May 2015 Altarum Health Spending Briefs

We are keeping particularly close tabs on the progression of health spending and health prices through the year, as reflected in Altarum Institute’s Center for Sustainable Health Spending briefs, since their appears to be an ongoing acceleration in the spending growth rate.  The May briefs, which cover spending through March, are now out.   (Altarum Briefs)   The headline on the Spending Brief tells you the main point–“Recent acceleration in health spending continues”.  On a year-over-year basis, spending in March was 6.8% higher than in March 2014.  GDP growth over the same period was only 3.6%.  And the acceleration is reflected in the fact that the 12 month growth in spending in March of 2014 was only 4.3%.  Prescription drugs, in their return role as a health spending villain, rose the fastest among health categories, at 10.7%, but hospital spending wasn’t far behind with a 9.8% rate.  Physician services rose only 3.1%.  Since December 2007, health spending has increased 22.4% in real terms, while GDP grew a meager 8.5%, including that health spending increase.  The authors expect a slight decline in the growth rate in the second half of 2015 largely due to less prescription drug spending.

On the price side, there was surprising restraint in some categories, particularly physician.  Overall from March 2014 to March 2015 prices rose 1.3%, with the 12 month moving average at 1.5%.  Hospital prices increased .4% and physician prices fell .6%, so those two large categories limited the overall growth.  Home health prices increased 1.2% while drug pricing increased 5.7%.  Medical CPI was 2.5% in the same period and overall CPI was down a tenth of a percent.  Unlike more recent years, utilization now seems to be driving health spending growth, accounting for 5.7% of the total spending increase.  This utilization growth is up dramatically from the 12 month period ending March 2014, where it was only 2.9%.  Since December 2007 health prices have risen 15.6% while general inflation has been up 10.8%.  The recent utilization rise is likely due to the insurance expansions in Medicaid and the individual market and helps explain the very large increases for insurance exchange policies being sought by insurers for 2016.  Per capita utilization was rising at an annual rate of 4.9%, with utilization for hospital services up 4.4%, prescription drug use up 6.2% and home health care up 2.4%.  If prices begin to rise along with utilization, we will see even more of a leap in health spending growth.