Insights from Forum Sponsor Kaufman, Hall & Associates, Inc.
Keeping national health expenditure per capita growth below U.S. economic growth will require all healthcare participants to do their part.
Bending the healthcare cost curve requires a proactive approach by stakeholders across the industry, including providers, payers, patients, and federal and state governments. Even with the recent stabilization of national healthcare spending growth, national health expenditures reached $2.7 trillion in 2011 and constituted about 18 percent of the nation’s gross domestic product (GDP). The latest statistics from the Centers for Medicare & Medicaid Services show GDP growth rose from a negative 2.2 percent to 4 percent from 2009 to 2011, while national health expenditure growth held steady at 3.9 percent (CMS Office of the Actuary, National Health Expenditures 1960-2011, Table 1).
Hospitals, health systems, and other healthcare providers can help move the country toward sustainable healthcare and national fiscal health by reining-in organizational costs and learning to operate with lower rates of annual revenue growth.
Massachusetts mandated such action with a 2012 law meant to constrain per capita healthcare spending that continued to trend above national averages after the state extended health coverage to nearly all residents in 2006. Last summer’s law restricts healthcare spending growth through 2017 to no higher than growth in the potential gross state product. For 2018 to 2022, the limit will be tightened to potential gross state product minus 0.5 percent. Entities, including insurers, hospitals, and physicians, that don’t comply are subject to civil penalties.
Our October 2012 analysis of Congressional Budget Office estimates, which we conducted with the not-for-profit Altarum Institute, found that similar restrictions on spending growth would have a profound and positive effect on the federal deficit and solvency of the Medicare Hospital Insurance Trust Fund (Kaufman, K., Roehrig, C., “GDP+0: Prospects And Challenges Of Bending The Health Care Cost Curve,” Health Affairs Blog, October 16, 2012). It also found that achieving NHE growth of GDP+0 actually requires per capita cost trends to be held at GDP minus 0.6 percent, due to increased demand from a growing Medicare population and expansion of health coverage under the Affordable Care Act. In other words, “just GDP+0” is not enough.
This Kaufman Hall-Altarum Institute analysis suggests that healthcare providers could make a significant contribution to solving the country’s financial challenges by limiting revenue growth in their institutions to GDP+0 or lower. A January report by The Commonwealth Fund also recommends setting targets for healthcare spending growth at no more than long-term GDP growth per capita. The report proposes a series of policies to meet those goals and reduce projected health spending by $2 trillion through 2023, including payment reforms, empowering patients to make value-based care decisions, and other improvements (Confronting Costs: Stabilizing U.S. Health Spending While Moving Toward a High Performance Health Care System, The Commonwealth Fund, January 2013).
Proactive providers around the country are working to reduce spending through initiatives such as redesigning care processes to increase efficiency, removing service duplication, and eliminating inappropriate tests and procedures. Normal cost-management efforts will not be enough; cost transformation will be required. The work providers do now to reduce costs is, and will continue to be, critical for health care and the nation’s long-term economic health.
Kenneth Kaufman is chair, Kaufman, Hall & Associates, Inc., Skokie, Ill., and a member of HFMA’s First Illinois Chapter (email@example.com).
Forum members: Please add your insights, questions, and comments about this article on the CFO Forum’s LinkedIn discussion board.
- Does your healthcare organization have any goals related to learning how to operate with lower rates of annual revenue growth? What exactly is your goal?
- What about your cost reduction goals? What is your organization’s specific goal?
Or perhaps you have another discussion starter?
Publication Date: Wednesday, February 13, 2013