Study Finds Current Structural Changes May Save Medicare $900 Billion

A new report by health care economics consulting firm Dobson|DaVanzo and commissioned by the Federation of American Hospitals finds that simply by staying the course on current structural changes driving down spending, the Medicare program could save an additional $900 billion over the next 10 years.

The report is an update on Dobson|DaVanzo report from last year using the latest health care spending growth estimates from the non-partisan Congressional Budget Office (CBO). It adds supporting data to the idea that the slowdown in health care spending was not just due to the Great Recession causing people to go without health care. Rather, the slowdown reflects real structural changes that are saving money, such as greater patient cost sharing driving down overutilization of care, shifting of care to outpatient settings, new payment systems that reward value over quantity, and better safety and population management that have reduced expensive hospital-acquired infections and readmissions.  

According to the study authors, health care reform, including the provisions of the Patient Protection and Affordable Care Act, have changed payment systems in a way that is pushing health care providers to develop more efficient care delivery models. “In a general sense this is leading to a re-engineering of care — slow to start with but gaining momentum over time,” the report says.

One implication of the findings is that additional policy and Medicare budget changes designed to further lower health care spending — such as the $400 billion in cuts proposed in the administration’s fiscal year 2015 budget — may do more harm than good because the current structural changes, if allowed to proceed unhindered, might deliver even greater savings.

“Given the numerous activities currently underway, policymakers should support and encourage the reform efforts already in motion and allow time for further implementation and evaluation of these efforts before considering any major new structural reforms,” the report noted.

One example of this that the report gave was how the drive to lower readmissions requires hospitals to change their internal operations and their relationship with outside health care providers across the care continuum. Switching from being an acute care provider only responsible for care within the hospital’s walls to becoming a partner with other providers in population health is a significant change and takes time and resources before true cost savings can be seen.

Doing nothing and yet saving money seems a bit too good to be true, but the report authors point to the following key findings based on research and the government’s own health care spending figures:

  • National health expenditures were projected to grow at just 3.8 percent in 2013, consistent with the growth rate in 2012 and approximately four and a half percentage points below the growth rates seen a decade earlier.
  • Medicare spending per beneficiary on hospital services grew only 0.3 percent from 2011 to 2012 — a trend driven largely by slow growth in both hospital spending and prices. Medicare per beneficiary inpatient hospital spending growth actually decreased, falling 2.3 percent from 2011 to 2012.

And this is still early in health care reform before innovations such as accountable care organizations (ACOs), bundled payments and interoperable electronic health care records have had much chance to be fully implemented and perfected.