ACA changes contributed to slow in health care expenditures, study finds

Despite conventional wisdom that the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) has done little to address high growth in health care costs, national health expenditures have grown at historically low rates in recent years, according to a brief by the Urban Institute and Robert Wood Johnson Foundation. The slower growth is related in part to the recession and slow economic recovery, but changes associated with the ACA also seem to have contributed. Analysts predict that these factors will likely cause the slower growth rates to persist into the future.

In February 2017 CMS estimated that national health expenditures grew 4.3 percent annually from 2010 to 2015, lower than its original forecast of 6.5 percent (see CMS actuary releases 2016-2025 health care expenditure projections, Health Law Daily, February 16, 2017). Current estimates of growth in each component of spending for 2010 to 2015 are lower than the original forecast—from 5.8 percent to 4.5 percent for Medicare, from 9.9 percent to 6.5 percent for Medicaid, and from 6.6 percent to 4.4 percent for private insurance.

The report attributed the slower growth to the 2007 to 2009 economic recession and slow recovery, unexpectedly low inflation, increased employer offerings of high-deductible insurance plans, cost-containment efforts within state Medicaid programs, and Medicare policies unrelated to the ACA. The ACA probably also contributed to low spending growth—for example, Medicare payment reductions to hospitals and other providers, the reduction in Medicare Advantage payments, and the managed competition structure of the marketplaces, which were reflected in the 2010 forecast.

Other ACA-related factors not in the original forecast that might have helped slow spending growth include adjustments to ACA Medicare payments, which reduced the number of Medicare hospital days, outpatient visits, skilled nursing facility days, and advanced imaging procedures between 2010 and 2014. Lower Medicare payment rates might also have had spillover effects on other payers. In addition, Medicare policies such as financial penalties for hospital readmissions could have changed provider practice patterns for patients of other payers.

CMS touts nationwide drop in avoidable hospital readmissions

Thanks to the Hospital Readmissions Reduction Program (HRRP) and other initiatives, CMS stated that Medicare beneficiaries were spared approximately 100,000 readmissions in 2015, while the HHS Assistant Secretary for Planning and Evaluation (ASPE) estimates that they have avoided 565,000 readmissions since 2010. Potentially avoidable hospital readmissions occurring within 30 days of discharge account for $17 billion in Medicare spending each year, according to CMS. Initiatives like the HRRP and the Partnership for Patients improve patient care by, for example, encouraging hospitals to ensure that patients are discharged with appropriate medications and instructions for follow-up care and schedule follow-up appointments.


The HRRP was established pursuant to section 3025 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). It provides hospitals with monetary incentives for reducing avoidable readmissions by penalizing those with excessive readmissions for targeted clinical conditions. In fiscal years (FYs) 2013 and 2014, the targeted conditions were acute myocardial infarction, heart failure, and pneumonia. FY 2015 also included readmissions for chronic obstructive pulmonary disease (COPD) and total hip and knee replacements. FY 2017 will include readmissions for coronary artery bypass graft surgery. CMS assessed more than $420 million in penalties against hospitals in FY 2016 (see Medicare readmission penalties exceed $500M for FY 2017, Health Reform WK-EDGE, August 10, 2016). In addition to reducing avoidable readmissions, the Partnership for Patients aims to specifically improve transitions of patients among care settings.


Readmissions fell by 8 percent nationwide from 2010 to 2015. Forty-nine states and the District of Columbia experienced decreased readmission rates; the readmission rate in Vermont increased by only one-tenth of a percent, or the equivalent of 21 readmissions. Rates decreased by more than 5 percent in 43 states and by more than 10 percent in 11 states.

Study finds no correlation between reduced readmissions, increased observation stay rates

Although hospital readmissions rates began falling faster after the implementation of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), there was no observed association between increased use of observation services and reduction in readmissions. In a New England Journal of Medicine (NEJM) article, researchers found that hospitals did not attempt to achieve reductions under the Hospital Readmissions Reduction Program (HRRP) by increasing the use of observation stays as feared by program critics.


Section 3025 of the ACA established the HRRP, which reduces payments made to acute care hospitals that have excess readmissions for patients with certain conditions. Readmissions are costly for the Medicare program, adding an estimated $17 billion in expenditures that the program considers avoidable. The HRRP penalized hospitals for having higher readmission rates than expected within 30 days of discharge. The conditions first included were acute myocardial infarction, heart failure, and pneumonia. Later, total hip or knee replacement and chronic obstructive pulmonary disease (COPD) were added.

Observation usage

Some believed that hospitals would simply place patients who returned in observation status instead of readmitting them to avoid the penalty. The researchers reviewed stays for the initial three conditions included in the program and identified readmissions after 30 days of discharge, as well as whether observation services were used within 30 days. The results showed that while monthly readmission rates were decreasing before the ACA, they began decreasing faster after enactment for both target and nontargeted conditions, particularly in the first six months. Prior to the ACA, observation service use was rising “significantly” and in a similar pattern for both targeted and nontargeted conditions, and continued to rise through the analysis period.

The study revealed that despite a rise in observation services, there was no correlation between the change in the readmission rate and the use of observation status. In addition, although readmission rates fell quickly at first following the HRRP, the article’s authors theorized that hospitals made significant changes during this period but were unable to keep the reduction rate high long-term. They also postulated that while observation status use continued to rise, this may have occurred due to factors unrelated to the HRRP, such as confusion over what recovery audit contractors would deem an appropriate inpatient stay.