What’s Ahead: Some Health Economy Considerations for 2013

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Anirban Basu
Chief Economist
Sage Growth Partners

Unhappy Hospitals

We knew that there would be winners and losers emerging from the resolution to the so-called fiscal cliff.  The media have broadly proclaimed that among the winners are President Obama, Vice President Biden, Senate minority leader Mitch McConnell, the elderly and those households earning between $250,000 and $450,000 per annum.  Among the real and/or perceived losers were those who are desperate to see larger cuts in federal spending and the deficit, House Speaker John Boehner and Grover Norquist.

As it turns out, one of the other groups emerging as among the most upset with the deal are the nation’s hospitals.  Several components of the fiscal cliff-resolving package would diminish federal payments to hospitals in exchange for delaying cuts to physician compensation.

According to the Wall Street Journal, the bills puts off for one year cuts in physician reimbursements for treating elderly patients through the Medicare program – a patch associated with a $25.2 billion price tag.  That amount is largely covered by a series of cuts to hospitals that treat Medicare patients, including a $10.5 billion coding adjustment that will be in place from 2014 through 2018.  According to the Journal, “all hospitals will be subject to the cut.”  The Congressional Budget Office also estimates $4.2 billion in savings from a reduction in the amount that hospitals are compensated for treating uninsured patients in 2022.  The recent agreement represents the 15th time that Congress has postponed cuts to physician Medicare reimbursements.

Despite growing pressure on hospital finances, the fiscal health of nonprofit hospitals is expected to remain stable in 2013 according to Fitch Ratings.  Merger and acquisition activities are likely to remain brisk as hospitals search for opportunities to attain expanded operating and clinical efficiencies.

Can I Exchange My Insurance?

Policy experts often refer to the three major issues surrounding healthcare in the United States – quality of care, access and cost. The Affordable Care Act may significantly improve access, but there isn’t much reason to believe that the problem of rapidly rising healthcare costs has been cured. According to PricewaterhouseCoopers, the cost of U.S. healthcare services is expected to rise 7.5 percent in 2013, more than three times projected rates for overall U.S. inflation. Consumer prices are expected to expand 2.0 percent in 2013.

Premiums for large employer-sponsored health plans are expected to rise “only” 5.5 percent as a consequence of company wellness programs. But that’s enough to induce many employers to continue to cost shift onto employees. More than half of 1,400 employers surveyed by PricewaterhouseCoopers say their firm is considering their employees’ share of health benefits costs as well as expanding health and wellness programs in 2013.

According to published reports, upward pressure on healthcare costs is partially attributable to the diffusion of new medical technologies, including robotic surgery and the nuclear medicine imaging technique known as positron emission tomography. The projected growth rate of 7.5 percent for overall healthcare costs is nearly double the 3.9 percent rise in U.S. healthcare spending that the federal government estimates occurred in 2010, the last year for which official statistics are available.

Sources: Wall Street Journal, Deloitte LLC, PwC, Reuters