Are we successfully moderating health care spending?

David Blumenthal and others recently published a paper in the New England Journal of Medicine entitled “Health Care Spending — A Giant Slain or Sleeping?

In it they look at the ongoing, and rarely discussed, phenomenon of slowing of health care spending, which has persisted over several years. Health care spending grew remarkably after the establishment of Medicare and Medicaid in the 1960′s, resulting in the fact that health care costs now equal about 18% of our gross domestic product (GDP) when they were only 5% before these programs were introduced.

This was no coincidence. A third party payer, even one we expect to value frugality such as the government, will increase utilization of services because they are already paid for, and will increase prices for the same reason unless the prices are negotiated. In Europe, prices for procedures and medications are frequently negotiated, but in the US powerful drug companies and device manufacturers successfully resist this, resulting in relatively free floating prices.

In the past few years, however, overall health care costs have slowed their growth considerably and now actually lag behind the increase in GDP. We have had a much slower economy since 2008, which could be expected to slow health care spending, but this effect has been beyond what economists would expect based on this.

The authors discuss the many factors that may be involved in slowing health care costs, and also present some strategies that might help encourage this trend. They suggest that some of the provisions of the Affordable Care Act, including establishment of health care models that make providers of health care more financially responsible for the health of patients rather than profiting from their illness, may already be having a positive impact.

Movement towards having patients be more involved in their own health, including making informed choices about treatment and testing may reduce unnecessary costs.

The article is definitely worth reading. They conclude that health care, despite the encouraging trends, is still overpriced and can can stand to be more frugal without sacrificing patient care. This is true. In my experience, testing and treatments are still ordered without adequate attention to necessity or cost. Preventive strategies to reduce grave illness are still underutilized and drug companies still overcharge for their products and convince us that their value is higher than it really is.

We continue to use the very newest and most expensive technologies to delay the moment of death for patients who are genuinely dying and ought to be allowed to do so in comfort and with dignity. All of these things come with huge price tags.

The article ends with a couple of very important points, and then misses a few more because the authors are most likely not practicing physicians. Dr. Blumenthal, the first author, is the president of the Commonwealth Fund, a philanthropic organization which researches social and health policy. He has been a primary care physician, but has been influential in policy and administration for many years, suggesting that he probably no longer takes care of patients in the hospital or clinic.  His co-authors, Kristof Stremikis and David Cutler are in public policy and economics, respectively, and are not MDs.

The points that are particularly important that they did mention in the article are that consumers can be a powerful force for improving both quality and in reducing costs if, and only if, they are given data about quality and costs. Also, that the way we presently pay for medical care, especially the way we bill, is incredibly inefficient (also, in its complexity, so prone to fraud and inaccuracies, though they didn’t mention this).

What they did not mention is that physicians can be a powerful force in improving quality and reducing costs if they, also, are given data about these things. Doctors still do not know how much a given test or procedure costs, what portion will be paid by a patient out of pocket, and mostly do not have guidelines that help them not to order excessive testing or treatment. Billing is only a small part of the problem of administrative burden.

The increasing demand on nurses’ and other caregivers’ time by electronic health records which appear to be endlessly hungry for valueless detail that must be entered on a computer not only reduces all of our abilities to do good bedside patient care but clouds our minds with trivia and chases experienced staff, both nurses and doctors, to early retirement because of inadequate (and irrelevant) data entry skills.

I commend the authors of this article for clear writing and excellent synthesis. The fact that health care spending is already going in the right direction is fascinating and almost entirely neglected in the press, probably because it doesn’t support the more popular story that everything to do with health care in America is going rapidly to hell in a handbasket. I expect the ongoing vigorous debate about health care reform will keep people discussing costs which will make both physicians and patients more likely to pay attention and reduce frivolous expenditures.

Janice Boughton is a physician who blogs at Why is American health care so expensive?

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  • Thomas D Guastavino

    So…. you believe that “health care providers should be made financially responsible for the health of their patients rather then profiting from their illness” SIGH! No wonder our profession is falling apart.

    • Janice Boughton

      If that is dry humor, disregard the following response.

      But really–we should be profiting from illness? We are subject to reinforcement the same as any other creature, and if it serves us financially to keep people sick and dependent, even if we are ethical and kind, we will do that. Which is what happens, It’s a big part of overdiagnosis and overprescription of pharmaceuticals and growth in unnecessary radiological procedures and so much other waste.

      • Thomas D Guastavino

        Would you accuse firemen of profiting from the fire, police profiting from crime and mechanics profiting from blown transmissions? Don’t even mention the lawyers. You honestly believe we would risk are licenses, reputations, and risk malpractice for a few extra dollars keeping people sick on purpose? Is all the “overdiagnosis, overprescribing and supposedly unnecessary procedures” the result of purposeful greed on our part or a response to a culture that demands a quick and easy fix to their problems and are ready to bludgeon us with an attorney if they don’t get it?
        Sorry, not buying. If the you believe the proposals to transform our profession make sense go ahead and try the same tactic on any other trade or profession. See how far you get.

  • Margalit Gur-Arie

    I would humbly suggest that health care prices in the U.S. did not rise due to the sheer existence of health insurance, since every other developed nation has much more comprehensive insurance than we do, and has had that for way longer than we have.
    By the same token, and using the same comparison to other nations, I would also suggest that health care expenditures are not slowing down lately due to intrinsic changes to our system. They are slowing down all over the world because the entire world is mired in a recession that has ended only on Wall Street, which seems to be the only place the “experts” are looking at.
    Our health care expenses have been rising disproportionately because our insurance mechanism is a mess not intended to serve the people, and the bending of the curve we are seeing now is due to all other economic “activities” which are not intended to serve the people either.
    Moreover, the currently proposed “solutions” to further reduce what profiteering agents and agencies of all stripes spend on people’s medical care, fit the same paradigm.

    • Janice Boughton

      I’m an optimist. I see the argument that it’s just the recession, but I also see many of my colleagues talking about medical waste, and I can’t help but believe this will influence spending behavior.

  • May Wright

    No, Obamacare Doesn’t Deserve Credit for Slowing the Growth of Health Spending

    “The slowdown actually began several years prior to Obamacare, during the Bush administration. Health spending growth came in at 9.7 percent in 2002, and started declining the year after. Spending growth then took a nosedive between 2007 and 2009, dropping from 6.3 percent to 3.8 percent. Notably, that was before Obamacare was passed, but coinciding with the recession. Health spending growth has hovered at basically the same level since.

    “So the trend started years before Obamacare, and the biggest effect coincided with the recession—not the passage of the law. The president’s health law arrived on the scene late, after the major changes had already taken place—but the White House wants credit anyway.”

    To channel a prominent Democrat advisor, “It’s the economy, stupid.”

  • Bob

    America’s False Claims Act no longer works, if ever it did; as it is manipulated between enforcement agents and large defendants. It must be reformed, removed or replaced if our nation is to survive the inevitable bankruptcy fraud will cause. Putting sunshine on fraud with earlier public exposure rather than keeping cases secret would work better. I’m among the longest silenced whistle blowers which is how I know! Thousands of cases are “sealed” in Federal courts for years, then dismissed with no public mention, as mine have been, hidden from public view; “buried” by Federal and State fraud enforcement agents in courts doing little or nothing to investigate them, thereby concealing most large frauds.

    The term “whistle blower” is now well known, most confused
    as to whether we are good or bad. Was Daniel Ellsberg’s
    Pentagon Papers, or other “non-Qui Tam” government cases, up to current ones of Bradley Manning, the only one incarcerated in the WikiLeaks matter, and Edward Snowden in today’s NSA whistleblowers case, guilty of treason or patriotism? Who knows, who judges which and why? How many cases are there and why are most kept secret, very few going to trial? History shows there are many thousands of cases, few of which are ever known of publically.

    When fraud gets too large, Congress and the Executive branch are forced to confront it, as happened last in the mid 1970’s. Congress passed the Foreign Corrupt Practices Act of 1977 to stop bribery of foreign officials and restore public confidence in the integrity of the American business system, but didn’t use “non Qui Tam” provisions which would have stopped Madoff and others, and now recently added. Government employees are “insiders” who back in 1975 saw T.V. news
    reporting outrageous government frauds nightly, like the Navy paying $435 for an ordinary claw tooth hammer and $640 for a toilet seats, while the Defense Department reported half of the largest 100 defense contractors, 9 of the top 10, were being investigated for multiple fraud offenses. From 1977 to 1979, The Carter Administration did an extensive government “study”, appropriately named Fraud in Government Programs: –How Extensive Is It? –How Can It Be Controlled?

    On October 25, 1977, Congress knowing the 1943 False Claims Act Amendment was useless, passed the Medicare – Medicaid Antifraud and Abuse Amendments “to strengthen the capability of the government to detect, prosecute and punish fraudulent activities under the Medicare and Medicaid programs, and for other purposes.”, with specific wording aimed at “false claims”. It also set up and funded state Medicaid Fraud Control Units [MFCU’s]. Medicare is “federal taxpayer funded”, while Medicaid is “jointly funded” by state and federal taxes. HCFA would be responsible for Medicare fraud and state MFCU’s were to handle fraud in their own state’s Medicaid programs, and report
    back annually to the Inspector General of HEW/HCFA/HHS/CMS which changed over time.

    By 1978, Congress knew fraud was rampant in all agencies, subject to repeat offenses; and passed the Inspector General Act of 1978; to conduct and supervise audits and investigations relating to programs and operations of the establishments listed in section 12 of that Act [federal agencies and programs] and to provide leadership and coordination and recommend policies for activities designed, “to promote economy, efficiency, and effectiveness in the administration of, and to prevent and detect fraud and abuse in, such programs and operations; and to provide a means for keeping the head of the establishment [agency] and the Congress fully and currently informed about problems and deficiencies relating to the administration of such
    programs and operations and the necessity for and progress of corrective action; there is established, in each of such establishments [agencies] an office of Inspector General.” And in addition; “established an independent entity within the executive branch the Council
    of the Inspectors General on Integrity and Efficiency whose Mission
    shall be to address integrity, economy, and effectiveness issues that transcend individual Government agencies; and increase the professionalism and effectiveness of personnel by developing policies, standards, and approaches to aid in the establishment of a well-trained and highly skilled workforce in the offices of the Inspectors General.” Congress thought these acts would resolve fraud, making all our agencies and programs both present and future the most economical,
    efficient and effective in the World, with no waste, fraud and abuse in any of them! The “IG sharing” was to make them equally good – or kept them equally bad.

    After a decade of few results and knowing fraud was growing, Congress had to bring back the best and strongest fraud tool. The False Claims Act was signed by Abraham Lincoln in 1863 to stop Civil War fraud of Union Army supplies. Few “Lincoln’s Law” cases were filed between the Civil War and WWII, but starting then, “citizen relaters” filed a large number of suits based on “public knowledge”
    collecting 50% relater’s fees, while government enforcement employees did nothing about “known, public” fraud. Congress change the law in 1943 by cutting “relater’s fees” to 10% thus neutering the Act, as lawyers wouldn’t take cases on such small contingency fee basis, and government employees reporting frauds were simply fired, and still are. The False Claims Act Amendment of 1986 by Sen. Chuck Grassley [IA], and Rep. Howard Berman [CA] revitalize America’s
    most effective, unused fraud tool, increasing relator awards while keeping rules causing frauds to be hard to prove. Mr. John Phillips was instrumental in helping Congress updating the law and started Taxpayers Against Fraud [TAF.ORG] in support of Qui Tam cases; and then with Mary Louise Cohen founded Phillips and Cohen, a “Qui Tam” specialty law firm, headquartered in DC, that others followed.

    Part of this, since 1986, the Justice Department is required to keep statistics, in 4 segments: Defense, HHS, and a “catch all” for the other 71 Government agencies, named (Other Non-DOD, Non-HHS) and an “Overview” segment totaling all three. Congress recently added SEC and IRS False Claims Acts which show as increases in 2012 Non-DOD, Non-HHS recoveries, which deserve their own segment so citizens know what is recovered in SEC and IRS financial frauds. The report “Overview” total from 1986 to 2012 shows $35 Billion in “settlements
    and judgments”, while $5 billion in criminal fines aren’t shown. A third of the 12,913 cases filed were “Non-Qui Tam” government employees cases recovering $10.9 billion, while 8,489 were “Qui tam” cases, filed by citizens, recovered twice as much; $23.5 Billion, of which $17.9 Billion [76%] were HHS recoveries from Medicare and Medicaid fraud cases; 55% of which from pharmaceutical manufacturers for Medicaid frauds.

    The number of “Qui Tam” and “Other non Qui Tam” cases filed in all except HHS were about equal, but Inspector General filed “non Qui
    Tam cases” recovered twice as much as citizen “Qui Tam” cases. Because these are “inside government” they probably didn’t qualify or recover the double and triple damages that “Qui Tam” cases could but rarely do. But HHS government agency “non Qui Tam” cases only recovered $5.7 billion, a third of what citizen filed “Qui Tam” cases recovered which has been $18.3 billion over the 26 years the Justice Department fraud statistics have been kept.

    Comparisons of case numbers and settlements and judgments amounts for the HHS section show that government HHS employees filed 752 cases with the HHS Inspector General in 26 years, recovering $5.7 billion, averaging $7.6 million. These case amounts are dwarfed by 4,775 citizens “Qui Tam” cases, over six times more but which only recovered $18 billion, three times more, yet only averaged $3.8 million per case, half of “non Qui Tam” HHS cases? But the vast majorities were not investigated by the Justice Department or State MFCU’s. Citizen “Qui Tam” cases are supposed to have double settlement
    and triple damage awards, yet cases show only about 10% of principle amounts are recovered. In the dark, secret World of the False Claims Act cases does the Justice Department involve itself, FBI and HHS agents only in HHS Inspector General “non-Qui Tam” cases, investigating and recovering only the principle amounts of frauds, ignoring citizen filed HHS “Qui Tam” cases, turning them over to small, unfounded and inept state Medicaid Fraud Control Units and giving them no help at all? The statistics seems to show this is the case!

    Imagine that, if 80% of the Qui Tam cases were never
    investigated fully by the Justice Department, any Medicaid Fraud Control Unit or combined state units under the National Association of Medicaid Fraud Control units [NAMFCU] what amounts of recoveries would have been made! One might wonder why most HHS cases filed were fruitless after experienced Qui Tam firms carefully vetted them so as not to waste their time; and what “Qui Tam” settlements would have produced if the defrauded principle amounts, were doubled in settlements or tripled in federal courts. Having little at risk, inadequate
    investigations of large corporations encourage more, bigger frauds. This has proven true in the HHS segment; specifically in Medicaid and Medicare; which are now increasing in number as millions more recipients are added to entitlement rolls and its clear now costs are out of control?

    How do I know? Is it simply my imagination? No, it’s clearly shown by comparing Justice Department and False Claims Act and
    Quarterly Qui Tam Reports; on file from April 1995 until October 2011 which simply counted the successful cases subtracted them for total cases finding 80% were missing. On February 9, 2007, James
    Moorman, President and CEO, Taxpayers Against Fraud, testified on Fraud Against Medicaid by Drug Manufacturers, before the House Committee on Oversight and Government Reform said, “there were more than 180 additional unresolved cases, with potential liability involved not reported, but based on the cases settled to date, it’s likely to be $60 billion.” I found that amount also missing in calculations of Medicaid Financial Management Reports, and my case was under court seal in Philadelphia, an additional $60 Billion twice the total amounts recovered in the past 28 years since the 1986 Amendments.

    Justice Departments records don’t show case details, while HHS.OIG reports state MFCU’s recovered $2.9 billion in 2012, most from a few
    large civilian “Qui Tam” pharmaceutical cases they take credit for, recovering they say $13.48 for every dollar spent; while TAF.Org says “Qui Tam” case recoveries are $20 per every $1 spent, both reporting the same recoveries in HHS cases! All the successful Qui Tam cases are carefully scrapbooked and chronicled since April 1995 by TAF.Org, except 5 missing quarters and issues after October 2011, limited to members.

    As for pharmaceutical fraud, the largest portion of Health Care Fraud recoveries over the past 34 years, that’s over now, simply because the branded drugs except Biologicals, which cost twice as much for U.S.
    consumers that most other global consumers are generic, and have falling prices that can’t be used to defraud consumers. But this raises an even bigger problem: if any National Drug Codes can be used on any “therapeutic drug”, with thousands of generics made all over the World, and their manufacturers can use any FDA National Drug Code they chose; how do consumers know what they’re taking, if it is of high quality and made in plants inspected by the FDA, when most of our drugs today are now made abroad, quite often in India and China?

    I know many “Qui Tam” attorneys and know of most “Qui Tam” firms, all of whom are much more adept than all government enforcement
    personnel, finding government enforcement agents unaggressive and to reduce amounts of fraud after the government personnel take over cases. To make matters worse, attorneys, their firms and relators pay the highest tax rates on any amounts they are awarded. But they too have moved on to IRS and SEC cases as drug cases are a thing of the past. Really?

    How do we stop the fraud that imperials our Nation? Simply by going back to the basic tenants and screening entitlement applications,
    found to be the problem 40 years ago and continues today!

    • Janice Boughton

      Very good research. I can’t follow all of it, but I agree that fraud probably eats up a significant proportion of medical spending due to the ridiculously complex nature of billing and paying. Recovering money lost to fraud probably reduced health care spending, too, and allowing fraud to go undetected will result in more fraud and a rebound in those costs.

      I was audited by a private agency last year for a disputed hospital charge. The amount in question was tiny, and the effort to follow it up significant, and I was in the right. The Recovery Audit Contractors who were supposed to clean up overcharging in hospitals have not been particularly successful (see but I suspect there are a lot of fraudulent big fish still out there.

  • disqus_question_everything

    The biggest problem in health care for which little has been done is over-treatment. Hopefully, the Choosing Wisely campaign will make a dent in all the unnecessary testing and treatments that can do more harm than good.

    Over-treatment is rampant in women’s health. Despite a 2000 study that 76% of hysterectomies do not meet ACOG criteria, hysterectomy rates have not declined. The uterus and ovaries have lifelong functions – anatomical, skeletal, hormonal/endocrine, sexual. Over 50% of women lose healthy ovaries (castration) at the time of hysterectomy. Yet hysterectomy and oophorectomy are NOT on ACOG’s Choosing Wisely list – WHY NOT?

    Since hysterectomy is a destructive surgery (ovary removal or not), Graduate Medical Education should emphasize organ-sparing procedures. Yet myomectomy (to remove fibroids) and cystectomy (to remove ovarian cysts) are not even on the GME minimum requirements.

    And women are not even safe in Catholic hospitals. Although birth control is against Catholic doctrine, many unnecessary hysterectomies and oophorectomies are done in Catholic hospitals. Ironically, birth control pills are usually quite effective for some of the problems that lead to hysterectomy.

    • Janice Boughton

      good point!

  • Pauline Lambert Reynolds

    From my experience as the recipient of health care, I have come to believe that one of the most important factors in reducing spending is not considered: the input of the patient.
    One example would be an electronic device which I wore outside my clothing after cervical spine surgery. The purpose was to hasten healing. Within 2-3 weeks, I developed edema around the area that the device affected. The surgeon advised me not to use it then. Many of these devices were on sale on Ebay for approx. $200. Medicare paid approx. $4,000 for this useless thing. I knew of no way that I could report such a huge leak from the public funds.

    • Janice Boughton

      Another excellent point. So many medical devices are used and then discarded, and yet public and private insurance still pays full price for new ones. There are hurdles to re-using things that are still perfectly functional.

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