Medicare Spending Slows, Hospital Care Grows

peter orszag medicareBack in 2011, Medicare spending was finally slowing down. Over the past three years, it has remained relatively steady – decreasing and increasing periodically but no drastic changes.

The decline in Medicare spending back in 2011 was the result of timing shifts in regards to certain Medicare payments. Adjusting for those shifts, Medicare spending was still only increased by 4% in 2011.

In comparison, from the early 1970s until 2010 spending rose by an average of 12 percent each year. During that time span, there were only four years that spending rose by less than five percent.

Fast forward to 2014 and you’ll realize that the spending rate in regards to percent of the country’s gross domestic product has halted. For the last four years, Medicare spending has been at or below 3% of the United States’ total GDP. The last time that it plateaued in this manner was in the late 1990s when payments were cut back.

One reason why this has leveled off is due to the fact that healthcare is more efficient. Reimbursements are less generous than before, placing a greater emphasis on value.

This trim of medical expenses, however, also represents a weak economy. Consumers are finding ways to cut back on everything – health care included. Back in 2011, Maggie Mahar pointed out that the slowdown in Medicare’s growth, however, is much greater than the slowdown in private health insurance. While health insurance rose by seven-and-a-half percent, Medicare only rose by two-and-a-half percent. And consumers are also deciding which treatments are necessary; there has been a decrease in joint replacements – something that is typically a choice rather than a necessity.

One reason why were seeing this decline in Medicare growth can be attributed to the decreasing percentage of patients being readmitted to the hospital within 30 days of discharge. The federal health care reform law, enacted in 2010, placed penalties on hospitals with high readmission rates. Typically, readmission rates are around 20 percent; in 2011, it was approximately 15 percent.

The decrease in readmission rates can also be attributed to technological improvements. Patients are receiving better care (better prescription drugs, treatments, etc.) and hospitals are managing patients with higher efficiency due to information technology systems.

However, back in 2011, the financial incentives were skewed against hospitals offering better service. Regardless of the penalty placed on hospitals for readmissions, hospitals are still making less revenue by decreasing their readmission rate. Medicare reimburses hospital services; that far outweighs the penalty for readmission.

The U.S. was still looking at ways to find a balance – that’s where the Independent Payment Advisory Board stepped in. This panel is focusing its efforts on reducing Medicare spending growth while also boosting the quality of care.

With the growth in spending coming to a halt, it appears as though we’re heading in the right direction.

from Peter Orszag Healthcare


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