Medical Device Daily Washington Editor
WASHINGTON – The actuaries at the Centers for Medicare & Medicaid Services (CMS) recently filed their annual report on healthcare spending in the U.S., and as the saying goes, there's good news and bad news. The good news is that the rate of growth of healthcare spending slowed in 2007 to the slowest rate since 1998, and spending on prescription drugs grew at the slowest pace in almost 50 years.
The bad news is that as a share of GDP, healthcare spending hit 16.2%, up from 16% in 2006.
Micah Hartman, a statistician with the National Health Statistics Group (NHSG) at CMS, gave attendees at Monday's session at the National Press Club an overview of the results of the analysis, which appear in the January-February edition of Health Affairs. Hartman noted that the jump in healthcare spending, "the slowest rate of growth since 1998," was "mainly attributed to slower growth in retail prescription drug spending."
As a share of GDP, healthcare spending "reached $2.2 trillion, or $7,421 per person," a figure that has "has expanded steadily ... since 1960" and which "typically increases most at times of recession."
The slower growth in retail drug spending, which came to 4.9%, was to some extent an artifact of the introduction of the Medicare prescription drug benefit program, known as Part D. This led to a jump in prescription drug spending of 8.6% between 2005 and 2006, so there was no great flattening in drug usage in 2007 compared to two years earlier.
A couple of other factors helped slow drug costs for 2007, however. Hartman said "an increase in the generic dispensing rate ... and slower growth in prices" also made their marks on drug costs. He said the fact that FDA "issued a greater number of 'black box' warnings" also affected the numbers. The greater use of generics was, to some extent, abetted by "some of the drugs that lost patents in 2006," he reminded the audience.
As for the distribution of healthcare spending, Hartman said, "in 2007, more than half of all spending went to hospitals and physician and clinic services," which accounted for 52% (31% to hospitals, 21% to physicians and clinics). He said expenditures on hospitals grew by 7.3% to almost $697 billion, and spending on physicians and clinics grew by 6.5% – the same rate as in 2006 – to a total of roughly $479 billion.
Spending on home health services, on the other hand, rocketed to the tune of 11.3% between 2006 and 2007 after rising by 10.3% in the previous year. This latest increase was due largely to "non-price factors," he said, "such as use and intensity."
Anne Martin, an economist at NHSG, said the mix of payments made by the various payers has not changed much in the last few years, but she did point out that the federal government is slowly taking up a greater share of such payments. Total public spending on healthcare in 2007 was 46%, "unchanged from 2006," she said. However, she commented that "over time, the difference between private and public spending has narrowed" as taxpayers foot more of the bill.
Martin noted that fee-for-service (FFS) care, paid under Part B, "represents about 80% of total Medicare spending," but the growth in FFS spending slowed to about 3.6% in 2007 from the previous year. She said this is partly explained by the shift to managed care plans under Part C (Medicare Advantage, or MA), but per-beneficiary spending growth also slowed, to 4.5% from 2006 to 2007.
As expected, Medicare "managed care spending ... has experienced recent rapid growth," Martin said, rising 23.3% between 2006 and 2007. She said about three fourths of that increase was due to increased enrollment. "The other quarter was due to [per-beneficiary] managed care payments," which rose but which also allow MA providers to "offer [beneficiaries] additional benefits, reduce cost sharing, and expanding areas of coverage."
In 2007, Medicaid spending grew 6.4% over the previous year, but this change was no surprise, she stated, given that the numbers for 2006 were driven down by the federal government's efforts to channel those who were eligible for both Medicare and Medicaid into Medicare only.
Premiums for enrollees in private plans "grew 6% in 2007," Martin said, the same as the previous year, but lower than the 10% jump seen toward the beginning of the decade. This was due at least in part, she said, to the "increased take-up rate of high deductible plans," such as health savings accounts. However, private spending on prescription drugs paralleled the slow-down seen in public payer programs.
The increase in out-of-pocket spending between 2006 and 2007 was 6%, Martin said, but the share of household income devoted to healthcare was flat because of wage and salary growth. She said CMS's numbers showed that increasing healthcare costs in 2007 "did not alter the [financial] burden on households compared to 2006."
The sources of healthcare spending "remained stable over the past three years," Martin noted. Households provided 31% of all such spending, including healthcare premiums, while private businesses provided another 25%. Taxpayers contributed a total of 40%; 23% through Uncle Sam and 17% via state and local governments.
During the question-and-answer session, Rick Foster, chief actuary at CMS, said it is difficult to tie the impact of Part D to morbidity and mortality via hospital admission or other metrics partly because the program is only two years old. However, he noted that any such correlation can be tough to establish in any case.
In response to a question about what the current numbers suggest about future healthcare costs, Foster said, "we do feel glad that in 2007 the overall cost growth was slower," but noted that the 6.1% jump "was still faster than GDP" growth. He said future increases in healthcare costs "might not stay that low" in the next couple of years because "the generic [utilization] rate can't keep growing."
Hence, he remarked, "I wouldn't expect the good news to continue."