Unit Cost Versus Prevalence or Utilization as a Health Spending Driver

Decomposing the components of national health spending growth is necessary to give policymakers, payers and providers guidance on where to put efforts to control that spending growth.  One widely advanced theory has been that an increase in disease, particularly chronic diseases or conditions like obesity, is partly responsible for much, if not most, of the growth.  A study in Health Affairs examined this theory.    (HA Article) The authers used the National Health Expenditure Accounts and Medical Expenditure Panel Survey data from 1996 to 2006 to identify disease prevalence, treatment prevalence and cost per case.

One important finding is that clinical prevalence and treated prevalence are not the same number and that the ratio varies over time.  In other words, a certain number of people objectively have a disease, but they may not all be being treated for the disease.  Hypertension, high cholesterol and even diabetes are examples of diseases where there are many people who are untreated and often undiagnosed.   Growth across all the medical conditions, adjusted for inflation and population growth was 3.8% on a per capita basis, compared to 2.1% per capita GDP growth in the same time period.  Overall, increase in treated prevalence accounted for one percent of the spending growth, while growth in cost per case accounted for 2.9%.  In other words, if cost per case had just held steady with at the inflation rate, total health spending growth would actually have been less than GDP growth.

Only one category had growth less than GDP growth–respiratory conditions, probably because of a reduction in the rate of smoking.  Growth rates were highest for esophageal disorders and hyperlipidemia, with increased treated prevalence as the driver.  Treated prevalence has grown as a proportion of clinical prevalence for many categories.  Clinical prevalence for some conditions has actually decreased, as preventive measures have had an impact.  Clinical prevalence most likely had no effect on overall real health spending growth.  This means that more obesity, etc. is not pushing spending up.  So once again, the body of evidence is conclusively indicating that unit costs and intensity of treatment are the main force driving health spending.