Moderating health care costs … be careful what you wish for

As you can see below, yet another study predicts lower growth in health care costs, not that 6.5% is much to brag about when inflation is under 2%.

This from Boston.com

PwC’s report forecasts that direct medical care costs will increase by 6.5 percent next year, one percentage point lower than its previous projection. The cost of care is the biggest component of premiums, followed by administrative expenses and overhead.

Cost-shifting to workers and efficiency measures from employers got most of the credit for slowing growth. PwC also said the health care law’s push for hospitals and doctors to be more accountable may be starting to have an impact.

The 2013 Economic Report of the President comments that one major factor for moderating health care spending is improved efficiency in hospitals and physician groups, payment reforms, and early responses to the Affordable Care Act. Here is a law passed in March 2010 and we are told it had an impact on overall health care costs starting almost immediately. In fact, virtually all the actual changes attempting to affect the delivery and payment of health care relate to Medicare, not the private sector. Modest improvements in hospital readmissions (for Medicare patients) are insignificant in terms of overall spending. Physician groups and hospitals are consolidating to place themselves in a better fee negotiating position with insurers.

While there are many initiatives underway to change reimbursement methodology, none are in use to the extent they have already affected spending. Accountable Care Organizations are yet another form of managed care; a good idea, but still unproven to be effective. The Affordable Care Act promotes ACOs (for Medicare patients), but the structure is so lose (patients can use any non-ACO physician or facility they choose) the ACOs ability to manage care is questionable.

The real test for moderating health care costs will come a few years hence when all aspects of Obamacare are in effect, especially those provisions encouraging adverse selection when buying health insurance. We also must be sure we distinguish between real cost management and merely shifting more expenses to workers. For now the economy and the Hawthorne effect within the medical community get the most credit for moderating health care costs.