A historically small increase in hospital prices and an actual decline in inpatient spending helped control Medicare hospital spending.

Dec. 2—Medicare spending growth slowed in 2015 thanks in large part to slower hospital spending growth, according to government actuaries.

Medicare spending grew 4.5 percent in 2015—slower than the 5.8 percent increase in overall national healthcare expenditures, according to data from the Office of the Actuary for the Centers for Medicare & Medicaid Services (CMS). The higher overall rate of healthcare spending was driven by growth in spending on Medicaid (a 9.7 percent increase) and private insurance (7.2 percent).

The deceleration in Medicare spending, which decreased from 4.8 percent growth in 2014, happened despite a 2.7 percent increase in enrollees in 2015. Hospital and drug spending growth slowdowns offset increased growth in nursing home and home healthcare spending, according to the report.

Medicare hospital spending growth slowed from 2.6 percent in 2014 to 1.7 percent in 2015. The report credited the slowdown partially to Affordable Care Act (ACA)-related cuts in disproportionate share hospital (DSH) payments and to utilization declines from reduced readmissions. Those programs were credited with driving Medicare inpatient spending to decline by 1.9 percent.

“A lot of people haven’t made the connection that expanded coverage reduces uncompensated care, which then means you don’t have to make those DSH payments,” said Charles Roehrig, PhD, founding director of the Center for Sustainable Health Spending at the Altarum Institute. “They’re not needed as much. So in a way these reduced Medicare payments are helping to pay for the expanded coverage. And the expanded coverage earned that help by reducing uncompensated care.”

An earlier report from the Medicare trustees credited the small 2015 Medicare hospital spending increase to “the continuing effects of implementation of certain provisions of the ACA and to a reduction in hospital admissions as more patients were being treated as outpatients.”

Although the Obama administration has emphasized the potential savings from the move toward value-based care, Paul Hughes-Cromwick, co-director of the Center for Sustainable Health Spending, said more credit goes to the ACA’s hospital cuts, which totaled $155 billion over 10 years.

“The single biggest untold story with ACA is the cuts that it promoted for hospitals, especially for prices,” Hughes-Cromwick said in an interview. “Yeah, [accountable care organizations] and that sort of thing has people thinking more about overuse and waste and not getting hit with the readmission penalties, the never-events, and that sort of thing. But that’s all somewhat indirect. The direct effect is these very low price increases because of the so-called productivity adjustment, and that has dramatically lowered what the federal government is paying for Medicare people.”

Additional hospital cuts have come from the across-the-board 2 percent reduction in Medicare spending included in the American Taxpayer Relief Act of 2012, also known as sequestration.

Those Medicare reductions also likely impacted overall hospital price growth, which at 0.9 percent in 2015 was the slowest since 1998, Anne Martin, an economist in the Office of the Actuary, said in an interview.

“Medicare and Medicaid drive overall prices, so I’m sure that might have something to do with it,” Martin said.

What’s Driving Increases

Overall growth in hospital spending accelerated from 4.6 percent in 2014 to 5.6 percent in 2015, with hospital spending reaching $1 trillion and remaining at 32 percent of total spending. The actuary’s report blamed greater “use and intensity of services” for the 2015 hospital spending increases. Specifically, the number of inpatient days increased by 1.8 percent and the number of hospital discharges increased by 1.2 percent. Both measures increased in 2014 and again in 2015, marking the first time both increased in consecutive years since tracking of the measures began in 2005.

Hospital spending increases occurred primarily in Medicaid (9.5 percent increase) and private insurance (9.1 percent).

Medicaid enrollment grew by 5.7 percent in 2015, which was down from 11.1 percent in 2014. However, Medicaid per-enrollee spending accelerated in 2015 to a 3.8 percent increase from 0.4 percent in 2014. That jump happened despite the fact that only three states expanded eligibility—as authorized by the ACA—in 2015, compared with 26 states in 2014.

“What we’re seeing is the impact of expanded coverage has got a lag to it,” Roehrig said, referring to delayed utilization. “It takes a while.”

Roehrig said he did not expect such a utilization surge to continue into 2016.

Hughes-Cromwick noted that of the 26 states that expanded Medicaid eligibility in 2014, many did not do so until later in the year.

Other factors driving increased growth in Medicaid hospital spending included an increase in the number of states that offered supplemental payments to hospitals in 2015, said Micah Hartman, a statistician in the Office of the Actuary. Supplemental payments comprised 49.2 percent of all state payments to inpatient and outpatient hospitals in 2015, according to a report by the Medicaid and CHIP Payment and Access Commission.

Increased hospital spending also was described as a major factor in the strong growth in spending on private health insurance, and stemmed from both more enrollees and greater per-enrollee spending.

Hartman noted at a media briefing that research has found that newly covered enrollees in individual coverage “tend to be sicker, use more services, and had additional chronic conditions compared to populations that were previously insured.”

The apparent increase in those characteristics among the commercially insured population also echoed insurer concerns used to justify steep ACA marketplace rate increases and, in some cases, departures from the marketplaces due to significant losses, Hughes-Cromwick said.

Overall Acceleration

The growth in hospital spending also was cited as factor in the acceleration in U.S. healthcare spending to 5.8 percent in 2015, up from 5.3 percent in 2014. That increase also was greater than the 5.5 percent increase that the Office of the Actuary projected in a report five months ago, a difference driven in part by $17 billion in additional hospital spending.

The increase beyond the Actuary’s July projection was “not Earth-shaking,” Roehrig said. But the greater spending increase does appear to reduce the chance that spending growth will slow in 2016 as projected in the same Actuary report.

That overall healthcare spending slowdown looks even less likely based on the 2016 data that Altarum has collected thus far.

“That’s not a good sign if utilization and intensity rises faster than we are expecting—we already know prices are rising faster,” Hughes-Cromwick said. “It’s hard to see how we’re going to get to this 4.8 percent number that they projected for 2016 a few months ago.”

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Monday, December 05, 2016