By Aaron Catlin, Cathy Cowan, Micah Hartman, Stephen Heffler the National Health Expenditure Accounts Team
Health Affairs
January/February 2008
Health care spending in the United States grew 6.7 percent to $2.1 trillion, or $7,026 per person, in 2006. This rate of growth was slightly faster than the 6.5 percent rate in 2005, which marked the slowest growth since 1999. Health spending accounted for 16.0 percent of gross domestic product (GDP) in 2006. In 2006, health spending growth outpaced nominal GDP growth by 0.6 percentage point.
http://content.healthaffairs.org/cgi/content/full/27/1/14
And…
Don’t Break Out The Champagne: Continued Slowing Of Health Care Spending Growth Unlikely To Last
By Paul B. Ginsburg
Aaron Catlin and colleagues report a fourth year of slowing of the rate of growth of personal health care spending. But many factors indicate that relief for purchasers and consumers will be short-lived. Research on local health care markets suggests that rapid expansion of provider capacity and incentives to increase volume of care are continuing. Increasing incidence of obesity is a major factor behind rising costs. The influence of the economic cycle on health spending, which has lowered the trend in recent years, is likely to reverse its impact shortly.
Hospital activity
Hospitals have been expanding capacity, not predominantly by adding new beds but by expanding specialized facilities (such as operating rooms and imaging facilities) needed to serve patients with the latest technology. When hospitals do increase inpatient beds, the new construction typically occurs in rapidly growing suburbs, where well-insured patients live. Competing hospital systems also have expanded into some communities where hospital systems have already established dominance, raising concerns about overcapacity.
HSC researchers have documented the hospital “specialty-service line” strategy, and such strategies are continuing. Hospitals have identified the types of services that are most profitable–under a mix of diagnosis-related group (DRG), per diem, and discounted charge reimbursement–and are expanding capacity to provide those services. Interviews with hospital executives suggest that the profitability of the services is the key to developing a service line, with cardiac procedures often topping the list. As one hospital chief executive officer (CEO) told me in response to a question about capital spending priorities: “We just list the specialty lines by profitability and go down the list.” We found no hospitals developing a mental health service line; such admissions generally are considered money losers.
Physician activity
More entrepreneurial physicians have recognized the opportunities for particularly high returns from facility, as opposed to professional, payments for procedures such as imaging, endoscopies, and cardiac tests, which are performed in outpatient settings, as well as outpatient surgery. They have formed ventures to open facilities to perform these services, either jointly with hospitals or to compete with hospitals. Physicians also have brought capabilities to perform profitable ancillary services into their offices, sometimes forming larger single-specialty group practices to achieve the scale needed.
“Medical arms race”
Before the managed care era, many health policy researchers concluded that increased capacity led to greater use of services. With extensive authorization requirements and use of capitation in the early 1990s, concerns about the “medical arms race” receded. But with the loosening of managed care restrictions, the medical arms race has resurfaced.
Self-referral incentives
Today, as more physicians have an increased financial stake in the provision of services, self-referral incentives apply to a much larger portion of health care spending than in the past.
Two other macro factors
Two macro factors tend to discourage optimism about continued slowing in cost growth. Research by the CMS National Health Expenditures group and by outside economists and actuaries has established the role of the economic cycle in health spending trends. As mentioned in last year’s paper on spending trends, a portion of the slowing in trends over the past few years may in fact be the lagged impact of the 2001 recession, indicating that the impact of recent years of economic recovery and rapid growth on health spending trends is likely to be ahead of us.
The other factor is trends in obesity prevalence.
The reduction in the trend of spending has been a welcome development to those who pay for health care. But it would be a stretch to conclude that the corner has been turned in dealing with the long-term gap between growth in health spending and growth in income and the resulting financial pressures. This diminishing trend has already led to a reduced intensity in efforts to address costs on the part of employers and may be contributing to more-aggressive activities by providers to boost their revenues. With GDP growth starting to slow and most forecasters predicting further slowing, concerns about cost trends are likely to only increase.
http://content.healthaffairs.org/cgi/content/full/27/1/30
Comment:
By Don McCanne, MD
Increases in health care spending continue to outpace increases in wages, and it is only going to get much worse. Paul Ginsburg tells us why. The players in the health care delivery system are busy chasing the buck with ever more excessive high-tech services and facilities, while only cursory attention is being given to actual health care needs (or sometimes no attention, as in mental health).
That we continue to tolerate such a system, we should hang our heads in shame.
