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Commentary |
1 Department of Diagnostic Radiology & Public Health, Yale University School of Medicine, 333 Cedar St., New Haven, CT 06510.
Received January 14, 2008; accepted after revision January 14, 2008.
Address correspondence to H. P. Forman
(howard.forman{at}yale.edu).
Keywords: balance billing • Medicare • national health expenditures • NHE
It is that time of the year when the government releases the annual national health expenditures (NHE) report. Shortly before this release, we received a last-minute reprieve from Congress and the President, giving us a 6-month nominal increase (0.5%) in our reimbursement for Medicare services, in lieu of a 10% cut. This is a temporary reprieve. Not only does the cut still go into effect on July 1, 2008 (unless there is further congressional action) but it would be followed by further similar cuts in January 2009, 2010, and beyond. In this brief, I will discuss current trends in health care spending, what it means for future policy, and some thoughts on "balance billing," an issue of potentially great importance to our practices and Medicare beneficiaries.
It is always worth remembering that the NHE data are released with a 13 month lag, meaning that the sound bites that you hear on the radio/TV and read in newspapers/online are referring to 2006, even though most pundits make it seem as though the data are current.
National health expenditures reached $2.1 trillion in 2006, after further revisions and a 6.7% increase from the previous year. This translated into $7,026 per person and 16% of the Gross Domestic Product (GDP). Both figures are obviously record highs and the highest, on record, for any nation in the world. The full report is available at www.cms.gov, but highlights are examined here, with a personal interpretation of what this means for our specialty.
Hospital Spending
Hospital spending continues to grow at a rate above national health care expenditure growth, but more slowly than in previous years. Hospital spending, which accounts for 31% of total health care spending, grew 7% in 2006, a decrease from 2005 and a continued deceleration from 2002. There is an indication that inpatient admissions have been reduced, with increased intensity of services (and costs/admission) dominating. This trend, while jagged, is a long-standing one—with shorter lengths of stay and more acute admissions replacing longer-stay low-intensity ones.
Physician Services Spending
Physician expenditures grew at the exceedingly low rate of 5.9%, lower than overall expenditure growth. This decline was driven in large part by the minimal 0.2% Medicare fee schedule update for physicians in 2006.
Prescription Drug Spending
As was predicted, the implementation of Part D led to the first year of high prescription drug spending growth in several years (from a low of 5.8% in 2005 to 8.5% in 2006). Medicare prescription drug spending is now 19% of overall health care spending. There is nothing surprising in this, but it does confirm the increasing influence of this program for both national and fiscal politics.
Administrative Costs (Net Cost of Insurance)
This (historically highly variable) category grew by 8.8% in 2006, outpacing the rate of overall growth and is a clear acceleration from the last 2 years. This is being attributed to the increase in the number of Medicare beneficiaries who enrolled in Medicare Advantage plans (which have higher associated administrative costs) during the 2006 year.
Medicaid
For the first time in its history, Medicaid (the federally legislated, but state-run program for the indigent) spending shrank at both the federal and state levels. This is truly remarkable, though perhaps partly explainable on the basis of the new Medicare Part D benefit subsuming what had been a previously large expense for Medicaid. The trend bears watching, as Medicaid is an extraordinarily large budget item for all states and the current mortgage/real-estate debacle could put substantial pressure on state budgets in the near future.
What Does All This Mean and Why Should We Care?
Taken as a whole, health care spending continues to grow at "unsustainable" rates. By "unsustainable," we mean that the rate of growth, in exceeding the overall GDP growth, would ultimately crowd out all other spending. Since we know that other areas of the economy are necessary for our wellbeing, the current level of spending growth is not "sustainable" in the long run. However, it can take a very long time before the health care spending trend reverts to the GDP growth rate, or perhaps even below it.
Once you smooth out year-over-year variation, health care spending has been "unsustainable" since at least the mid-1960s. In that time, we have seen some ill effects of this spending growth (such as higher numbers of uninsured and greater evidence that consumers and employers are having difficulty affording existing insurance products).
In the 2006 data, we see a trend toward greater use of managed Medicare (Medicare Advantage). The government reports that there was a 25% increase in Medicare Advantage enrollment from 2005 to 2006 while traditional fee-for-service enrollment declined 3.8%. Trends in Medicare are reflected in the private sector and increasing use of Medicare Advantage simultaneously increases the importance of managed care and puts the remaining fee-for-service system at risk.
Balance Billing: An Issue that Could Become a Reality
At a recent American Medical Association (AMA) meeting, there was a discussion about balance billing as a means to respond to the stagnation and possible decrease in Medicare physician payments. Medicare balance billing (whereby physicians would bill Medicare patients the difference between reimbursement rates and what it costs to treat them) was raised as an important new area for legislative action and the AMA has decided to devote resources to initiate a measure that would allow this. Currently, participating physicians cannot "balance-bill" Medicare beneficiaries. Balance billing would, without a doubt, result in higher copayments for many beneficiaries and assuredly much higher copayments in the event that the scheduled Medicare cuts go into place. Balance billing would have a dramatic effect on the health care market place. If the Medicare program were to find itself functioning with balance billing, the entire uniformity of Medicare entitlement would fall by the wayside, as some physicians would price themselves out of the traditional Medicare market and work only with cash-rich patients. For radiologists, this would lead to a more fragmented market, and potentially a much more competitive one. Higher-cost patients (inpatients and complex, chronic illness patients, for instance) might be forced to pay higher copays. Competition for lower-cost patients could drive reimbursement (for healthier outpatients) down to the Medicare reimbursement rate. This could dramatically alter the outpatient market in diagnostic imaging.
Medicare balance billing can be viewed from different vantage points. From a social equity and political point of view, it would be the death of Medicare as we know it. There would no longer be equivalent incentives for physicians to see rich or poor Medicare beneficiaries. Many poorer patients might find themselves waiting in long queues to see the increasingly diminished numbers of true Medicare-priced physicians. On the other hand, it might introduce more efficient pricing of different patient populations (not based on ability to pay, but true cost to provide a service), which would be an efficiency gain. The true effect of balance billing would depend on how deeply Congress allows Medicare reimbursement to be discounted from actual costs. The intermediate and long-term effects could be mild or severe.
Balance billing is still far from reality, but prudent practices should begin to think about their strategy in the face of such a change. Given Medicare's fiscal imbalance, the growth in Medicare Advantage and the introduction of balance billing or other similar legislation could be part of the congressional strategy for large-scale Medicare financing reform.
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