Pundits ponder meaning of cost data
But healthcare spending still doubles inflation rate
The nation’s economy is improving, but it’s doing so weakly, and that continues to curb the growth in healthcare costs. That was the message last week when CMS analysts released the agency’s annual National Health Expenditure Accounts, which showed U.S. healthcare spending totaled $2.6 trillion, or about $8,402 a person, in 2010. Spending that year grew at a rate of 3.9%, just a tenth of a point higher than the rate of 3.8% in 2009. Together, the two years represent rates that grew more slowly than any other years in the 51-year history of the National Health Expenditure Accounts. Meanwhile, healthcare spending as a share of gross domes- tic product held steady at about 17.9%.
While the healthcare spending rate remained slow for a consecutive year, it was still more than double the 1.6% rate of general inflation that the Bureau of Labor Statistics reported for 2010. And the results follow recent findings that community hospitals collectively produced a record-breaking net margin of 7.2% on $730.9 billion in net revenue for that year, according to the statistics from the American Hospital Association (Jan. 9, p.12).
Spending for hospital services totaled $814 billion in 2010, which represented an increase of 4.9% over 2009. As a comparison, spending for hospital services had risen by 6.4% from 2008 to 2009—and the deceleration marked the fourth consecutive year of slower growth, averaging 5.5% compared with 7.4% in the previous four-year period. “I think a lot of organizations are realizing that the past models of simply focusing on revenue growth, rather than cost control, are coming to an end,” said David Auerbach, a health economist at RAND.
Caroline Steinberg, vice president of trends analysis at the American Hospital Association, echoed that sentiment, saying the nation’s hospitals have been employing a host of methods to reduce costs, such as tightening up on nonclinical staff; closely watching supply-chain contracts; using generic drugs in the pharmacy; improving process flow; and adjusting staff levels when hospitals have a low census.
At Sutter Health, for example, the Sacramento, Calif.-based system set a goal in 2009 to reduce its system cost structure by 10%, or about $850 million. Through 2011, Sutter Health has achieved about
$340 million in reductions with measures such as reducing hospital-acquired infections and streamlining supply purchases and contracts, Bill Gleeson, vice president of communications, said in an e-mail.
Meanwhile, analysts and public policy experts were not surprised that overall healthcare spending growth continued at a slow pace as the U.S. economy works to rebound from its most recent recession.
In his annual “State of American Business” address last week, U.S. Chamber of Commerce President and CEO Tom Donohue— who listed entitlement reform among the group’s top priorities to address in 2012—said while the economy is improving, it is doing so “too slowly, weakly and insufficiently to put our nation back to work.” And a direct line can be drawn from Donohue’s observation and the nation’s overall healthcare costs.
“In general, the fact that healthcare was slower in a down-time economically is not shocking because people have less money and particularly working folks are hard hit by the slow growth in jobs,” said Stuart Guterman, vice president of payment and system reform at the private Commonwealth Fund. “More people are putting off getting needed healthcare than they had in previous years.”
The annual statistics from the Cms—published in January’s Health Affairs—support Guterman’s observation, reporting that the slow growth in healthcare spending in 2009 and 2010 “was influenced by slower growth in the use of healthcare goods and services as consumers remained cautious about their spending—in part because of losses in private health insurance coverage, lower median household income and future financial uncertainty.”
The National Health Expenditures data reported that total retail prescription drug spending grew only 1.2% to $259.1 billion, which the CMS said is a historically low rate of growth that was driven by the volume of drugs consumed, continued use of generic medica- tion, the loss of patent protection for certain brand-name drugs and fewer new drugs being introduced. Similarly, total spending for physician and clinical services (including physician office and outpatient visits) also hit a historic low: to $515.5 billion, at a rate of 2.5%, down from 3.3% in 2009.
For private health insurance spending, growth in total premiums exceeded growth in total benefits for the first time in seven years. Meanwhile, spending growth in total private health insurance slowed a bit, to 2.4% in 2010 from 2.6% in 2009, which continued a slow- growth pattern that began in 2003, according to the findings.
“That seems consistent with the kinds of products and kinds of trade-offs that have existed,” said Mila Kofman, a research professor at Georgetown University’s Health Policy Institute who served formerly as the superintendent of insurance at the Maine Bureau of Insurance. “If you want lower premiums, you’re going to choose policies where you have higher up-front costs, higher deductibles, higher-copays, and you may choose policies that are less comprehensive.”
The economy is growing “too slowly, weakly and insufficiently,” Donohue said, which is hindering healthcare spending.