34
Yesterday PricewaterhouseCoopers released their annual “Behind the Numbers” Medical Cost Trends for 2011. Medical inflation is predicted to go down from 9.5% to 9.0% but still way above consumer price inflation. What surprised me was that the report didn’t mention cost cutting strategies such as group purchasing organizations (GPOs) that could, if given the opportunity, cut into these eye popping numbers.
In summary, the reports says:
“The past 18 months have been extraordinary for employers and medical costs. The worst recession in a quarter-century was followed by the most extensive changes in federal health funding and regulation in 45 years. The full consequences of both continue to play out, but medical costs will be buffeted by reactions inside and outside the nearly $3-trillion health industry in 2011.
To aid employers in designing their health benefits, PricewaterhouseCoopers’ (PwC) Health Research Institute (HRI) provides annual estimates of how much private medical costs will grow over the next year, and what the leading drivers of the trend are expected to be. This report looks at the projected increase in costs of medical services assumed in setting premiums for health insurance plans. Insurance companies use medical cost trends to estimate what the same plan would cost in the next year.”
A report by entitled, “Savings and a Marketplace Analysis of the Health Care Group Purchasing Industry” (July 2009) by David E. Goldenberg, Ph.D. and former Medicare and Medicaid Chief Actuary Roland “Guy” King examine the size of the GPO marketplace and GPO market penetration and finds that GPOs realize significant costs savings in U.S. national health expenditures. The study estimates that in Calendar Year 2008, GPOs saved the nation up to $64 billion – with savings to public health care programs ranging from $16 billion to $36 billion. The study also estimates that
Medicare realized savings of between $8 billion and $17 billion in CY 2008 with savings to Medicaid ranging from $5.7 billion to more than $12 billion.
More importantly the study suggests that there are significant opportunities for future savings. Specifically, the report shows that the upper threshold of GPO market penetration (i.e., expenditures channeled through GPOs) is 80 cents of each dollar of non-personnel expenditures. Providers report that approximately 72 percent of their purchases are made through GPOs. The GPO share of the health care marketplace is estimated at between 72 and 80 percent of hospital and nursing home non-labor expenditures. For CY 2008, the total GPO marketplace penetration (hospitals and freestanding nursing homes) ranged between $263 billion and $293 billion (roughly 11-12 percent of the total national health care expenditures). In other words the GPO markplace for providing additional savings has room to grow. In fact, based on the 2008 data found in National Health Expenditure Accounts (NHEs), the total potential GPO marketplace for CY 2008 was $367 billion. This sum reflects total hospital non-labor and total nursing home non-labor expenditures. GPOs save money. If the country wants to save more, policy-makers should look to GPOs for help.