled out, and Democrats were jockeying to claim credit for any positive developments in health care. “Already, the Affordable Care Act is helping to slow the growth of health care costs," President Barack Obama declared in his February 2013 State of the Union speech. Medicare officials had generally settled on a consensus explanation: The historic recession was causing a one-time drop in spending, and cost growth would soon return to historic trends. But as Buntin — then a staffer at the Congressional Budget Office — dug into the data, she developed a theory that challenged that conventional wisdom. It wasn’t the Great Recession, she concluded, nor was it Obamacare’s effects. Instead, a perfect storm of changes to how doctors got paid and how care was delivered, as well as broader effects to control costs, all hit at about the same time.
“[W]e can say that the slowdown appears to have been driven in substantial part by factors that were not related to the economic recession’s effect” on Medicare patients seeking care, Buntin and her CBO colleague Michael Levine wrote in a paper published in August 2013, a few weeks after she’d left the government to run Vanderbilt’s health policy department. Tucker Doherty/POLITICO
Buntin’s findings caused a stir in the policy field and led the CBO to change its projections of Medicare costs — an important factor in how the office evaluates lawmakers’ plans that affect the program, potentially influencing billions of dollars in proposed legislation. “She was the one who first put the stake in the ground,” said Paul Hughes-Cromwick, an economist with the Altarum Institute, a nonpartisan think tank that studies the health system. But some key officials weren’t swayed. Buntin said she presented the findings to Medicare and Medicaid’s own actuaries, who said they didn’t agree with her conclusions. “I would call it good-natured skepticism,” Buntin says. (That recollection was confirmed by other attendees of the meeting.) Political leaders at the time essentially ignored the findings, too. “The administration wanted to play up the angle that the Affordable Care Act had caused [the slowdown],” says Levine, who was Buntin’s colleague at CBO. “But most of the ACA hadn’t even gone into effect.”
So, what actually works? Since then, however, other researchers have largely confirmed Buntin’s work, and she’s built on her own findings.
What’s behind the successes in cost control? Along with colleagues this summer, Buntin reported that Medicare has gotten better at managing patients known as “dual-eligibles” — a subset of low-income elderly patients who qualify for Medicaid as well as Medicare and have historically been a major cost driver for federal health spending. She says that other insurers and health providers should study how Medicare improved at coordinating care for these complex patients, who often ping-pong around the health system, driving up costs with each hospital admission or ER visit. “I think you can learn from that,” Buntin says.
Another takeaway is that Medicare’s value-based care initiatives — essentially, finding ways to reward hospitals and doctors for delivering high-quality, low-cost care — have helped shift the system toward more sustainable spending growth. For instance, a model known as bundled payments encourages hospitals and doctors to combine their incentives when caring for patients and share in a lump-sum payment, rather than get paid individually. Thousands of hospitals and doctors have voluntarily tried out Medicare’s bundled-payments system, and the evidence suggests that the program has been moderately successful. But the Trump administration has sent mixed signals on whether it’ll stay committed to the idea. Buntin is frustrated that in August 2017, former Health and Human Services Secretary Tom Price canceled a plan to require providers, for the first time, to participate. “That was the lowest point of my optimism” about controlling health spending, she says.
But there are limits to how many lessons the data can offer. Buntin cautions that even now — more than a half-decade since she began digging into the slowdown — she can’t definitively attribute each piece to specific sources. “I don’t think we will ever be able to precisely say that we know everything that caused it, and it’s 57 percent this, and 43 percent that,” she says. “It’s actually a strength of their work that they weren’t able to put it all on one of the factors,” adds Hughes-Cromwick, the Altarum economist. “That really means there’s something more complicated and likely more permanent at work.”
Facing senators in a hearing this summer, Buntin encouraged them to keep supporting initiatives like value-based care. But she also cautioned lawmakers that moving too aggressively to control costs could eventually hurt patients, such as by denying them access to needed services. “The temptation is to either declare that we’ve accomplished this mission and kept cost growth low or to try and double down on it,” Buntin says. “I’m not sure either one is the right answer.” “We’ve been given a slight reprieve here,” Buntin adds. “Let’s try and learn from it.” Dan Diamond is the author of POLITICO Pulse.