Health care spending in NH grew from $2.8 billion in 1990 to $10.4 billion in 2009, the latest year for which we have comprehensive data. According to the Centers for Medicare and Medicaid Services Health Expenditure data, over this same time period, hospital-based expenditures accounted for the largest share of this growth, followed by physician-based services and then pharmaceuticals.
On a per person basis, that represents an increase of almost 230 percent. To put that in context, if health care grew at the rate of inflation (roughly 3 percent annually), we would be spending approximately half of our current spending, saving roughly $3,500 dollars. In 1990, health care accounted for 11 percent of our total economic output as a state, growing to 17 percent by 2009. Growth in health care costs have slowed since the Great Recession, but it remains to be seen whether the confluence of health care system disrupters (see below) will be sufficient to hold down what has historically looked like an inexorable increase in costs.
Was the Increase Worth It?
In other words, did this growth translate into additional health, longer life, better care or increases in worker productivity? Putting this into a cost-benefit perspective is difficult, and no specific NH analysis has been conducted.
Nonetheless, a national analysis of the cost benefit of rising health care costs against increasing longevity and decreasing morbidity by David Cutler, the Otto Eckstein Professor of Applied Economics at Harvard Kennedy School, suggests that yes, in fact, the increase in costs has been outweighed by the benefits. In “The Value of Medical Spending in the United States, 1960-2000,” Cutler’s analysis suggests that increased health and longevity—and associated productivity increases—outweighed the increase in costs. However, he also notes that the cost benefit of expenditures declines as you age, suggesting an aging state, such as NH, might face a different calculus.
It’s About Location
Where you live affects how much you think health care has changed. During the past 30 years, health care systems in the more rural areas of the state have been completely transformed by demographic change and the economics of health care. Most hospitals in the rural parts of NH were full-service up until the 1990s, when the Centers for Medicare and Medicaid Services provided rural hospitals with an incentive to downsize through the critical access hospital program.
The result? Thirteen rural NH hospitals reduced the number of beds, eliminated services (including maternity care services) and significantly reduced the length of stay in their institutions, much more than their urban counterparts. Health care in the southern part of the state continues to grow significantly. Still, despite the health care sector shrinking in the North Country, health care wages now represent the second largest source of compensation in the state.
Accelerated Change
Like every other sector, the pace of change in health care has accelerated during the past 30 years. There are several disruptive innovations reshaping the health care sector. Clayton Christensen of Harvard’s Business School describes disruptive innovation as the process by which a new product or service is introduced in a market and then relentlessly moves through the market, eventually eliminating or fundamentally altering established competitors.
The health care market disruptors during the past 30 years are too many to name, but include payment reforms triggering the flow of care from inpatient to outpatient services, the development of ambulatory surgical centers, a focus on workplace wellness, the managed care revolution of the 1990s and the increasing availability of data and transparency of costs and quality. Most recent are efforts by insurance companies to change benefit designs to create financial incentives for individuals to use services—such as lab services—outside of hospitals, which have high fixed costs, or to avoid using high cost hospitals altogether. Finally, the fee-for-service system, which pays for a service regardless of the outcome, may finally be headed toward the graveyard. New Hampshire is a leader in developing systems designed to pay for health as opposed to paying for procedures in the service of illness.
New Era of Cooperation
All these changes, culminating with the implementation of the Affordable Care Act, have come together to create a new era of cooperation, collaboration and consolidation. Nationally, a recent study found that in 2012, there were 105 reported hospital mergers, compared to a historic rate of 50 to 60.
We see this trend in NH as well. Three North Country hospitals have been working on collaborating on the purchase of services, and have begun to think carefully about a larger merger. Memorial Hospital in Conway effectively merged with Maine Medical, and five southern NH hospitals—Catholic Medical Center in Manchester, Concord Hospital, LRGHealthcare in Laconia, Southern NH Health System in Nashua and Wentworth-Douglas Hospital in Dover—have formed the Granite Healthcare Network to seek new and different opportunities for collaboration and cooperation.
Health insurers are also working in new and collaborative ways with health care systems. Elevate Health, a partnership between Dartmouth-Hitchcock, Elliot Health System and Harvard Pilgrim Health Care, is an effort to integrate the insurance function with a more limited clinical network to lower costs and increase quality. Each of these changes represents an effort to enhance market position, increase operational efficiency, and create the capacity to manage an entire population’s health, one of the primary goals of the Affordable Care Act.
What this change means for consumers and businesses remains to be seen. Nationally, at least, the rate of growth in health care has generally trended down during the past 30 years. The New Hampshire health care system has been relatively insulated from the factors that have driven down health care costs in the nation, but that may no longer be the case, leading to the possibility of slow growth in health care costs.
At the same time, an increasing capacity and therefore emphasis on quality management and a focus on wellness could also create a new set of incentives for the health care system to create healthy communities as opposed to merely managing illness. While there has been significant increase in pressure on the health care system, actual system change still has a long way to go.
Looking to the Future
To say that the future of health care is uncertain is an understatement. The implementation of the major components of the Affordable Care Act in the past year add to the complications of predicting the future.
The new federally subsidized health insurance exchange has enrolled 40,000 individuals, and as many as 20,000 have sought coverage as a result of the state's expansion of the Medicaid program. This significant increase in the number of individuals will defiintely change the market, but in ways that remain opaque.
And with the GOP taking control of Congress in recent elections, and given the general GOP disagreement with many aspects of the Affordable Care Act, you can expect more, not less, uncertainty about the rules of the health care market as Republicans attempt to put their mark on the U.S. health care system.
Steve Norton is executive director of the NH Center for Public Policy Studies, an independent, nonprofit, non-partisan organization pursuing data-driven research on public policy. For more information, visit www.nhpolicy.org.
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