Good News

The above is exceptionally good news: healthcare spending growth is slowing. Peter Orzag signaled this in a recent Bloomberg column. He referenced a CBO technical paper Why Has Growth in Spending for Fee For Service Medicare Slowed, from which the chart above is taken. The study's authors say they don't know the slowdown's causes for sure. Here's the Abstract:

Between 2000-2005, FFS spending in Medicare Part A and part B grew at the rate of 7.1%. From 2007-2010, it grew at 3.8%, a difference of 3.3%. The analysts can find explanation for .9% of the cost change, leaving 2.4% unexplained. They think it has to do with "other factors" affecting patient demand for care, other than the recession, and "changes in provider behavior". When asked whether this cost slowdown will continue, they answer: 'We don't know, but the trend has continued, and possibly accelerated in 2011 and 2012."

Rejoice, everyone. This is the enormous, truly miraculous change that I wrote about in Changing Complex Systems. No one understands this. No one. And it has continued into 2013. 2007-2013 - that's 7 years! This is the Miracle no one knows about and no one in the political analyst world can yet explain.

My explanation is pretty simple: The intense conversations leading up to the ACA, beginning before the election in 2007, convinced the medical providers of two things - they had to adopt Electronic Medical Records quickly and fee for service was on its way out. Healthcare had to initiate its own productivity revolution, from the inside out - not like the top-down, capitation and treatment rationing that was tried in the 1990s' with the HMOs' under Clinton. Hospitals had to figure out how to coordinate care and bundle payments in a variety of different, initially experimental kinds of ways.

There are three ways to control medical costs: price, intensity, and complexity. How much does each unit of care cost? How intensely is the system used? And  how complex will the procedures be? Each of these factors can work to reduce cost. In the past, all the focus has been on price. What's happening now is that the system is learning how to reduce utilization and complexity in ways that the system is becoming creative about rewarding. After all, how do you reward a hospital for not being used?? You compare it in a large enough sample with a control system that is not working on the coordinated care and payment bundling that your system is.

If nothing else had happened on Obama's Presidential watch, this would be enough to claim for Obama the description as a transformational President.

And no one even knows this yet!!