The long upward curve of U.S. health-care spending finally seems to be flattening. But is it temporary or the start of a lasting change? With health-care costs nearing 18% of the nation's gross domestic product—$2.7 trillion in 2011—the health of the economy itself is at stake.
There have been plenty of hopeful signs. U.S. spending on health care rose at a 3.9% rate for the third consecutive year in 2011, about half the previous decade's pace and the lowest since the 1960s.
Spending on prescription drugs actually dropped 1% in 2012, to $325.8 billion, the first decline since 1957, according to the IMS Institute for Healthcare Informatics.
Helped by lower drug prices, the Labor Department's index for consumer medical costs fell a seasonally adjusted 0.1% in May, the latest data available, from the month before, the first drop in almost four decades.
A Kaiser Family Foundation report attributed three-quarters of the slower growth in health-care spending to the recession dampening demand for drugs, doctor visits and elective surgeries and cautioned that spending could soar again as the economy strengthens.
Two groups of Harvard University researchers, writing in the journal Health Affairs, gave more credit to hospital efficiencies, fewer new blockbuster drugs and consumers bearing a greater share of costs. If those trends continue, economists David M. Cutler and Nikhil R. Sahni estimated that public-sector health spending could be $770 billion less than expected over the next 10 years.
In the near term, however, the Affordable Care Act will almost certainly produce a temporary jump in spending as millions of Americans gain access to Medicaid or private insurance starting next year. That may or may not be offset by a drop in unreimbursed care.
Either way, there will still be powerful pressures driving health-care spending higher.
One is demographics: 10,000 baby boomers turn 65 every day. Per capita health costs at that age and older are $9,744, compared with $2,739 for those 25 to 44, according to the Kaiser Family Foundation.
Another big driver of health-care costs is technology. In almost every other industry, innovation generally makes things more efficient and less costly. But in health care, it often brings higher costs with little added value.
Prostate cancer is a prime example. Last month, a study in the Journal of the American Medical Association found that the use of two advanced technologies—a type of radiation called intensity-modulated radiation therapy, or IMRT, and robotic surgery to remove the prostate gland—rose steeply from 2004 to 2009 among men unlikely to benefit, either because their cancers weren't life-threatening or they had a high risk of dying of another cause.
The increase came amid rising awareness that many of the 242,000 men diagnosed with prostate cancer every year can safety skip treatment and just observe the cancer to make sure it isn't accelerating, says lead researcher Brent K. Hollenbeck, a urologic oncologist at the University of Michigan.
Yet many men clamor for cutting-edge treatments. IMRT and robotic surgery are touted as minimizing the risk of incontinence or impotence associated with traditional therapies, but studies show the advantages are mixed or marginal, the JAMA authors write.
Both IMRT and robotic surgery require nearly $2 million in startup costs, and the use of IMRT translated to an additional $1.4 billion in spending annually, the authors note. The JAMA study didn't assess proton-beam therapy, a newer and even costlier option, since it wasn't in widespread use during the period. (Doctors disagree on how to calculate costs. Some studies show robotic surgery costs 60% more than traditional open surgery; others show only a modest difference. Radiation costs almost three times either form of surgery.)
Medicare covers all those treatment options. By law, it can't consider price when making coverage decisions. Nor can it insist that a new technology be significantly better than existing ones or encourage doctors or patients to seek less-costly alternatives. And once Medicare starts writing checks, private health plans generally follow, distorting the usual market mechanisms, says Arthur Kellermann, a physician and senior policy analyst at Rand Corp.
Comparative-effectiveness research called for in the new health law could help assess which advances are worth paying for, but only if Medicare is allowed to use it.
"Industry has done a good job of tying any discussion of cost to that scary word 'rationing,' " says Dr. Kellerman.
He has a simple solution: Let Medicare pay full dollar for the least-expensive highly effective treatments, and let patients who want costlier alternatives, pay the difference on their own. That would diffuse the "rationing" argument, retain individual choice and reward manufacturers for creating real innovations and lower-cost alternatives, Dr. Kellerman notes.
That's also the kind of impetus the health-care sector needs to keep costs from resuming their sharp upward trajectory in the future.
Write to Melinda Beck at HealthJournal@wsj.com
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