Coming Changes in Spending Growth What Can Policy Contribute? Richard G. Frank Assistant Secretary for Planning and Evaluation, USDHHS

Coming Changes in Spending Growth What Can Policy Contribute? Richard G. Frank Assistant Secretary for Planning and Evaluation, USDHHS

Overview What are the recent trends in spending growth? How should we understand some recent upticks in spending? What are the future prospects and what does policy have to do with it? Use multiple data source across payer groups to provide a picture 2

Per Capita Growth, GDP and NHE 8% Per Capita Growth 6% 4% 2% -2% GDP NHE -4% GDP and National Health Expenditures (NHE) shared similar growth rates between 2010 and 2013 3

Per Capita Growth, NHE and Medicare Per Enrollee Spending Growth 1 8% 6% 4% 2% -2% NHE Total Medicare (OACT) Medicare FFS (MBSF) Note: 2014 Medicare FFS estimate based on claims data 2014 and 2015 Total Medicare estimates based on Treasury Monthly Statements 2014 Uptick appears to be moderating 4

Service Category Growth, Medicare FFS Per Beneficiary Spending Growth 15% 1 5% -5% -1 Inpatient Facility Outpatient (Hospital+ASC) Physician E&M Part B Drug Part D PAC 5

Observations Medicare spending experienced an uptick in growth in 2014 One important factor was new products introduced into the market to treat Hepatitis C. That contributed to Part D increases (note differences in Parts B and D drugs) Outpatient care spending grew more rapidly across service categories (MD, OPD) 6

Service Category Growth, Medicare FFS 15% Per Beneficiary Spending Growth 1 5% -5% -1 Part D w/hep C Specialty Drugs Part D w/o Hep C Specialty Drugs After removing the contribution of specialty drugs used to treat Hepatitis C, the 2014 Part D spending growth rate declines substantially. 7

Per Capita Growth, NHE and Private Insurance Per Enrollee Spending Growth 12% 1 8% 6% 4% 2% -2% NHE Private Insurance (OACT) Private Insurance (MarketScan) Private Insurance (S&P) Following fairly steady growth 2010 to 2013,spending trended upward in 2014: Due largely to Rx spend and compositional change in individual market. Early 2015 data suggest a moderating of trend. 8

Service Category Growth, Private Insurance (S&P) Per Enrollee Spending Growth 1 8% 6% 4% 2% -2% Inpatient Outpatient Professional Drug Spending growth decreased for most service categories, but increased substantially for prescription drugs. 9

Per Capita/Enrollee Growth, NHE and Medicaid Per Enrollee Spending Growth 8% 6% 4% 2% -2% -4% NHE Medicaid (OACT) 2014 Actuarial Report Projection Medicaid spending growth per enrollee has remained below 3% since 2008; due in part to compositional changes from expansion. 10

Observations Outpatient spending has ticked up in Medicare but not for other payers Hypothesis: policy emphasis in Medicare has been on inpatient care (value based purchasing, readmissions and hospital acquired conditions) all therefore serve to shift locus of care to outpatient settings Prescription drug spending has grown notably across all payer classes including and excluding Hep C drugs 11

Estimated Effects of Specialty Drugs 2014 total US drug spending was $373.9B, up 13.1% * Growth driven by innovation, less expiry impact, and pricing dynamics Spending on specialty medicines grew by 26.5% and reached one-third of medicine spending Innovations in Hepatitis C, cancer, multiple sclerosis and diabetes drugs drove new spending ASPE estimates that specialty drugs used to treat Hepatitis C accounted for approximately $3.8 B in Medicare FFS spending in 2014 ASPE estimates the annual PCSK9 cost to Medicare to be $27 B (based on 2015 dollars), or 5% of total Medicare annual net outlays * IMS, 2015, A Review of the Use of Medicines in the U.S. in 2014 12

Looking Ahead Payment reforms such as MSSP rules, bundling, Part C regulations, and MACRA along with private ACOs and exchanges expected to attenuate growth; payment rate reductions continue to impact overtime (productivity adjustment) Continuation of trends in market such as larger deductibles and narrower networks may also blunt some spending growth (but less than claimed) Spending growth on prescription drugs is likely to be lower than 2014 but will persist at levels above recent experience The late stage of development pipeline is well populated with specialty drugs Policy efforts aimed at increased competition could moderate trend somewhat (biosimilar regulations, pay for delay action, anti-trust) Targeted negotiation could also help political constraints are significant Thus while spending growth may not remain at the low level of recent years we do not expect a return to anything like the pre-aca rates 13