The Bending Cost Curve

I attended a really interesting conference last week on “Innovation in Health Care” that was cosponsored by The Advisory Board and the Aspen Institute.  It was a one-day affair in Washington, attended by about 1000 people from around the country who were treated to talks by a star studded cast that included HHS Secretary Kathleen Sebelius, Peter Orszag , Jeffrey Brenner, former US Senators Tom Daschle and Bill Frist, and a guy with more titles than I can count, Patrick Conway.

A few things stuck with me.

First, the overall message, from across the political spectrum and from different corners of the health delivery landscape is that fee for service is – and ought to be – dying as the predominant mechanism of health care financing. In fact, the day often seemed like a requiem for FFS; it was mostly discussed in the past tense, with the new world of value based purchasing and accountable care in its many forms the focus.

Patrick Conway (wearing his CMS Chief Medical Officer hat) reviewed some amazing data regarding declining readmissions and improving quality metrics among Medicare beneficiaries. Perhaps most striking was the slide he showed illustrating that the growth of Medicare spending has dramatically slowed over the last several years, and is now lower than the growth in overall GDP.

Bending Cost Curve Image 1

This has been pointed out before but this is a very big deal.

Peter Orszag explained why. First, he reviewed many of the things that are not responsible for the downward growth curve. It is not a reflection of the great recession; it is not a result of lower prices; it is not a consequence of baby boomers swelling the ranks of Medicare beneficiaries at the low end of utilization. No, the explanation is lower utilization across the board of medical services, and specifically a decline in the rate of hospitalization among Medicare recipients. Here is the data for re-admissions, but primary admissions have shown a similar decline.

Bending cost curve image 2

Orszag went on to speculate why this is happening, which is where this really got interesting.

He believes that providers are changing practice in anticipation of new models of payment. He cited as an example the work that many hospitals have done to lower their readmission rates even when their current and short-term economic interests are better served by filling the beds. The implication of this interpretation of the data is clear – whatever gains have been made in “bending the cost curve” are fragile, and can only be baked in if payment models continue to evolve away from FFS. If CMS does not continue to ratchet up the impact of value based purchasing or expand novel payment models, or if commercial payers do not accelerate their transition to risk-based contracting, the curve will likely bend right back up.

Oh, and one more thing, in case you don’t think it is important which way the curve bends. Orszag also pointed out that if current trends continue, all of the long-term fiscal challenges facing the United States, which seem to be driving so much of the invective in Washington, just go away. Completely. Imagine that.

2 thoughts on “The Bending Cost Curve

  1. The shift from FFS to risk-based models is forcing us to create better support systems for transitions of care when our patients leave the hospital. It’s about time.

  2. This is very heartening indeed.
    We can be part of this amazing movement that would benefit our community at large.

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