Why Healthcare Costs Are About To Explode
Word out of Washington is that Obamacare is finally fulfilling its promise to bend the nation’s healthcare cost curve. Unfortunately, it’s bending it the wrong way.
Forty-one months after its passage, data are beginning to emerge questioning whether the Accountable Care Act (ACA) can actually provide care to more Americans for less. These data appear to be surprising to its advocates, but they’re merely old news to those analysts who repeatedly questioned how adding 32 million people to the insurance rolls could possibly lower costs – especially when many of them will need treatment for illnesses such as diabetes, heart disease and cancer which have gone undiagnosed for years. Furthermore, the population of those over 65 will have doubled between 2000 and 2030. Not surprisingly, compared to young people, older Americans use more healthcare, largely because they are more likely to have diabetes, heart disease, arthritis and cancer.
And many remember the first year of Medicare in 1966, when the cost of the program was $3 billion. Projections for the cost of Medicare in 1990 were $12 billion. The actual cost in 1990: $107 billion. Cost estimates of government programs are always underestimated, as will be the case with the ACA.
This increasing cost of care, which has taken a breather during the recession, is projected to rise dramatically as the ACA is fully implemented. In California, for example, it was recently reported that the cost of insurance on the ACA-mandated health insurance exchange will be more than 100 percent higher, than current rates, for the healthiest young adults. Several large insurers have already announced their intention of not selling policies in that state, an action that will certainly reduce consumer choice. What if they do likewise in other states as well? Less competition almost always translates into higher premiums / costs.
The expected increase in healthcare use, coupled with an increasing demand and federal government requirement to use more and more expensive technology, can be expected to add another percentage point to our bulging 18 percent of GDP devoted to healthcare. Even in an era of sequestration, federal government mandates will continue to thwart our ability to meet the nation’s healthcare needs.
Consider, for example, one of the many aberrations in the U.S. system that unnecessarily cost us billions of excess dollars: hospital site of service differentials. Medicare pays far more for physician services delivered in a hospital or hospital-owned facility than for the exact same services delivered or procedure performed in a private practice physician office. This happens because the government pays hospitals a so-called facility fee (Medicare Part A) to cover the costs of their buildings in addition to a professional fee (Medicare Part B) for actually providing medical care to patients.
Eliminating this aberration in our system would save billions of dollars every year with absolutely no reduction in quality or access to services. But the ACA, with its incentives for integrated care, is actually driving more physicians to hospital employment, pushing more services into the more expensive hospital-owned facility. It’s a consequence of the health law that the industry acknowledges needs to be resolved, as evidenced by MedPAC’s June report, which recommended Congress “move immediately to cut payments to hospitals for many services that can be provided at much lower cost in doctors’ offices.”
As we’ve reported previously, the government’s incredible red tape and reporting burden on medical practice have cast an emotional pall on the profession. They also add significant cost to every service delivered – with no demonstrable benefit to the patient. A majority of physicians (64 percent) we surveyed last year responded that more government regulation was a “very negative” solution to the health system’s cost and access challenges. It comes as no surprise then that many physicians complain that the ACA and various incentives force them and healthcare systems to spend considerable funds on electronic medical records that hurt productivity and do little to improve patient outcomes.
In a recent study for the Physicians Foundation, health policy analyst Jeff Goldsmith found that paradoxically, while physicians direct almost 80 percent of all healthcare spending, many of them feel powerless to change the conditions that generate unnecessary costs and create red tape. In fact, 82 percent of physicians feel they have little ability to change the healthcare system, according to the Foundation’s 2012 Biennial Physician Survey. By purpose or design, the ACA is driving physicians from the best and most cost-effective place to provide care – their private offices – to the most expensive place to provide care: the hospital.
Unless and until this trend is reversed, the cost of American healthcare will continue to rise at an increasing rate without any demonstrable improvement in access to quality healthcare services. The worst of both worlds.
In Medicine’s Dilemma, William Kissick, MD refers to access, quality and costs as the iron triangle of medicine. They are all in competition with each other. The lesson of the iron triangle is that there are inherent trade-offs in health policy. You may be able to improve one or perhaps even two of the three, but it will only come at the expense of the third. It is a safe bet that costs will escalate under the ACA
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It will be one thing if the US was running surplus right now, but with its deficits ballooning, It is the worst possible time to bring about a change of such a grand nature.
