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Health Care Spending and Prices

By January 4, 2012Commentary

Two reports from the Altarum Institute focus on recent trends in health spending and in health care price inflation, using publicly available data and the company’s own analysis.    (Altarum Report)   (Altarum Report)   Health care spending, as is well-known, has grown rapidly over recent decades, and a primary factor, if not the largest factor, has been the steady rise in prices charged by providers and suppliers of health care services and goods.  While a wide array of cost control ideas have been advanced and implemented to one degree or another, perhaps the only thing that has really slowed the growth has been the recession, and perhaps the continued shifting of costs to employees under benefit plans.

The health care price data comes from the Bureau of Labor Statistics.  In October 2011, prices were 1.9% higher than a year earlier.  Hospital prices were up about 2%, physician prices by about 1.3%, drug prices up by 4.2%, home care up only .5% and nursing home costs dropped to a 1.3% growth trend, due to changes in government program reimbursement.  This is the lowest growth in health care prices since 1998 and is actually potentially lower than general inflation.  Obviously, price rises for Medicare and Medicaid are much lower, about one-third, than those for private insurers.   Overall national health expenditures in October 2011 grew by 5% compared to October 2010.  Hospital care was the largest contributor to the rise and nursing home care the lowest.

In terms of spending growth, slowdowns in utilization on a per capita basis are more responsible than reduced price increases for the overall deceleration in health spending.  In October 2011, for example, per capita utilization grew only 2%, up from all of 2010’s 1.9% but still well below past years’ growth rates.  Many attribute the change in utilization patterns to increased cost-sharing in the private health insurance market.   The slowing price and spending trends are welcome news and we should all hope they are sustainable.  But if they are largely driven by patients deferring utilization for cost reasons, we must hope the services deferred are truly not necessary.

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