Medical Device Daily Washington Editor

WASHINGTON — According to actuaries at the Centers for Medicare & Medicaid Services (CMS), healthcare spending is expected to rise at a slower rate this year than in the past couple of years, but as is almost always the case with good news about healthcare, there is a downside: because gross domestic production is falling, the share of the total economy taken by healthcare will rise.

According to a Feb. 24 statement by CMS, national health spending is expected to rise by 5.5% this year – a slowdown in growth of almost 10% from the 6.1% seen in each of the past couple of years – but the U.S. economy is expected to grow only 0.2%, hence driving up the ratio of healthcare spending to the overall economy. For 2008, healthcare consumed 16.6% of GDP, but this year's total will be more in the neighborhood of 17.6%.

The report by CMS actuaries was the subject of a conference call hosted by the agency and an article in the current edition of the policy journal Health Affairs.

CMS economist Andrea Sisko noted on the call that the forecast numbers "are current projections as of December 2008 and do not account" for any features of the recently-passed economic stimulus package, which included substantial increases in outlays for Medicaid and the Children's Health Insurance Program (CHIP). Overall healthcare spending in the U.S., she said, grew by "6.1% in 2008 and reached $2.4 trillion." She also stated that the slight flattening of the healthcare cost curve, from 6.5% last year to a projected 5.5% this year, is "due largely to the recession."

When asked whether the CMS numbers are reliable given the changes to public-sector healthcare spending and the still-sputtering economy, Chris Truffer, another economist at CMS, replied, "That's a valid point." He said that the projections "almost certainly will change down the road." Still, Truffer noted, the current numbers offer "the most up-to-date analysis that quantifies the effect of the projected recession on healthcare spending." He also pointed out that "given that there is the potential for proposals to change healthcare policy ... it's important to have a set of projections that are up to date" so that policymakers "have a valid and up-to-date analysis."

Truffer also noted that the assumptions regarding the U.S. economy are based on the Blue Chip Consensus, an average of about 50 economic forecasts published annually. CMS's Sean Keehan said that while he could not peg the Blue Chip's margin of error regarding GDP growth, he nonetheless acknowledged that the underlying assumption about GDP growth for 2009 might be slightly optimistic. "We had to use the January [Blue Chip] report, and the February report is that the consensus is a little lower, but not dramatically lower," he said. There is a "consensus of 2.4% [GDP growth] in 2010," he noted, adding that "most forecasters see a bump-up after 2010" in GDP growth.

According to the CMS statement, average annual health spending between 2008 and 2018 will ring in at 6.2%, more than two percentage points higher than the projected annual GDP growth rate of 4.1% over that period. "By 2018, national health spending is expected by reach $4.4 trillion and comprise just over one-fifth ... of GDP" at 20.3%, the report says.

As for next year, the CMS statement indicates that growth in total U.S. health expenditures will hit only 4.6%, a substantial drop from the 5.5% projected for this year. However, the CMS statement notes that its forecast for national health expenditures in 2010 hinges largely on the notion that Medicare Part B spending will drop substantially thanks to physician payment cuts under the sustainable growth rate (SGR) mechanism. However, the report's authors acknowledge that "in every year since 2002, Congress has acted to override application of the SGR formula." Assuming SGR is sidestepped yet again, national healthcare spending levels, which includes private-sector and public-sector outlays, would likely rise by 6.4% next year.

As one might assume, public-sector spending is already crowding out private-sector spending, a trend that will continue. According to CMS, public-sector spending will grow by 7.2% per year until 2018, when this source of healthcare spending will account for 51.3%. Private-sector spending, on the other hand, will slow from 5.3% last year to 3.9% this year.

According to the article in Health Affairs, which provides substantially more detail than the CMS statement, hospital spending is expected to have grown by 7.2% last year, for a total of roughly $746 billion. The expected growth in hospital spending by all sources for this year is 5.7%, which the authors attribute to an "expected deceleration in private-payer hospital spending growth from 8.7% in 2007 to 7.3% in 2008." This year's growth in private-payer spending on hospital services is expected to come in at 4.3%.

However, hospital spending growth will trend upward again next year, the CMS authors state in the HA article, to 5.1%, again assuming SGR goes through. Otherwise, the forecast is for total hospital spending to climb by 6.1% next year. Public-payer hospital spending is forecast to grow continuously until 2018 to 7.4%, "largely because of the shift of the oldest baby boomers to Medicare coverage."

Makers and retailers of durable medical equipment (DME) may or may not take heart at the projections for growth in this area of spending, depending on whether one expects Congress to scuttle the competitive budding program. According to CMS, growth in spending on DME will be almost flat this year, growing by one 0.1%, which assumes no competitive bidding. By 2013, DME spending will be growing at a 3.6% annual clip and by 5.6% in 2018.

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