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Health care dollars rising

Alaska medical spending continues 8 percent growth

Posted: August 8, 2011 - 8:00am  |  Updated: August 8, 2011 - 9:11am

Spending for medical care in Alaska is ticking along at 8 percent annual growth rates and could reach about $8 billion in 2011, according to an analysis by consulting economist Mark Foster, who tracks the health care industry.

Foster has been retained by the Alaska Health Care Commission, an advisory group to the state, to track trends in health spending.

If the current trend continues, it would reach $10 billion in 2015 and $14.5 billion in 2020, Foster said in an interview.

“What’s significant about that is that this would equal 74 percent of the total wellhead value of Alaska North Slope oil production in 2020, using the state’s spring, 2011 long-term state revenue and production forecast,” he said.

Foster uses the total value of oil produced as a proxy for state Gross Domestic Product since there isn’t an official published GDP figure for Alaska and oil production and revenues are so dominant in the state’s economy.

“The point is that if we see declines in the two economic drivers in our economy, oil and the federal government, health care spending and the health care industry will be caught in a squeeze,” Fosters said.

Clearly the growth in health care spending is unsustainable and must be slowed, but the tools for doing that seem limited short of a meat axe-type cuts to government programs like Medicare, which seem likely to be accomplished through the federal Budget Control Act of 2011, passed by Congress Aug. 2.

Alaska’s growth rate of medical costs has historically tracked growth rates in other states, but has been a higher in the last two years because the national recession has slowed spending for health care in other states.

That’s partly in Medicare because of crimped state budgets and partly because people have chosen to delay or forego medical care because of tightened personal incomes, Foster said. Alaska has largely escaped the recession, so those effects haven’t been seen in Alaska.

There are some special forces at work in Alaska, however. National studies show that the cost of new technology drives 25 percent to 50 percent of the overall medical cost growth, and that personal income levels are also a factor, Foster said.

“We have money in Alaska and we spend it on technology, plus our over-65 population is growing more rapidly than elsewhere in the nation, so all of these are at work,” he said.

The cost for specific procedures appear to run 30 percent to 50 percent higher than costs for the same procedures in other states, Foster said, but the major differences appear to be for specialized procedures rather than services like primary care or nursing.

This may be because of the difficulty health providers experience in recruiting specialists to come to Alaska. The state health care commission has a study under way of cost differences between Alaska and elsewhere that should yield new information later this year, Foster said.

National studies, and Alaska isn’t much different, show that 70 percent of what contributes to health problems, in terms of factors contributing to early deaths, are behavioral patterns like poor diet, lack of exercise and genetic predispositions. Social circumstances, meaning poverty and lack of education, contribute to about 15 percent of early deaths. Lack of access to quality medical care only contributes to about 10 percent of early deaths. Environmental factors are blamed for the remaining 5 percent.

“Overall, Alaska does well in terms of life expectancy compared with the nation, and our higher rate of deaths due to accidents do not seem to affect the overall mortality picture, at least substantially,” Foster said.

Accidental deaths have come down in recent years, Foster said, and he credits an increasing emphasis on safety for that.

In terms of what can be done to slow the growth in costs, Foster said national studies show that many of the policy options being studied or implemented, like negotiated prescription drug prices and hospital pay-for-performance, will have only limited effects on medical cost inflation.

“We could look at a whole array of steps, but there might be only a 6 percent savings over 10 years,” Foster said.

There are some changes that could make a difference, however. One is changing the way medical care is managed, he said.

In medical care management, “the evidence indicates that ‘bundled’ payments and not payment-for-procedure will make a difference,” Foster said.

“Bundling” refers to grouping payments for a specific incident or health episode compared to billing for individual procedures or tests.

“This approach allows for better management and reduces the incentives to load up on procedures,” Foster said.

Medical malpractice tort reform could also make a big difference, he said, because it would reduce the incentive for the practice of “defensive” medicine, which could involve tests or procedures that are medically unnecessary, he said.

Foster said national studies indicate that elimination of unnecessary care could reduce total health care spending by 4 percent to 5 percent over 10 years. Unnecessary care is not just defensive medicine practices by health providers, however. It is also the extra tests or procedures requested by patients, Foster said.

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