The costs of healthcare turned a corner in 2009. You can see it on any graph of National Health Expenditures, whether by dollars or dollars per capita or percentage of the economy. There is a decided downward bend in the trend line between 2008 and 2009. The line then stays nearly flat, close to or below the increase in the general economy.
This Great Flattening is really interesting, but the reasons why it’s happening are even more interesting — because they tell us something about healthcare’s future.
Robert Woods Johnson Foundation just put out the latest report on this. The line blipped up a bit in 2014, the first year of the full implementation of Obamacare. According to the RWJF analysis, though, it then resumed its near-flat trajectory in 2015. The Great Flattening is not over.
Why is this happening?
Healthcare commentators have given three competing reasons for it. At first, most dismissed it as an epicycle of the Great Recession. Later others claimed that its continuation showed that Obamacare was working.
I and some others had a different idea: The Great Flattening, at least in part and increasingly as time went on, has been the first sign that structural changes in how we pay for healthcare are beginning to make a difference in how much we pay for healthcare.
The U.S. healthcare economy is hollow, with at least 1/3 of all we pay going to wasteful, unnecessary, and unhelpful tests, procedures, office visits, and pharmaceuticals; and with an unsupportable and arbitrary range of high prices. If we paid for healthcare in ways that would not pay for waste, but paid for the good outcome, most efficiently arrived at; and if we paid for healthcare in ways that gave the patients, customers, and private payers some possibility of actually steering toward value — this hollow economy would collapse to a much lower, more efficient level of cost, capable of finally bringing us what we pay for.
Can the Great Flattening tell us anything about whether this scenario is real, or is already unfolding? It can.
The clue is in the timing.
The Great Flattening started just about the moment that the Great Recession started. But history says that there is something funny there. Downturns in the healthcare economy tend to lag downturns in the general economy by about a year, as layoffs accumulate, people play out their insurance options and their health savings accounts, and healthcare organizations in turn freeze hiring and capital plans. This time, though, they started together, on the instant. This suggests some other factor was at play, something that I suspected at the time and more strongly now was the structural changes in payment systems, the introduction of the consumer with “skin in the game” and the growing aggressiveness of self-funded employers.
By 2009, the economics of the sheer cost of healthcare had caught up with the demographics of the Boomers hitting their 60s, the age when they begin to need a lot more hips and hearts and diabetes treatment. Employers had awakened to the power of getting serious about healthcare costs. More and more consumers had “skin in the game,” paying a part of the costs. Alternatives to the code-driven fee-for-service system, from retail care to onsite clinics to bundled products, had begun to appear across the landscape.
Obamacare, of course, was enacted in 2010, with some provisions coming into play in 2011, and others waiting until full implementation in 2014. All the early implementations (bringing young people, then people with pre-existing conditions, then finally tens of millions of others into coverage) would add costs to the system, while the provisions designed to drop costs would play out over the years.
What does this say about the future?
Here’s what it says: Whatever part of the Great Flattening grew out of the Great Recession would evaporate as the recession evaporated. Whatever part is the result of Obamacare will last as long as Obamacare lasts — but will never be powerful enough to truly puncture the hollow healthcare economy.
The part that is due to structural changes in payment systems, though, will not only endure, they will strengthen and spread through the healthcare economy. If even a significant fraction of the healthcare economy becomes subject to these market forces, using mostly payer/health plan money but with the consumer and the empowered employer as the value-seeking missile doing the choosing, then we will see the hollow healthcare economy lose its vast waste and overpricing and collapse into efficiency.