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What Put the Brakes on Medicare Spending?

The Holy Grail in battles over the federal budget has been how to slow down the runaway train of health care spending.


So it surely comes as good news that spending on traditional Medicare has slowed substantially, as a new Congressional Budget Office (CBO)  study shows, and not just because of the broader economic slowdown.

For 25 years, spending on traditional Medicare rose, on average, 8 percent a year. Then, from 2007 to 2012, the increase slowed to an average annual rate of 3 percent. (Health care spending for all ages has been growing by an annual rate of about 3.9 percent in recent years, according to federal statistics.)  

The CBO study says that it's hard to know exactly why the slowdown has happened, but it cites a number of factors, including fewer hospital admissions as patients are treated in less expensive settings such as hospices.

Former Obama budget czar Peter Orszag writes on that health care is fundamentally changing:

"My own interactions with hospital executives and other health-care providers suggest something similar: Most providers anticipate that, in the future, they will be paid based less on how much they do than on how well they do it. And that anticipation is leading to significant change today."

Orszag cites a study by David Cutler and Ariel Dora Stern of Harvard University, Jonathan Skinner of Dartmouth College, and David Wennberg of Dartmouth's Geisel School of Medicine on why Medicare spending varies so much across regions of the United States. Orszag writes:

"If doctors who tend to provide more intensive care than medical guidelines suggest instead simply followed those guidelines, the Cutler team found, Medicare spending would fall by an astonishing 17 percent. ... Findings such as these suggest there is substantial room for Medicare savings that don't harm - and potentially improve - care."


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