For the first time in decades, U.S. health care spending may have actually decreased in 2020, new data suggests.
Several factors likely contributed to the potential decrease, according to nonprofit research and consulting firm Altarum, which released a preliminary analysis of last year’s national health spending on Tuesday. Such factors include year-over-year declines in hospital and nursing home care, along with an increase in home health care.
“[Spending] on prescription drugs and home health care actually increased for the year, the latter likely related to individuals selecting home care rather than nursing homes to avoid exposure,” the Altarum analysis reads.
Specifically, Altarum economists estimate that national health spending in 2020 was 2% lower than in 2019, a decline of about $75.8 billion.
For context, total U.S. health care spending in 2019 was $3.8 trillion, up 4.6% compared to the previous year, according to the Office of the Actuary within the Centers for Medicare & Medicaid Services (CMS). Overall, the share of the economy devoted to health care spending, as measured by the GDP, was 17.7% in 2019.
A decrease in national health care spending of $75.8 billion may seem relatively small at first glance. But even a minor dip — or just the possibility of one — is significant, considering that total health spending in any given year hasn’t been less than the previous year since at least 1960.
“This is the first time we’ve actually seen negative growth, or a decrease in spending, using this preliminary data,” Corey Rhyan, a senior analyst with Altarum, told Home Health Care News. “It’s a significant finding, though, it’s very dependent on how some of the underlying data is going to play out.”
Compared to 2019, spending on hospital care was down 7% in 2020, Altarum estimated.
Similarly, spending on physician and clinical services was down 4.3% on a year-over-year basis.
Largely due to the COVID-19 virus and widespread efforts to keep vulnerable populations out of congregate settings, spending on nursing home care decreased by 2.5% in 2020 compared to 2019, according to Altarum. Meanwhile, spending on home health care jumped by an estimated 2%.
While that statistic reflects the important role that home health providers have played since last spring, it’s not entirely surprising. The “shift to home” has been happening in a gradual manner of the past several years, Amedisys Inc. (Nasdaq: AMED) CEO and President Paul Kusserow told HHCN.
“While the pandemic certainly accelerated the transition away from facilities to home care, the transition has been underway for some time,” Kusserow said. “Care in the home is the most economical for all payers. It’s where patients want to receive their care — and it has proven, quality outcomes.”
With roughly 21,000 employees and 415 care centers across the U.S., Baton Rouge, Louisiana-based Amedisys is one of the largest home health and hospice companies in the country.
A safe bet
The new analysis on 2020 spending from Altarum isn’t set in stone. In all likelihood, economists won’t be able to put a price tag on the COVID-19 pandemic or all of its indirect health care impacts for several months.
Traditionally, CMS doesn’t release solidified spending figures until December. That’s why Altarum creates its preliminary analysis using U.S. Bureau of Economic Analysis (BEA) data and its internal Health Sector Economic Indicators framework.
Currently, that BEA data likely doesn’t include all health-related spending from certain categories linked to the public health emergency, however.
Increased activity associated with COVID-19 testing and contact tracing, for example, could cause health spending to exceed Altarum’s projected values. Conversely, the pandemic-induced recession may have suppressed spending on structures, equipment and services provided in non-traditional settings.
COVID-19 relief in the form of CARES Act payments and advanced payment from CMS may likewise end up throwing the projections off, Rhyan said.
“You’re aware of the direct money that went to hospitals to support their bottom lines [and] help them stock up on supplies to make sure they could more adequately combat the pandemic. You’re aware of some of the changes that have gone on in Medicare reimbursement such as the accelerated payments, which need to be paid back,” he said. “There were a lot of financial issues in 2020 related to how much the federal government has directly supported health care, which may not be in some of these estimates.”
Yet the key finding of nursing home spending being down — and home health spending being up — is a safe bet. In fact, it’s a trend that’s likely to stick around for the foreseeable future, as nursing home operators are just now starting to stabilize from sharp and persistent declines in occupancy.
There are plenty of indicators that back that up, Rhyan said.
Spending on hospital care and physician services plummeted in March and April, as most Americans opted to delay any care that wasn’t absolutely necessary. Non-COVID-19 hospital admissions, for instance, fell to about 80% of predicted levels nationally by the week ending Dec. 5, according to Kaiser Family Foundation.
But after that steep dropoff, spending levels rapidly started to normalize. That didn’t happen with skilled nursing facilities (SNFs) and home health care services, Rhyan said.
“Nursing home care did not fall off a cliff like hospital care and physician services did early on in the pandemic,” he said. “It has seen a much slower decline, but a very persistent decline. It has actually continued to fall throughout the year, without that kind of recovery period that hospital care and physician care had.”
Home health care similarly didn’t see a huge dropoff right off the bat. But instead of a persistent decline, it has seen a steady rise in spending levels.
“I think that’s indicative of a more permanent, longer-term trend,” Rhyan said.
Amedisys has seen home health care’s resiliency play out firsthand. During the third quarter of 2020, the company grew its total home health admissions by 5% compared to the same period in 2019, with its overall patient volume growing by 6%.
“The pandemic has clearly shown the value to patients and payers of delivering post-acute care services in the home, and this is a trend that will not abate but only accelerate,” Kusserow said. “As a result, you will see more rapid development — and adoption by payers — of SNF-at-home models offered by the home health industry.”
Normally, health spending is “pretty robust” during recessionary periods, Rhyan said. Altarum’s preliminary analysis suggests that hasn’t been the case, which is another interesting takeaway.
“It really hasn’t been, as a result of the direct causes of the pandemic,” Rhyan said. “There was the disruption and slow down in elective care, for example, during this time period.”
Moving forward, spending on home health care is also likely to increase due to the possible evolution of the home health benefit itself.
Today, home health care is often seen as a post-acute care service, even though just one-third of patients actually go to home health care following an institutional stay. In the future, policymakers may seek to make the benefit more all-encompassing and flexible.
The Partnership for Quality Home Healthcare (PQHH) has been working diligently to make that happen, executive director Joanne Cunningham told HHCN.
“We’re actually exploring this from a policy standpoint — maximizing the home health benefit so all Medicare beneficiaries have access to the services they need,” she said.
The government’s investment in home health care may also rise as a further cost-saving necessity.
The federal government ran a deficit of $3.1 trillion in fiscal year 2020, more than triple the deficit for fiscal year 2019, according to the Bipartisan Policy Center. So far, the 2021 defect is upwards of $735 billion.
Eventually, policymakers will need to flatten that curve — and they may look to home health care for answers.
A 2019 study found that patients who received home health care in-home immediately after going to the emergency room had a total 90-day cost of $13,012, compared to $20,325 for patients who were treated in the hospital.
Additionally, a 2017 study found that patients who received home health care after a hospital discharge saved the U.S. health care system about $6,500 over the course of a year.
That ability to bend the cost curve has only been magnified during the pandemic, Cunningham said.
“I think COVID has shown us the vulnerabilities of some of the institutional care settings and taught us valuable lessons about how we, as a country, do a better job managing care,” she said.