Two New Reports Look at Increases in Health Care Spending

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The Wall Street Journal reports that CMS estimates overall U.S. health care spending will reach $4.35 trillion in 2018, accounting for one-fifth of GDP. The findings by CMS were published Tuesday in the journal Health Affairs. In 2009, U.S. health care spending is expected to reach $2.5 trillion, a 5.5% increase from 2008.

The CMS study expects government health care spending to increase by 7.4% to $1.19 trillion this year. However, the study forecasts that, by 2016, the government will pay for more than 50% of total health care spending. The increase in government health care spending is expected to come from baby boomers enrolling in Medicare and increased enrollment in Medicaid.

Meanwhile, The New York Times reports that Medicare spending continues to vary widely across the U.S., according to a report to be published today in The New England Journal of Medicine.

According to The Times, Dartmouth researchers found that:

The regional differences in the growth of Medicare spending suggest doctors are helping to drive up costs when they more frequently order tests or admit patients to the hospitals. In areas where there are plenty of hospital beds and sophisticated imaging equipment available, doctors generally spend more on their patients.

Dr. Elliott S. Fisher, the director of the Center of Health Policy Research at the Dartmouth Institute for Health Policy and Clinical Practice and one of the work’s authors, told The Times that:

[A]ny attempt to rein in health care costs . . . needs to address how doctors and hospitals are paid, where they are rewarded on the basis of the volume of services they perform.

The Dartmouth group found that “areas, like Miami, where many doctors schedule monthly appointments for heart disease patients, are experiencing the fastest rise in health care costs.” Medicare spending in Miami rose 5 percent a year from 1992 to 2006, compared with 2.4 percent in San Francisco. Medicare spent about $16,000 per enrollee in Miami in 2006, compared with about half as much in San Francisco.

The Times reports that Dr. Fisher advocates a new payment method that would reward doctors for providing better care and would share with them any savings they generated by keeping patients out of the hospital or choosing not to order another test.

According to The Times:

The Dartmouth researchers estimate that if the federal government could find a way to make sure the national health care bill increased no more quickly than that of a city like San Francisco, it could eventually save tens of billions of dollars.

Dr. Fisher believes that the findings also suggest the country could potentially absorb the additional costs of insuring the 46 million people who are currently without coverage without necessarily experiencing a significant spike in spending to handle the increased demands of new patients.

I found these articles to be especially important to the e-discussion we have been involved in over the past few days here at Health Reform Watch. Whether the executives of private insurance companies are over-compensated is not a question to which I am prepared to give a definitive answer. However, what these findings show is that private insurance companies are only one part of the problem and/or solution.

Clearly, one major problem addressed by The Times article and the Dartmouth researchers is that “Medicare pays for volume and intensity.” If health care spending is increasing in areas where Original Medicare, a program run by the government, is paying too much because doctors and hospitals are trying to expand their services, then the compensation of insurance executives doesn’t really factor into the problem.