Economy may not be driving force behind lower medical utilization rates: Expert

NEW YORK—The prevailing theory that economic pressure and a floundering job market are responsible for drop-offs in medical utilization—and that utilization will spike once the economy recovers—may be less accurate than once believed, said Peter Orszag, former director of the federal Office of Management and Budget.

While economic conditions certainly affected utilization trends during the 2007-2009 Great Recession, Mr. Orszag said the sustained reductions in medical spending in the U.S. could be more attributable to structural and cultural changes within the health care industry.

From 2003 to 2007, the annual growth rate in U.S. health care spending was as high as 10% and never below 6%, according to estimates by the Alexandria, Va.-based Altarum Institute. Since the end of the recession, annual growth rate in health care spending has hovered between 3.5% and 5.5%, matching or exceeding its lowest rate in more than 20 years.

By and large, the recent deceleration in health care utilization has been attributed to patients forgoing or postponing medical treatment in an effort to save money as more employers shift the burden of medical costs to their workers, and more generally to reduced commercial enrollments caused by the sagging job market.

“The debate that's been occurring is over how much of this deceleration in health care spending that we've seen is solely because of the economy, and how much of it is a structural change that may persist after the economy picks back up,” Mr. Orszag said Wednesday in a keynote address at the Northeast Business Group on 2012 Health & Wellness Benefits Conference in New York.

Since leaving the OMB in 2010, Mr. Orszag has been vice chairman of the institutional clients group at New York-based Citigroup Inc.

If economic conditions were the primary force driving lower utilization rates, commercial medical spending likely would have decreased at a faster rate than Medicare spending, Mr. Orszag said. That is because Medicare beneficiaries for the most part have supplemental health coverage with their Medicare benefits, and do not face the same cost-sharing burden as active employees and their dependents, he said.

While it may have been expected that Medicare utilization would have slowed much less than commercial utilization, the data simply does not support that conjecture, Mr. Orszag said.

In July 2005, the growth rate for commercial medical and Medicare spending was approximately 7%, according to New York-based Standard & Poor's Financial Services L.L.C.'s most recent health care economic indices.

From 2009 to today, commercial medical spending growth has more or less recovered to its mid-2005 average of 7% annual growth, whereas Medicare spending growth has trended downward to about 2.5% at the beginning of this year.

“I think that part of what we're seeing is a shift that will last for a longer period of time,” Mr. Orszag said.

Several recent trends in the health care space likely are contributing to the overall reduction in utilization of the past few years, Mr. Orszag said. A growing number of health care plan sponsors are migrating away from fee-for-service payment models in favor of alternative models in which health care providers take on a greater amount of risk, such as bundled payments and accountable care organizations. Mr. Orszag said he expects that migration to expand during the next five to 10 years.

Lower utilization and medical spending could also be attributable to technological developments in the field of clinical decision support. The rollout of health care information technology systems capable of benchmarking outcomes and comparative analysis of treatments already has been demonstrated to significantly reduce utilization of some high-cost procedures, and more advanced analytics could lead to even greater savings for employers and consumers, Mr. Orszag said.

“Doctors have become much more accepting of benchmarking analysis and other types of decision-support software than they were 10 years ago,” Mr. Orszag said, citing a 2009 study of radiology procedures at Boston-based Massachusetts General Hospital that revealed drastic drops in utilization after implementing decision-support software.

“As that norm shifts, the results could be similar to what we saw at Mass General,” Mr. Orszag said.