Another $125 million will go toward long-term initiatives to improve access to behavioral health, primary care, and substance abuse services, and $275 million will be set aside in case Congress takes it back.
Horizon Blue Cross Blue Shield of New Jersey said Wednesday that its 3.8 million customers will get $150 million in direct "relief" in 2018 as their share of the health plan's $550 million windfall generated by federal tax reforms.
It is not yet clear how this money will be distributed. Horizon said it is working with New Jersey's Department of Banking and Insurance "to identify the most appropriate mechanism to use these funds in 2018 for its policyholders," according to a media release.
Horizon is not expected to use the windfall to lower premiums, because ultimately those premiums would have to be raised again once the refund is spent. However, the company is considering options that include a year-end dividend check for customers, similar to those issued by automobile insurance companies.
The not-for-profit insurer will also earmark $125 million of the tax refunds over the next five years for "significant initiatives that will drive improvements in healthcare for Horizon BCBSNJ members in the areas of behavioral health, access to care, and addiction."
While Horizon hopes to use the entire $550 million in tax cuts to benefit its customers, the remaining $275 million will be set aside as a hedge against the volatile politics in Washington, DC.
Horizon Chairman, President and CEO Kevin P. Conlin said distributing a portion of the windfall "is in keeping with our long-standing mission to operate for the benefit of our customers."
"This plan seeks to provide to them this year, in the most direct way possible, $150 million in relief," Conlin said. "Members will also benefit from the substantial investments this plan makes to expand access to care, improve healthcare quality and lower costs."
The windfall was generated with the elimination of the Alternative Minimum Tax in the Tax Cut and Jobs Act of 2017, which passed in December. Horizon is due federal refunds over each of the next five years through 2022.
Horizon has paid the AMT since 1986 and consequently paid federal taxes that were higher than they would have under standard corporate tax rates. As a result, Horizon earned AMT credits that have accrued every year since 1986 and now total $550 million, the company said.
New Jersey Gov. Phil Murphy praised Horizon for reinvesting the money in the state's healthcare access programs.
"They are setting the bar for how corporations can responsibly reinvest in our communities," Murphy said.
Study finds incidence of serious kidney problems or death was about 1% lower in patients who received balanced crystalloids when compared with patients who received saline.
As many as 100,000 fewer patients could suffer death or kidney damage each year if providers stopped using saline as intravenous fluid and administered balanced crystalloids instead, according to estimates in two companion studies.
"Our results suggest that using primarily balanced fluids should prevent death or severe kidney dysfunction for hundreds of Vanderbilt patients and tens of thousands of patients across the country each year," said study author Matthew Semler, MD, an assistant professor of medicine at Vanderbilt University School of Medicine.
"Because balanced fluids and saline are similar in cost, the finding of better patient outcomes with balanced fluids in two large trials has prompted a change in practice at Vanderbilt toward using primarily balanced fluids for intravenous fluid therapy," Semler said.
The Vanderbilt research, published this week in the New England Journal of Medicine, examined over 15,000 intensive care patients and over 13,000 emergency department patients who were assigned to receive saline or balanced fluids.
In both studies, the incidence of serious kidney problems or death was about 1% lower in the balanced fluids group compared to the saline group.
"The difference, while small for individual patients, is significant on a population level. Each year in the United States, millions of patients receive intravenous fluids," said study author Wesley Self, MD, associate professor of emergency medicine.
"When we say a 1% reduction that means thousands and thousands of patients would be better off," he said.
The authors said the switch may lead to at least 100,000 fewer patients suffering death or kidney damage each year in the US.
"Doctors have been giving patients IV fluids for over a hundred years and saline has been the most common fluid patients have been getting," said study author Todd Rice, MD, associate professor of medicine.
"With the number of patients treated at Vanderbilt every year, the use of balanced fluids in patients could result in hundreds or even thousands of fewer patients in our community dying or developing kidney failure. After these results became available, medical care at Vanderbilt changed so that doctors now preferentially use balanced fluids," he said.
CEO Wayne Smith says the company’s turnaround is making progress, even as shareholders take it on the chin, losing nearly $18 per share in the fourth quarter of 2017.
Community Health Systems, Inc. lost more than $2 billion in the fourth quarter of 2017, nearly $18 per share, owing to converging challenges that include plummeting revenues and lower hospital volumes, the company reported.
Franklin, Tennessee–based CHS said net operating revenues for the three months ended December 31, 2017, totaled $3 billion, a 31.6% decrease, compared with $4.4 billion for the same period in 2016.
Net operating revenues for all of 2017 totaled $15.3 billion, a 16.7% decrease, compared with $18.4 billion for the same period in 2016.
Despite the sea of red ink, CHS CEO Wayne T. Smith was upbeat, and said the company's turnaround effort is making headway.
"We are pleased with our progress in the fourth quarter and expect to carry that momentum through 2018, as we execute strategies that we believe will strengthen our core business and drive improved results," Smith said in prepared remarks.
"During the fourth quarter, we completed our 2017 announced divestiture plan and we intend to continue to optimize our portfolio in 2018 to help pay down debt and refine our portfolio to stronger markets," Smith said.
Smith said that for 2018, CHS remains "committed to growth initiatives to advance our competitive position, including expanding our transfer and access program across our networks, launching Accountable Care Organizations, and strategically expanding outpatient services."
According to a filing from CHS:
Net operating revenues totaled more than $3 billion in the fourth quarter and were adversely impacted by a $591 million increase in contractual allowances and provision for bad debts.
Net loss attributable to CHS stockholders was $2 billion, or nearly $18 per share, compared with net loss of $220 million, or nearly $2 per share (diluted) for the same period in 2016.
Adjusted EBITDA was $409 million.
Cash flow from operations was $156 million, compared with $327 million for the same period in 2016.
Operating results for the fourth quarter reflect a 19.2% decrease in total admissions, compared with the fourth quarter of 2016. Same-hospital admissions fell 1.7% and adjusted admissions decreased .9% over the same period.
Operating results for all of 2017, reflect a 14% decrease in total admissions when compared with 2016.
Hurricanes Harvey and Irma resulted in a $40 million loss of net operating revenues, owing to evacuations and population disruptions before the storms, and recovery efforts afterward.
As part of its efforts to pay down outstanding debts, CHS sold 30 hospitals in 2017, and continues to negotiate other divestitures in 2018.
CHS recorded non-cash impairment expense totaling $1.7 billion in the fourth quarter, from an impairment charge of $1.4 billion on the value of goodwill for the CHS’s hospital reporting unit and impairment charges of $341 million to reduce the value of assets at hospitals that CHS has sold, plans to sell, and at underperforming hospitals.
Advocates warn that ACOs unready to assume downside risk will drop out of the program if CMS does not extend Track 1 for a third agreement period.
Provider associations are calling for an extension of the Medicare Shared Savings Program Track 1 because some accountable care organizations are not ready for downside risk.
"Many ACOs remain in Track 1 because they are unprepared to assume risk requiring them to potentially pay millions of dollars to Medicare, which is simply not practical or feasible for most of these organizations," the providers said in a joint letter to Seema Verma, administrator for the Centers for Medicare & Medicaid Services.
"Providers in rural areas and safety-net providers, which care for some of the most vulnerable patient populations, often face even greater challenges than other providers when considering taking on risk. However, the challenge of being forced into risk is of great importance to ACOs of all sizes, composition and ownership," the letter said.
The organizations that cosigned the letter include: The National Association of ACOs, the American College of Physicians, the American Medical Association, the Association of American Medical Colleges, the Medical Group Management Association, and Premier healthcare alliance.
MSSP Track 1 represents 82% of MSSP ACOs in 2018. However, ACOs may only remain in Track 1 for two agreement periods before moving to a two-sided risk model or dropping out of the program. The providers asked Verma to extend Track 1 for a third agreement period.
Early adopter ACOs that began the MSSP in 2012 or 2013 entered the second agreement periods in 2016. Their third agreement periods begin in 2019, the first time ACOs will be forced into a two-sided risk arrangement. They will make their decision about 2019 participation based on limited performance data from 2012/2013 through 2016, the letter noted.
"These ACOs need more time to prepare for two-sided risk," the letter said. "While six years may sound sufficient, given the programmatic changes and considerable learning curve for these ACOs, this is not enough time."
The letter said that Track 1 should be extended for a third agreement period for ACOs that meet at least one of the four criteria that include:
Generating net savings relative to their benchmark across four performance years, including those years that do not surpass their minimum savings rate, which in some cases can be as high as 3.9%.
Scoring at or above the 50th percentile in quality performance in two of three pay-for-performance years.
Improving overall quality score by 10 percentage points over the course of the three pay-for-performance years.
Spending that's lower than that of Medicare fee-for-service providers in the same service area.
The providers warned that ACOs that are not ready to assume the downside risk will drop out of the program if CMS does not extend the agreement period.
"Using a government mandate for risk is not the solution to increasing participation and achieving successful results for two-sided ACOs," their letter said. "The unintended consequences of forcing risk will significantly undermine the MSSP and result in diverting valuable investments in care coordination away from Medicare patients and towards other patients under value-based contracts."
The Chattanooga-based health system is quietly emerging as a major provider in the mountainous four-state region around Tennessee, Georgia, Alabama, and North Carolina.
Erlanger Health System made its first acquisition in North Carolina last month when it took control of Murphy Medical Center.
The acquisition, a member substitution, was hardly a rash decision on the part of Erlanger or Murphy. Rather, it seemed the logical course to take after four years of affiliation, says Erlanger COO Robert Brooks.
"They kept evolving through the affiliation agreement," Brooks says. "It grew from us putting the helicopter in Murphy, to providing hospitalist services in Murphy, to physician recruitment. Their board saw the value of what our health system could provide and so those talks continued further into 'why don't we see who’d be interested in being a partner.'"
The Murphy affiliation illustrates the modus operandi for Erlanger. Rather than swooping in to pick off vulnerable and isolated rural hospitals, Erlanger builds relationships through affiliations that address local needs, build trust, and demonstrate the value the nonprofit health system can bring to the relationship, Brooks says.
Erlanger has affiliation agreements with 13 hospitals that can range from providing education, providing physician or management services, to joint ventures, and eventually acquisitions.
"The reasons we entered into the relationship with Murphy is they've been having difficulty over the past five years of getting physicians to move into their community," Brooks says. "A new physician coming out of school doesn't want to move into a community where they are the only doctor in town. Really, with Murphy as a stand-alone, that is all they can offer."
"As part of the Erlanger Health System, we can hire an additional physician into our family medicine program, where we already employ 20 physicians," he says. "If they need a week off or call coverage we have other physicians to provide that. Murphy couldn't do that on its own."
Erlanger's Life Force helicopters provide another critical link for isolated rural hospitals in this rugged corner of Appalachia. Erlanger has expanded its fleet to include six helicopters serving hospitals in three states, covering approximately 50,000 square miles. "For the sickest of the sick, we bring our emergency room, our operating room, our ICU capabilities to the patient wherever they are to deal with some of those issues," Brooks says.
In nearby Sequatchie and Bledsoe Counties, amongst the poorest in Tennessee, Erlanger is building on longstanding relationships and will operate new facilities that both counties are building.
"We are going to build a 25-bed critical access hospital in Sequatchie Valley, and then a full-service freestanding emergency room and physician offices, outpatient and imaging center in Bledsoe County," Brooks says. "Both of those projects are being fully funded by their counties through bond issues, and they will be managed and operated by Erlanger. It's another example of how we provide health services for rural communities without Erlanger needed to spend the capital."
For services and expertise that are not a core business of a hospital, Brooks says Erlanger aligns with community partners or taps other experts.
"A good example would be our behavioral health hospital, a joint venture with Acadia Healthcare," he says. "They’re bringing the capital to the table. That building and all of the cash to get it going is 100% funded by Acadia."
"We’re providing things like the certificate of need,” he says. "We're moving our geriatric-psych unit into that building from our North Hospital, and we’re providing the brand name, Erlanger Behavioral Health Hospital. We are getting a new 88-bed hospital here in Chattanooga without a single penny out of Erlanger’s capital."
These affiliations are one of the reasons why Erlanger has seen a near doubling of net revenues, from $600 million four years ago.
"This year, we will probably be very close to a $1 billion net revenue organization by the end of this fiscal year. By the time we get through FY '19 we will probably have doubled our net revenue within five years," Brooks says. "We are looking to continue to grow because that is the trend nationally. If you're not growing, you are putting yourself at risk against other entities that are growing faster than you."
Size matters, he says, when negotiating with commercial payers.
"What's pushing this is there are companies like United Healthcare who are now the largest employer in the country of physicians. They're really trying to control the market around the insurance payment, as well as the providers," he says. "For hospitals, we need to be able to still negotiate good rates with the payers. So, the larger the health system the better negotiating power you have with the large payers."
As for future acquisitions and expansion plans in Tennessee and beyond, Brooks says Erlanger is always willing to listen.
"There is nothing that’s been on the radar now," he says. "We have 13 affiliate hospitals and we want to be whatever it is that they need. They have a full menu of services, so the CEO and the board in that community can say from Erlanger we would like you to provide maybe cardiology, or neurology or urology services. We help them to have those services that are too difficult to bring into their community."
"Over time, if they see there is a value with them and Erlanger, we will entertain what those bigger relationships could be."
The revisions address the excessive use of antibiotics in hospitals, and recommend diagnostic treatments—including fecal transplantation—to improve the care of patients with Clostridium difficile.
With nearly 500,000 people sickened each year to Clostridium difficile, and 15,000 to 30,000 deaths attributed to it, the first new guidelines since 2010 have been launched to reduce the prevalence of the bacterial infection.
C. diff. is the most common bug acquired in hospitals and costs more than $4.8 billion in hospitalizations alone, according to the Centers for Disease Control and Prevention.
The number of C. diff. cases plateaued in 2010, after reaching historic highs, but it has yet to decline in the United States, as it has in Western Europe, according to a study by the Infectious Diseases Society of America and the Society for Healthcare Epidemiology of America and published this month in Clinical Infectious Diseases.
The overuse of antibiotics is seen as a key factor in C. diff. infections, the study said, because the drugs kill good bacteria in the gut, which allows C. diff. to flourish and cause cramps and diarrhea.
"We can better control this epidemic by learning how to use new treatments and diagnostics," said L. Clifford McDonald, MD, co-chair of the guidelines panel and associate director for science at CDC's Division of Healthcare Quality Promotion.
The new guidelines recommend C. diff. testing only on patients with new onset and unexplained diarrhea. While immunoassays were the most common diagnostics employed previously, molecular testing – which has its pros and cons – is now used by more than 70% of hospital labs. Molecular tests can help rule out C. diff. infection, and reduce transmission by detecting C. diff. colonization in patients with diarrhea from other causes.
However, because the tests are very sensitive and can lead to over diagnosis, when there are no pre-agreed institutional criteria that limit testing to patients with significant unexplained diarrhea, the guidelines recommend that a C. diff. common antigen test and a stool toxin test be used as part of a two- or three-step test process.
Not everyone diagnosed with C. diff. requires treatment, McDonald said.
"We often find people get better on their own if they stop taking the offending antibiotic," he said.
Other new treatment recommendations include:
Vancomycin or fidaxomicin – Antibiotics vancomycin or fidaxomicin should be used for initial treatment of even mild C. diff., rather than metronidazole, which the previous guidelines recommended as first-line therapy. Research shows the cure rates are higher for vancomycin and fidaxomicin than for metronidazole.
Fecal microbiota transplantation – The guidelines recommend FMT for patients with two or more recurrences of C. diff. and for whom traditional antibiotic treatment has not worked. FMT is a new treatment since the last guidelines were published but is not approved by the Food and Drug Administration. However, FDA has issued Guidance for Industry.
The guidelines include the same suggestions for preventing the spread of C. diff. as the 2010 guidelines, including isolating infected patients and ensuring healthcare workers and visitors use gloves and gowns.
However, there is also a call for increased attention to antibiotic stewardship to reduce the unwarranted use. While nearly all antibiotics predispose people to C. diff., some are of particular concern, including the fluoroquinolones, cephalosporins and clindamycin.
The guidelines make no recommendations on probiotics.
"We tell patients that for the most part they won’t hurt, but at this point we can't make a recommendation for which ones to use and specifically how to use them," McDonald said.
The new guidelines also include recommendations for epidemiologic surveillance, diagnosis, and treatment of C. diff. in children, which the 2010 guidelines did not address.
Analysts believe Amazon, JPMorgan Chase, and Berkshire Hathaway's proposed partnership could start with a relatively modest internal health insurance offering and build upon that.
Amazon's anticipated venture into healthcare has the potential to disrupt traditional markets, especially pharmacy, pharmacy benefits, and supply chain, Standard & Poor's analysts say.
However, the Byzantine nature of the nation's $3.3 trillion healthcare sector will also determine the pace of that disruption.
"Given the sheer complexity of healthcare and its importance to our economy, change doesn't really come fast," Shannan Murphy, director of Corporate Healthcare Sector for S&P Global, said in a conference call Thursday.
"That said, we do think that change is coming slowly but surely, and certain elements of healthcare are more or less ripe for near-term disruption," Murphy said.
The vaguely worded announcement late last month that Amazon, JPMorgan Chase, and Berkshire Hathaway would create a nonprofit entity designed to reduce their employees' healthcare costs sent shivers through the pharmacy, pharmacy benefits, and supply sectors, with a loss of about $69 billion in market cap that day.
The market slide underscored investor jitters about sustainable margins given healthcare business models that provide limited pricing transparency, S&P says. However, the trio provided few details for their plans, which S&P analysts believe could start with an internal insurance offering and build upon that.
"All three companies are likely self-insured so they could try to tackle ancillary insurance services such as PBM," said Tulip Lim, director of S&P's corporate healthcare ratings. "This could help Amazon, especially if they wanted to get into the area of prescription drugs."
"But it's probably more likely that they would buy a PBM rather than build one, because operating a PBM requires certain competencies outside of the three's core, such as formulary management," she said.
The sectors most at risk for disruption are distributors of lab and medical supplies, but that comes with caveats.
"Even though Amazon is an e-commerce powerhouse, it might take a while before they take meaningful shares from certain rated players," Lim said. "That's because many of these companies cater to the acute-care market, which will be slower to buy meaningfully from Amazon."
"The distributors are pretty intertwined with the hospitals and are also pretty efficient at delivering products in large quantities and on short notice," she said. "Plus, many of the distributors provide additional services; specialized sales people, customized products, and a breadth of products like medical supplies and drugs."
Lim said Amazon would face hurdles entering the retail prescription drug market, even though they already have the Amazon RX domain name, and they’ve been in talks with generic drug manufacturers.
"In terms of pharmacy, Amazon has already been impacting the retailers in the nonprescription drug area and they could use Whole Foods as part of a pharmacy strategy," she said. "But, we think they would have to partner with a PBM to gain any real volume. Otherwise, they could only reach the cash-pay market, which is relatively small."
That might be a big hurdle because the biggest retailers have their own competing mail order pharmacies.
Lim says the wholesale drug distribution business would seem like a logical inroad for Amazon because it's good at order taking and fulfillment. But that is not the only function of wholesalers. "They also use their scale to buy drugs at a discount. Starting out amazon wouldn't have that scale unless they bought someone," she said. "Even the biggest pharm chains have thought it was best to join forces with a distributor to buy drugs."
Amazon could also shake things up in the healthcare sector by by following through on its promise to provide market transparency.
"That is maybe one of the reasons why investors are spooked because this is a very opaque marketplace," Lim said. "There are a lot of different companies involved and there are third-party payers involved and different middlemen involved. That is part of the reason for the complexity."
The Franklin, Tennessee–based for-profit hospital chain has sold another asset as part of its ongoing efforts to reduce about $1.5 billion in debts. The sale of Byrd Regional Hospital leaves CHS with one hospital in Louisiana.
Community Health Systems Inc. has sold a hospital in Louisiana to privately held Allegiance Health Managementas part of its ongoing efforts to pay down about $1.5 billion in debts, the company said.
Byrd Regional Hospital is a 60-bed hospital in Leesville, Louisiana. The deal includes physician and outpatient services, and is expected to close by June, pending regulatory approval. Financial terms were not disclosed.
Franklin, Tennessee–based CHS said Byrd Regional was one of the planned sales discussed on the company’s third quarter 2017 earnings call. The sale leaves CHS with one hospital in Louisiana, the 159-bed Northern Louisiana Medical Center in Ruston.
CHS has struggled financially since the $7.6 billion acquisition of Health Management Associates in 2014. At the time, the deal made CHS the largest for-profit hospital chain in the nation. Since then, CHS has sold more than 30 hospitals and plans are underway to sell more.
"Based on the facts and circumstances at the time, I certainly would do the deal. Based on a retro view of it, I wouldn't do the deal," Smith said.
Although some investors have called for Smith to resign, Shanda Group, a Chinese private equity firm with a 24% stake in CHS, expressed support for Smith.
"We have consistently maintained a good relationship with (CHS) and are supportive of the company and its management team as they continue to execute on the company's strategic objectives," Shanda President Robert Chiu said in amedia release.
CHS shares have rebounded slightly in 2018, and were trading at around $5.50 this week on the New York Stock Exchange, from a low of about $3.85 a share in early January.
With the acquisition of Byrd Regional, Shreveport, Louisiana–based Allegiance Health will operate six hospitals in Louisiana. The company operates 12 acute-care, long-term care, or behavioral health facilities in Louisiana, Texas, Arkansas, and Mississippi.
Private insurance spending for hospital care is decelerating, owing to aging Baby Boomers transitioning to Medicare, the impending repeal of the individual mandate, and the growth of high-deductible plans that constrain utilization.
Hospital spending will grow about 5.5% each year, from $1.3 trillion in 2018 to $1.8 trillion in 2026, driven largely by an aging demographic and price increases, according to Centers for Medicare & Medicaid Services projections.
Hospital spending grew by 4.6% and 4.7% in 2016 and 2017, respectively, CMS said.
"While growth is expected to be the same or somewhat faster for most major payers for hospital care, including Medicare/Medicaid, growth for private health insurance spending for hospital care is expected to slow by 0.9 percentage points in 2017," CMS economist Andrea Sisko said Tuesday.
"That is due, in part, to the effect of high-deductible health plans on utilization that was more than offset by the Affordable Care Act coverage expansion in 2014 through 2016," Sisko said.
The 0.9 percentage point deceleration is also projected for private health insurance spending for physician and clinical services, Sisko said.
“Otherwise, growth in projected prices and demographics are some of the factors driving spending by payers for the remainder of the projection period,” she said.
In 2017, 28% of workers were enrolled in high-deductible plans, compared with 5% in 2007, and CMS said there is increasing evidence that enrollment in high-deductible plans constrains the use of healthcare goods and services, particularly after the initial enrollment shift.
"The share of private health insurance enrollees in high-deductible plans is anticipated to stabilize over the projection period," CMS said. "Consequently, by the latter half of the period, both out-of-pocket and private health insurance spending for personal healthcare are projected to be driven by the same underlying factors (most importantly, disposable personal income that affects the use of healthcare goods and services)."
Spending for hospital care is projected to increase from $970 billion in 2018 to $1.8 trillion in 2026, while spending for physician and clinical services is expected to climb from $734 billion to $1.1 trillion over the same eight years.
CMS economist Gigi Cuckler said that many of the drivers affecting hospital spending are also affecting physician and clinical services.
"In 2017 you had the effect of the coverage expansion dampening and you start to see the effects of the proliferation of high-deductible plans, particularly on private health insurance spending," she said.
"So, you have a slowdown in projected private health insurance spending for 2017 which, in turn, results in a slowdown in overall physician and clinical services projected growth to 5% in 2017, from 5.4% in 2016," she said.
"By 2018, however, we are projecting that prices for physician and clinical services will increase largely due to increases in overall economy-wide inflation, but also due to increases in input prices, in particular healthcare wages," she said.
Even with the increase in prices projected for 2018, CMS projects a modest increase in growth for physician and clinical services, from 5% in 2017 to 5.1% in 2018.
"In 2019-20 private health insurance growth is dampened by the repeal of the individual mandate, while out-of-pocket spending is projected to increase. That is something we see similarly flow through to a lot of the sector," Cuckler said.
Closer to 2026, Cuckler said, "the trends in private health insurance and out-of-pocket spending are mostly driven by the same underlying factors that typically contribute to growth in spending in this category, mainly the lag effect of disposable personal income growth."
Medicare growth is also projected to accelerate in the second half of the projection, Cuckler said, which is partly related to physician incentive payments under the MACRA legislation and the end of sequestration, which explains an uptick in growth for Medicare physician spending in 2026.
If the current pace holds, CMS actuaries project healthcare spending will reach $5.7 trillion by 2026 and consume nearly 20% of the gross domestic product.
Healthcare spending is projected to eat an even bigger slice of the U.S. economy in the next eight years, according to projections released today by the Centers for Medicare & Medicaid Services.
CMS' Office of the Actuary projects an average annual rate of national health spending growth of 5.5% for 2017–26, representing about $5.7 trillion, and outpacing average projected growth in gross domestic product by 1 percentage point.
The key drivers for spending growth include: growth in disposable personal income; increased prices for medical goods and services; and aging Baby Boomers’ ongoing shift from private health plans to Medicare, CMS said.
As a result, the healthcare share of the economy is projected to climb to 19.7% by 2026—up from 17.9% in 2016, or $3.3 trillion. CMS said the projections rely on the current-law framework and assume no legislative changes over the decade.
"Something that really stands out is how much these projections are really influenced by fundamental demographic and economic shifts," Gigi Cuckler, an economist at CMS and lead author of the study said Tuesday in a media conference call.
"It’s very clear that the aging of the population has a significant influence on Medicare enrollment and shifts out of private health insurance. And it is also very clear that the growth in income, particularly disposable personal income, has a substantial influence, particularly on projected private health insurance and out-of-pocket spending," she said.
Along with the aging demographic, price growth for medical goods and services is also expected to be a significant factor for spending growth, and is projected to increase from historically low rates in 2014–16 of 1.1% per year, and average 2.5% per year for 2017–26.
Spending for hospital care is projected to increase from $970 billion in 2018 to $1.8 trillion in 2026, while spending for physician and clinical services is expected to climb from $734 billion to $1.1 trillion over the same eight years.
Prescription drugs will see the fastest average annual spending growth over the eight years, at 6.3% per year, growing from $360 billion in 2018 to $605 billion in 2026, largely because of increased spending on specialty drugs.
The insured share of the population is expected to decline slightly from 91.1% in 2016 to 89.3% in 2026, due to the repeal of the Affordable Care Act’s individual mandate.
Here is a chronological look at projected trends:
2018
National health spending growth is projected to increase to 5.3%, up from 4.6% in 2017.
Medicaid spending growth is projected to increase 4 percentage points, at a projected rate of 6.9%, due to the growth in health insurance spending as a result of smaller risk-mitigation recovery payments from the previous year.
Private health insurance spending growth is projected to decelerate to 4.8%, down from 5.6% in 2017, due to slower growth in the net cost of insurance in the Marketplace.
Prescription drug spending growth is anticipated to accelerate from 2.9% in 2017 to 6.6% in 2018, based on the expectation that the dollar value of drugs losing patent protection is less than in previous years.
2019–20
National health spending growth is projected to average 5.5%, a slight acceleration from 5.3% in 2018, as a result of faster projected average growth in Medicare spending not fully offset by slower average growth in private healthcare insurance spending.
Compared to 2018, Medicare spending is projected to grow 2 percentage points faster on average at 8%, reflecting accelerated physician incentive payments under MACRA, and projected growth in the use and intensity of Medicare goods and services.
Private health insurance spending is projected to slow on average to 4.1%, from 4.8 percent in 2018, due in part to the repeal of the individual mandate.
The number of uninsured people is projected to increase to 32.7 million by 2020, rising from 30 million projected for 2018.
2021–26
National health expenditure growth is projected to accelerate and average 5.7%, up from 5.5% projected for 2019–20.
Average Medicare and Medicaid spending growth (7.7% and 6.1%, respectively) will continue to outpace that of private health insurance (4.7%) due to the aging of the population, including continued strong enrollment growth.
In 2026, 47% of national health spending is projected to be sponsored by federal, state, and local governments, up from 45% in 2016. This reflects the shifting demographics including the continued transition of Baby Boomers to Medicare.
The projected share of health spending by businesses, households, and other private revenues is expected to fall 2 percentage points, from 55% in 2016 to 53% in 2026.
