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Latest Altarum Health Spending Reports

By March 13, 2015Commentary

The Altarum Institute has issued a general Health Sector Trend Report and specific spending and price reports for January 2015.  (Altarum Report)  The researchers found that national health spending grew 5% in 2014 and that spending in January 2015 was 5.7% higher than it was in January 2014.  Spending in January 2015 increased in all major categories, with drug spending continuing to rise at an alarming rate, 11.6% in January.  The rate of health spending growth is well above GDP and general inflation growth and the gap is rising toward historic levels.  The sheer size of the health economy is impressive, $3.16 trillion annualized based on January’s numbers, and explains why there is such a continuous fervent of investment and M & A activity in the sector.  Since the recession began in December 2007, health spending on a real basis has increased 20.7%, compared to real GDP, which rose only 5.7% without health care.  So if we believe we have a health spending and health spending growth problem, we haven’t really done anything to address that.  In January, hospital spending was $1 trillion and 32% of health spending; physician and clinical services was $613 billion and 19% to the total; and drugs were $317 billion, 10% of all spending.  While drug spending grew very rapidly, physician services had the slowest spending rise, at 2.6%.

In a separate report looking at unit prices in health care, a very interesting finding was that in January 2015, hospital prices compared to January 2014 actually fell by one-tenth of a percent.  Overall prices in this period rose 1.2%, continuing a relatively slow growth trend, but one which has accelerated in recent months.  Much of the rise is driven by medication prices, which increased 5.6% on a year-over-year basis.  As with health spending overall, the growth in health care prices has outpaced the rise in prices in the general economy.  Combining the data for spending and prices allows you to calculate the utilization growth.  On a per capita basis in January, utilization rose 4.4%, suggesting that increased insurance coverage and/or improvements in employment and the economy may be having an effect on people’s health care-seeking behavior.  Not clear to me exactly how hospital prices are calculated, but if it is based on actual payments received, some is likely due to the impact of Medicare reimbursement cuts, but some may also paradoxically reflect more coverage for the uninsured.  So instead of getting zero for some services due to uncompensated care for the uninsured, but those services not reflecting any price, hospitals are now getting paid something for those with new insurance, but at a low price.  One other item Altarum tracks is growth in health care jobs, which has quite, well, healthy, in recent months.  Growth in jobs means both that there must be increased demand for health services and products and that these increased labor costs have to be compensated for by more revenue, so someone is spending more on health care services and products.

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