Has the cost curve bent?

The answer may be ‘yes’ according to recent figures from the CMS Office of the Actuary (OACT).

For the fourth consecutive year, growth in health care spending remained low, increasing by 3.7 percent in 2012 to $2.8 trillion. At the same time, the share of the economy devoted to health fell slightly (from 17.3 percent to 17.2 percent) as the nominal gross domestic product (GDP) grew by 4.6 percent. Faster growth in hospital services and in physician and clinical services was mitigated by slower growth in prices for prescription drugs and nursing home services.

Other healthcare price indices report similar findings:

According to the S&P Healthcare Economic Composite Index, the average per capita cost of health care services covered by commercial insurance and Medicare increased by 3.06 percent over the twelve months ending July 2013. This compares with a rate of 7 to 8 percent that was prevailing as recently as 2009.

 
Healthcare spending as a share of GDP declined! This was almost unimaginable a just few years ago.

The question is, are these reductions in spending sustainable. Over the next few years maybe, but in the long-run, probably not. Decreases in spending in Medicare were not driven by decreasing unnecessary care but by reducing reimbursement to providers. While there was certainly some fat to be cut from some of Medicare’s reimbursement systems, continuing to drop reimbursement rates will eventually cause providers to stop accepting Medicare and for quality to fall. Thus, policymakers must strike a fine balance between frugality and access to care for their patients.