Will the value-based movement be re-energized in the wake of the coronavirus pandemic and its impact on national health expenditure?
- Before COVID-19, the federal deficit was projected to top $1T this year with future deficits expected to average $1.3T through 2030.
- Total healthcare spending in the U.S. is expected to increase at an average rate of 5.4% per year over the next 10 years, reaching $6.2 trillion by 2028, according to a report by Congressional Quarterly.
- The portion of gross domestic product that healthcare accounts for is projected to increase from 17.7% today to 19.7% in 2028, according to HFMA’s Chad Mulvany.
Every year like clockwork, the CMS Office of the Actuary issues its updated national health expenditure data. This includes a more accurate accounting of recent year’s expenditures, projections of future spending and more importantly, projected growth rates of healthcare spending. Normally, this is a much-anticipated release that dominates a news cycle or two. This year, it’s not so anticipated for obvious reasons.
In reporting on the release, Congressional Quarterly states, “Total health care spending is expected to increase at an average rate of 5.4 percent per year over the next 10 years, reaching $6.2 trillion by 2028. The annual study from the independent Office of the Actuary within the Centers for Medicare and Medicaid Services marks an acceleration from the 4.5 percent annual increase between 2016 and 2018, driven mainly by higher prices and provider wages.”
None of what CQ reported would necessarily be bad if the economy was projected to grow faster than healthcare expenditures for the next 10 years. But it’s not. The portion of gross domestic product that healthcare accounts for is projected to increase from 17.7% today to 19.7% in 2028.
The federal deficit was projected to top $1T this year with future deficits expected to average $1.3T through 2030. This was before COVID-19. Given the reduction in tax revenue and the corresponding increased spending required to mitigate the economic damage from the COVID-19 pandemic 2020, deficits will be much higher.
Once we return to a normal footing, I anticipate healthcare purchasers — federal government, states, and employers — will take steps to aggressively reduce healthcare spending to try to repair their respective balance sheets. What does that look like? That’s to be determined. One school of thought is, it pushes purchasers to aggressively pursue value-based payment models, finally driving sufficient revenue into risk-based models to create a tipping point.
However, many providers were struggling to find a sustainable business model in APMs prior to the pandemic. So it’s questionable that organizations with weakened balance sheets will be willing to embrace risk-based contracting if there isn’t a clear, sustainable business model moving forward. If that’s the case, then we’re, unfortunately, back to playing a per unit pricing game and losing the quality gains from these models.
Hopefully, both sides will be able to use this crisis as a catalyst to revive the value-based movement.
For purchasers, that means rewarding high-quality, cost-efficient (from a total-cost-of-care perspective) providers with increased volume to make health system economics work. It also means working with other payers to develop standardized models that reduce the administrative burden of participating in these models. For providers, this probably means some additional per unit price concessions. But these won’t be as deep as the alternative.