Medicare Actuaries: U.S. Healthcare Spending Will Rise to $5.548 Trillion and 19.9 Percent of GDP in 2025 | Healthcare Informatics Magazine | Health IT | Information Technology Skip to content Skip to navigation

Medicare Actuaries: U.S. Healthcare Spending Will Rise to $5.548 Trillion and 19.9 Percent of GDP in 2025

February 15, 2017
by Heather Landi
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CMS actuaries project that total healthcare spending will rise from $3.358 trillion in 2016 to $5.548 trillion in 2025
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Under current law, national health expenditures are projected to grow at an average annual rate of 5.6 percent over the period 2016-2025 and increase to 19.9 percent of gross domestic product (GDP) by 2025, with total healthcare spending rising to $5.548 trillion in 2025, according to a study authored by the Centers for Medicare & Medicaid Services’ (CMS) Office of the Actuary (OACT).

The study, “National Health Expenditure Projections, 2016-25: Price Increases, Aging Push Sector to 20 Percent of Economy,” was published today as a ‘Web First’ by Health Affairs and authored by Sean P. Keehan, John A. Poisal, Gigi A. Cuckler, Andrea M. Sisko, Sheila D. Smith, Andrew J. Madison, Devin A. Stone, Christian J. Wolfe, and Joseph M. Lizonitz, all from the CMS Office of the Actuary. The OACT report also can be found on the CMS site here.

The projections for national healthcare spending in the latest report are slightly more optimistic than a similar report published in the July 2016 issue of Health Affairs, as, in that report, actuaries projected healthcare spending would rise to 20.1 percent of GDP. Yet, by all accounts, the projections are still alarming.

Specifically, the authors noted in the report, “Over the next decade (2016–25), growth in nominal (not adjusted for inflation) national health expenditures (NHE) is projected to average 5.6 percent, outpacing average growth in gross domestic product (GDP) by 1.2 percentage points.”

As a result, the actuaries projected, the percentage of the gross domestic product (GDP) spent on healthcare every year across the U.S. healthcare system would climb from 17.8 percent in 2015 to 19.9 percent in 2025. Thus, the actuaries projected that total spending will rise from $3.205 trillion in 2015 to $3.358 trillion in 2016, then $3.539 trillion by 2017, $3.965 trillion by 2018 and, ultimately, to $5.548 trillion in 2025.


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“After an anticipated slowdown in health spending growth for 2016, we expect health spending growth to gradually increase as a result of faster projected growth in medical prices that is only partially offset by slower projected growth in the use and intensity of medical goods and services,” Sean Keehan, the study’s first author, said in a prepared statement in a press release announcing the study. “Irrespective of any changes in law, it is expected that because of continued cost pressures associated with paying for health care, employers, insurers, and other payers will continue to pursue strategies that seek to effectively manage the use and cost of health care goods and services.”

In the study, the authors provide an analysis of their projections: “In 2014 and 2015, when the largest impacts of the major coverage provisions of the ACA were observed, health spending growth averaged 5.5 percent. For the period 2016–25, spending is projected to grow similarly (5.6 percent) but to be largely influenced by changes in economic growth and population aging and not as much by changes in insurance coverage, the study authors wrote. Further, the authors stated, “This expectation leads to slower growth in the use and intensity (or complexity) of medical goods and services, relative to the expansion-related growth of 2014–15. However, medical price growth is projected to quicken in the coming decade compared to recent history, as both overall prices and medical-specific price inflation grow faster.”

According to the report, for 2016, total health spending is projected to have reached nearly $3.4 trillion ($3.358 trillion), a 4.8-percent increase from 2015. The report also found that by 2025, federal, state and local governments are projected to finance 47 percent of national health spending, a slight increase from 46 percent in 2015.

The actuaries’ projections published in this latest study indicate slightly slower growth in U.S. healthcare spending for this time period compared to projections published in the July 2016 issue of Health Affairs. As Healthcare Informatics Editor-in-Chief Mark Hagland noted in his article about the July 2016 Health Affairs study, at that time, actuaries projected the percentage of the GDP spent on healthcare every year across the U.S. healthcare system would grow to 20.1 percent in 2025 with total spending rising from $3.3013 trillion in 2014 to $5.631 trillion in 2025. This latest report from CMS actuaries projects the health share of GDP to rise to 19.9 percent in 2025, slightly under 20 percent, with total spending rising to $5.548 trillion in 2015, about $83 billion lower.

During a press call regarding the study and its findings, a reporter questioned Keehan, an economist in the Office of the Actuary at CMS, about why the spending increase projection in this year’s report was slightly more optimistic than the report last year. Keehan responded, “The growth is projected to be a little bit slower at 5.6 percent, averaging annual growth rate for the projection period. In the report last year, we had 5.8 percent, and the slow growth did account for the slightly lower percentage health share of GPD by 2025. There several smaller reasons, and one reason that I can highlight right now is that growth in medical prices, especially for 2016, 2017 and 2018, were a little bit slower this year, in this report, than in last year’s report.”

Another CMS actuary, and an author of the report, on the call, said, “I think we’re a little slower on the back end as well on the basis of expected slowing growth as we reach the tail end of the projection period. That slowing growth tends to dampen demand, particularly for private payers, so I think that a slight tweak in the way we are anticipating the economic growth to unfold is playing a role as well.”

The study authors conceded that there is considerable uncertainty regarding how the nation’s health care will be delivered and paid for going forward, alluding to possible changes to healthcare policies and laws as it relates to changes, or even a repeal, of the ACA. “The NHE projections are constructed using a current-law framework1 and thus do not assume potential legislative changes over the projection period, nor do they attempt to speculate on possible deviations from current law. While there is currently significant debate involving potential future health-sector policy changes, the scope, timing, and impact of such possible changes on health spending and health insurance coverage are all uncertain at this time,” the study authors wrote.

When asked by reporters on the press call about whether the current and ongoing debates about repealing and replacing the ACA played into the national health spending projections, Keehan said study authors did not take into consideration any proposed healthcare policies. “We don’t have anything in our paper about debates on proposed changes in law,” he said.

Some of the key data from the report:

Total national health spending growth: Growth is projected to have been 4.8 percent in 2016, slower than the 5.8 percent growth in 2015, as a result of slower Medicaid and prescription drug spending growth. In 2017, total health spending is projected to grow by 5.4 percent, led by increases in private health insurance spending. National health expenditure growth is projected to be faster and average 5.8 percent for 2018-2025 largely due to expected faster spending growth in both Medicare and Medicaid.

Medicare: Medicare spending growth is projected to have been 5.0 percent in 2016 and is expected to average 7.1 percent over the full projection period 2016-2025. Faster expected growth after 2016 primarily reflects utilization of Medicare covered services increasing to approach rates closer to Medicare’s longer historical experience. This results in Medicare spending per beneficiary growth of 4.1 percent over 2016-2025 (compared to 1.6 percent growth for 2010-2015).

Private health insurance: Spending growth is projected to have slowed from 7.2 percent in 2015 to 5.9 percent in 2016, a trend that is related to slower growth in private health insurance enrollment. Spending growth is projected to increase to 6.5 percent in 2017, due in part to faster premium growth in Marketplace plans related to previous underpricing of premiums and the end of the temporary risk corridors.

Medicaid: Projected spending growth slowed significantly in 2016 to 3.7 percent, down from 9.7 percent in 2015, largely reflecting slower growth in Medicaid enrollment. Spending growth is expected to accelerate and average 5.7 percent for 2017-2025 as projected per-enrollee spending growth rises over that timeframe. Underlying the faster per enrollee growth is the increasingly larger share of the Medicaid population who are aged and disabled and who tend to use more intensive services.

Medical price inflation: Medical prices are expected to increase more rapidly after historically low growth in 2015 of 0.8 percent to nearly 3 percent by 2025. This faster projected growth in prices is influenced by an acceleration in both economy-wide prices and medical specific prices and is projected to be partially offset by slowing growth in the use and intensity of medical goods and services.

Prescription drug spending: Drug spending growth is projected to have been 5.0 percent in 2016, following growth of 9.0 percent in 2015, mainly due to slowing use of expensive drugs that treat Hepatitis C. Growth is projected to average 6.4 percent per year for 2017-2025, influenced by higher spending on expensive specialty drugs.

Insured Share of the Population: The insured share of the population is projected to increase from 90.9 percent in 2015 to 91.5 percent by 2025. “This is mainly a result of continued growth in enrollment in private health insurance—in particular, employer-sponsored health insurance—in the first year of the projection period, as well as enrollment growth in public programs throughout the period,” the authors wrote.

For 2018 and beyond, the actuaries project that both Medicare and Medicaid expenditures will grow faster than in the 2016–17 period, and more rapidly than private health insurance spending, for several reasons. The authors wrote that growth in the use of Medicare services is expected to increase from its recent historical lows (though still remain below longer-term averages). Second, the authors wrote, “the Medicaid population mix is projected to trend more toward somewhat older, sicker, and therefore costlier beneficiaries. Third, baby boomers will continue to age into Medicare, with some of them dropping private health insurance as a result. And finally, growth in the demand for health care for those with private coverage is projected to slow as the relative price of health care—the difference between medical prices and economy-wide prices—is expected to begin gradually increasing in 2018 and as income growth slows in the later years of the projection period.”

According to the authors, the annual national health expenditure projections are largely based on current law and the existing regulatory environment. They use the economic and demographic assumptions from the 2016 Medicare Trustees Report, which were updated to reflect the latest macroeconomic data, and the latest Medicaid projections from the CMS Office of the Actuary. Finally, these projections are developed using actuarial and econometric modeling methods, as well as judgments about future trends that influence health spending.

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Four Ways RCM Must Transform for the Shift to Value-Based RCM

January 10, 2019
by Parag Shah, Industry Voice, President, Practice Solutions, Integra Connect
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Value-based care is driving transformation of many established operations within medical groups—and the revenue cycle is no different

It is likely that 2018 will be remembered as the year that value-based care became a financial reality for most U.S. medical practices. Those participating in MIPS (the Merit-based Incentive Payment System) received their first round of results and a view of the impact on future reimbursement rates.

Specialists taking part in advanced alternative payment models (APMs) such as the Oncology Care Model (OCM) program were also provided performance reports from CMS, in some cases accompanied by unexpected claw back demands. Finally, commercial payers such as UnitedHealthcare and Aetna promoted research and forecasts attesting to the increasing influence of value-based contracts in the reimbursement mix.

A recurring theme of value-based care is the need for practices to undergo transformation and adjust their practices, clinically and operationally. But how should they transform financially?

Revenue cycle management (RCM) has been the primary process by which practices ensure they are fairly and fully reimbursed for the care they provide to patients. In a fee-for-service system, the process is straightforward at a high level—ensure encounters are properly documented in the electronic health record (EHR), submit corresponding claims and follow through to payment. Now, with revenue streams dependent on new quality and cost performance measures, benchmarks compiled from peer groups, episode costs beyond practice walls and more, forecasting payment has become much more challenging. While fee-for-service reimbursement is not going to vanish, the shift to value-based care requires practices to revisit their existing RCM approaches and evolve them in four primary areas:

  1. Optimize based on value, not just volume. Practice financial performance once depended primarily on the “top line” of patient encounters, both the number of them and the type of services delivered. This, in turn, led to a focus on the up-front accuracy of claims, not to mention the efficiency of provider and office workflows.

By contrast, value-based programs including MIPS and APMs identify specific quality, cost, and other output measures upon which reimbursement levels depend. Therefore, optimization now also involves: 1) facilitating the accurate capture of the inputs from which measures are calculated and ensuring complete and timely submissions; 2) noting payer or peer group benchmarks, when also considered as part of performance; 3) partnering with clinical peers to identify those measures for which the practice is likely to over- or under-perform and creating financial scenarios based on likely outcomes; and 4) for areas of under-performance, working with clinical peers to address the root cause of negative outliers and drive continuous quality improvement.

  1. Minimize risk, not just denials. Financial downside in fee-for-service RCM often presented in the form of unwarranted payer denials. As a result, practice teams took pains to ensure clean claims up front and continued engagement through the approval process.

As value-based contracts grow, financial leaders must also anticipate and model the new risk factors that could negatively influence future practice revenue. Actions include projecting reimbursement levels as a result of various performance scenarios under MIPS; potentially putting aside bundled payment income until payer reconciliation is complete; or invoking stop-loss insurance as protection in two-sided risk models.

  1. Shift focus from in-office encounters to care delivered across all settings and conditions. For the most part, fee-for-service revenue cycles focused on the encounters between providers and patients that occurred between a practice’s four walls. Many value-based care models instead involve accountability for total episode costs, which can be driven by patient visits to other settings (e.g., EDs and urgent care), other providers (in the case of co-morbidities) and other treatments, including those received in the home. Revenue cycle teams will be important drivers in ensuring that proper integrations and interfaces are established to other systems in which such data resides, as well as partnering with clinicians in establishing the financial need for new practice capabilities that increase performance in the areas of expanded scope – for example, care management efforts that will focus on treating patients based on risk and with a holistic view of their “whole person” care. 
  1. Move from retrospective to real-time reporting and action. The primary KPIs by which practices measured revenue cycle performance were largely retrospective in nature: net collections, days in A/R, denial rates, and cost to collect, to name a few. Dashboards, therefore, also looked back and compared historic performance across defined periods of time—with an eye on future improvements. Practices could remediate issues with the next group of claims.

Value-based care models often involve sizeable performance periods with high revenue impact—for example, six months in an APM such as the Oncology Care Model—and payers share results long after practices have any ability to address issues. The revenue cycle therefore needs to implement the ability to monitor performance at a detailed level in real-time. This speaks to the need for a new foundation of data management that pulls from all the relevant clinical and financial sources that impact quality measure performance, harmonizes it and enables a layer of advanced analytics. These analytics should include both timely dashboards and the ability to run custom reports, all with the ability to drill down to the level of individual patients, providers, and practice locations to permit the identification and targeting of interventions when needed.

Value-based care is driving transformation of many established operations within medical groups—and the revenue cycle is no different. Taken together, the four steps outlined in this article point to an expanded role for the financial leaders in medical practices. The tendency for some to treat RCM as a back-office function will give way to a new collaboration with clinical peers at the forefront of the practice, modeling, tracking, and designing responses to the scenarios upon which overall financial health will depend.

Parag Shah is president, practice solutions at Integra Connect. The practice solutions division manages client engagement and delivery across all provider-facing solutions.


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Survey: Healthcare Organizations Skeptical of athenahealth, Virence Merger

December 3, 2018
by Heather Landi, Associate Editor
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Healthcare organization leaders are expressing some initial skepticism about the merger of athenahealth with Virence Health Technologies, as a result of Veritas Capital and Elliott Management’s recent acquisition of athenahealth.

Current customers of the two vendors say they are in “wait and see” mode following the merger of the two companies, however, the majority of non-customers say they do not plan to purchase health IT technology from the combined company, according to a new survey from Reaction Data, a market research firm focused on the healthcare and life sciences industries.

The Reaction Data survey gauges how patient care organization leaders are reacting to the acquisition of athenahealth by Veritas Capital and Elliott Management, and the subsequent merger with Virence/GE Healthcare. While mergers and acquisitions in healthcare are becoming the new normal, the merger of Virence/GE Healthcare and athenahealth is unique, the report states.

In July, Veritas Capital acquired GE Healthcare’s revenue cycle, ambulatory care, and workforce management product lines, and then several months later rebranded it as Virence Health Technologies. On November 12, private equity firm Veritas Capital and hedge fund Elliott Management announced the acquisition of athenahealth, the Watertown, Massachusetts-based electronic health record (EHR) and practice management vendor, for $5.7 billion,

Following the deal’s closing, Veritas and Evergreen Coast Capital, a subsidiary of Elliott Management, expect to combine athenahealth with Virence Health. The combined business is expected to be a leading, privately-held healthcare information technology company with an extensive national provider network of customers and world-class products and solutions to help them thrive in an increasingly complex environment, the companies said in a press release.

The deal concludes a six-month acquisition process and a tumultuous period for athenahealth and its leadership. Elliott Management, the sometimes-activist fund run by billionaire Paul Singer, has put pressure on athenahealth leadership to take the company private or explore a sale since the hedge fund acquired a 9-percent stake in the company in 2017.

For the survey, Reaction Data collected feedback from patient care organization leaders about how aware the market is about the M&A event and an analysis on how likely the newly combined company will attract, or repel, new business.

Of the respondents, 22 percent are practice administrators, 18 percent are CIOs, 12 percent are chief financial officers (CFOs) and the remaining respondents are chief medical officers, CEOs, physicians, chief nursing officers, medical directors and chiefs of staff. Thirty-two percent of respondents are athenahealth customers, 19 percent are Virence customers and 49 percent aren’t customers of either company.

While Veritas acquired several important product lines from GE Healthcare six months ago, less than half of respondents (44 percent) were aware of that M&A event. Conversely, the majority of respondents (60 percent) are aware that Veritas and Elliott Management are acquiring athenahealth and plan to merge it with Virence (GE Healthcare).

Looking at overall impact, 45 percent of respondents are neutral on the impact of the merger, while 26 percent expressed a positive opinion and 29 percent have a negative opinion on the merger. Half of respondents who are current customers (51 percent) say they are in “wait and see” mode when it comes to sticking around for the long haul, with the remaining respondents are equally split between leaving (25 percent) and staying (24 percent).

“Reassuring the customer base that integration pains will be minimized and that investment and support will continue will be key priorities for the new ownership team,” the report says.

The rest of the market (non-customers) is another story. As of right now, the majority (57 percent) state they are unlikely to consider Virence or athenahealth for future purchases. Thirty percent of non-customers are in “wait and see” mode.

“While, at present, this certainly isn't an optimistic result, if the new owners execute the integration at a high level, word will quickly get out that the new combined entity truly is greater than its individual parts and the pendulum will swing back in its favor,” the report says.

The report authors also note that skepticism among healthcare organizations is expected among healthcare M&A deals. “Enough of these events in healthcare have gone south that it's perfectly reasonable for customers, and the market alike, to be professionally skeptical about its future. However, it should be noted, that these are two sizable companies brought together by two world-class private equity firms so it is entirely possible that this new company will emerge as a truly formidable competitor to industry titans Cerner and Epic,” the report authors wrote.

Related Insights For: Revenue Cycle Management


Survey: Providers Remain Challenged with Optimizing Revenue Cycle-Related EHR Functions

November 29, 2018
by Rajiv Leventhal, Managing Editor
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Healthcare providers continue to focus on technology to spearhead revenue cycle improvements, but remain challenged with optimizing electronic health record (EHR) functionality, according to new research from consulting firm Navigant and the Healthcare Financial Management Association (HFMA).

The survey of 107 hospital and health system chief financial officers and revenue cycle executives, released this week, found that 68 percent of respondents said their revenue cycle technology budgets will increase over the next year, down from 74 percent last year.

Results also showed that, compared to last year: 39 percent fewer executives project a budget increase of 5 percent or more; and 53 percent more executives predict no change to their budgets.

However, this slowing of IT spending does not mean providers are satisfied with their current EHR functionality, researchers noted. Fifty-six percent of executives said their organizations can’t keep up with EHR upgrades or underuse available EHR functions, up from 51 percent last year.

Further, 56 percent of executives suggested EHR adoption challenges have been equal to or outweighed benefits specific to their organization’s revenue cycle performance. Both hospital-based executives and those from smaller hospitals cited more challenges than benefits, compared to health system and larger hospital executives. This is likely due to greater capacity and scale in health system and larger hospital IT departments, researchers concluded.

“Hospitals and health systems have invested a significant amount of time and money into their EHRs, but the technology’s complexity is preventing them from realizing an immediate return on their investments,” Timothy Kinney, managing director at Navigant, said in a statement accompanying the survey. “When optimized correctly, a good portion of the ROI can come from EHR-related revenue cycle process improvements.”

When asked which revenue cycle capability their organization is most focused on for improvement over the next year, most executives (76 percent) once again selected technology-related capabilities. Revenue integrity continues to be the top area of focus among them, cited by 24 percent of executives who noted such revenue integrity program benefits as reduced compliance risks, and increased revenue capture and net collection.

The survey results also showed that, compared to last year, EHR optimization as an improvement priority rose from 15 percent to 21 percent, while physician documentation fell from 18 percent to 12 percent.

What’s more, even though providers do appear to be better prepared to address consumer self-pay, the area continues to be an issue, the research revealed. Eighty-one percent of executives said they believe the increase in consumer responsibility for costs will continue to affect their organizations, down from 92 percent last year. Among them, 22 percent think that impact will be significant, compared to 40 percent last year. Executives from health systems and larger hospitals believe their organizations will be more heavily impacted by consumer self-pay.

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