CBO: Medicare and Medicaid spending growth unsustainable

Federal expenditures on the two programs could rise from 4% of the U.S. economy in 2007 to 18.5% in 2082 -- unless systemic changes are made.

By Doug Trapp, AMNews staff. Dec. 3, 2007.

Washington -- Medicare and Medicaid spending would -- if unaddressed -- continue to grow faster than the economy over the next 75 years, but don't blame it all on the baby boomers. Instead, look at the way physicians and hospitals are paid and how technology and new treatments drive costs, according to a first-ever Congressional Budget Office analysis of long-term health spending.

"The main message of this study is that, without changes in federal law, federal spending on Medicare and Medicaid is on a path that cannot be sustained," stated the report, released Nov. 13. With this article CBO Director Peter Orszag, PhD, said other Medicare and Medicaid spending predictions have overemphasized the effect of the aging American population, including the baby boomers.

"That fact that our population is getting older does affect the federal budget and is a factor in our overall long-term fiscal problem. However, it is not by any means the main factor," Dr. Orszag said. Other factors, such as new technology, play a larger role.

In 2030, federal Medicare and Medicaid spending will consume about 8% of the gross domestic product, a measure of the total value of goods and services produced in the U.S., the report predicts. Of that, 0.8 percentage points would be from the effect of aging. By 2082, federal Medicare and Medicaid spending would eat up 18.5% of the gross domestic product, with the effect of aging representing just 1.7 percentage points.

Dr. Orszag emphasized that CBO estimates are not an attempt to predict the future but are a picture of what would happen if the health system isn't reformed. With that in mind, the CBO report estimates by 2082 overall health spending would equal 49% of the gross domestic product.

Many health system reform proposals call for electronic medical records, which will help reduce costs, Dr. Orszag said, but mostly because the data they will generate will show which treatments are more effective. Those data are coming together slowly so far because only about one-third of doctors and hospitals have electronic records systems, he said.

He said national health reform proposals estimating that EMRs would save tens of billions of dollars per year are "substantially above anything you would see in a CBO [analysis]."

More research needed

Although the CBO predicts massive increases in health spending, that could be reduced by as much as 30% by comparing treatment outcomes, a practice known as comparative effectiveness, and linking it to pay, Dr. Orszag suggested. "It is striking that we spend 16% of our gross domestic product on health care and we do so little to evaluate what we're getting in return for it, specifically in terms of this intervention versus that intervention," he said.

Jim King, MD, president of the American Academy of Family Physicians, agreed. He noted that physicians increasingly are using community-based outcomes data to improve their treatments. But preventive care needs more emphasis, he added.

"We have to change the way we pay for health care. Instead of trying to control costs, we have to try to control quality and outcomes and make sure we are spending money at the right places," Dr. King said.

[link to www.ama-assn.org]

Dr. Orszag said analyses of Medicare spending by the Dartmouth Atlas of Health Care show that the number of interventions and treatments provided to beneficiaries in their last six months of life, and the resulting spending, varied dramatically among hospitals in different regions, with no difference in patient outcomes. One hospital in California spent twice as much as a hospital in Minnesota -- more than $50,000, compared with just less than $25,000.

"I think what's clear is the additional spending has generated improvements in health outcomes at an aggregate level. But it's also clear that a lot of what we deliver is of dubious value," Dr. Orszag said.

Bruce Bagley, MD, AAFP medical director for quality improvement, said comparative effectiveness is not as important as reforming a payment system currently based on the number of services provided and not the overall health of the patient. "Unless we do something about that, anything else you did is sort of just nipping at the edges," he said.

Also, comparative effectiveness doesn't always conclude that one treatment is better than another, Dr. Bagley said. For example, an Agency for Healthcare Research and Quality study released in December 2005 found that drugs can be as effective as surgery for management of gastroesophageal reflux disease.

Dr. Bagley said one reason for increasing spending is defensive medicine. Physicians are over-relying on medical imaging and tests to protect themselves from liability and because patients expect certain treatments.

American Medical Association President Ron Davis, MD, pointed out that physicians alone can't cure certain chronic diseases, which are major contributors to health spending.

"While physicians play a key role in efforts to contain costs, problems like obesity, tobacco use, alcohol and substance abuse, and violence will require action by stakeholders from inside and outside the health care system to drive major societal change," Dr. Davis said.

Dr. Orszag said personal behavior has a huge effect on health. For example, people eat for more than just sustenance. "There are all sorts of things that have to do with our environment that we have not yet processed or thought about in terms of how it could help us improve health outcomes," he said.