Medical Device Daily Washington Editor

WASHINGTON — The Centers for Medicare & Medicaid Services has tracked a wealth of data regarding healthcare expenditures, and while those numbers indicate rising costs, the increase has lost a little steam of late. Still, as employers and government feel the continuing pinch, they pass along some of the “ouch” to employees in the form of higher premiums and co-pays, which is often seen as making healthcare increasingly unaffordable.

Unaffordable or not, the numbers suggest that household income has not felt the bite of added healthcare costs that is so readily assumed.

Aaron Catlin, an economist with the National Health Statistics Groups at CMS, in an agency briefing last week, said that while healthcare spending in the U.S. rose 6.9% to a total of $2 trillion in 2005, that year’s total was nonetheless “the third consecutive year of slower health spending growth,” largely driven by increased expenditures for prescription drugs.

The total comes out to roughly $6,700 per person, and all healthcare spending consumed 16% of total GDP, a fine hair higher than the 15.9% of the previous year.

Catlin said that the current economic theory explaining healthcare spending does a good job of accounting for the more rapid jumps in these costs seen in the relatively slower economic environment of 2001-03, “when the healthcare share of GDP increased 2%.”

Healthcare spending trends ordinarily display “a lagged relationship with economic cycles,” Caitlin explained.

Healthcare spending plays the traditional role of a deadening buffer to cyclical slowdowns in GDP growth “in part,” he said, “because public spending for health, particularly Medicaid, accelerates during recessionary periods. This counter-recessionary trend, combined with the labor-intensive nature of the healthcare industry, creates healthcare jobs at a time when employment in other industries is declining.”

As this effect worked its way through the economy, overall spending slowed as the “lagged effects of the 2001 recession that took time to work its way through the health sector’s institutional structure,” Caitlin said.

Catlin showed a slide that matched GDP growth against healthcare spending growth, which depicted a similar trend in their respective rates of growth.

“What’s uncertain at this time is whether the convergence is temporary, as we saw before the 1990s — or a long-term trend, such as we saw in the mid-1990s.”

Hospital care and physician and clinical services accounted for just over half of all spending in 2005, according to Caitlin’s numbers, and he pointed out that “hospital spending grew relatively quickly, and accounted for the largest share” of the increase in 2005 at more than 7.9%.

Seemingly paradoxical — considering the boost in hospital spending — was that home healthcare also registered substantial growth. For the third consecutive year, home healthcare spending jumped by double digits, rising by more than 11% in 2005.

Spending on pharmaceuticals, on the other hand, was not as rapid in 2005 as in previous years, climbing 5.8% after a jump of 8.6% in 2004 and double-digit rises in 2003 and previous years.

Catlin said that the smaller number of new drugs and increased co-pays were major factors in the drop in drug spending growth.

Cathy Cowan, also an economist with the National Health Statistics at CMS, was the second presenter at the briefing, and she noted that “public spending did slow down slightly.” But she said that private insurance premiums went up 6.6% in 2005, which helped slow growth. “At this time, the effect of consumer-driven health plans is likely to be minimal, as less than 1%” of the population is enrolled.

Medicare grew 9.3%, down from more than 10% the previous year, mostly because of lower growth in hospitals, Cowan noted, and much of that “was the result of increases in volume and intensity of services.”

Medicaid was up 7.2% in 2005, part of four years of decelerating growth due to cost control programs such as fraud and abuse and disease management, but also, as alluded to in Catlin’s presentation, due to an improving economy that brought some enrollees off Medicaid.

In 2005, governments financed 40% of healthcare services and supplies, and households coughed up 31%. And Cowan noted that “the share of federal receipts dedicated to healthcare has grown from 16% in 1990 to 30% in 2005.” On the other hand, the percentage of household income dedicated to healthcare “has been essentially flat,” Cowan said, rising from 5.4% in 2001 to only 6% in 2005,

Sam Zuvekas, a senior economist at AHRQ, who co-authored the paper on prescription drug use patterns, noted that as always, “healthcare spending is highly concentrated among a small portion of the population,” but that concentration “has declined since 1996 after being “remarkably stable for decades.”

“The first national study of this type found that the top 5% accounted for 52% [of spending] in the 1920s,” while the top 5% generated 55% of spending in 1977, down to
49% in 2003, he said.

Much of this change was due to the fact that “more and more Americans are living with heart disease and other chronic conditions,” which helped generate especially rapid increases in drug spending, rising from 12% to 20% of all healthcare spending between 1996 and 2003. Drug spending will likely get a boost from Medicare Part D, but how much “will likely take a couple of years to fully work out.”

Zuvekas said that he did not have any numbers that indicate whether the share of total healthcare expenditures incurred by use of medical devices has gone up because “we have not looked at this for this activity.”

On the other hand, he pointed out that although the FDA is slower to clear devices than many other foreign agencies, “adoption of medical technology happens a lot faster in the U.S.” than in most other nations.

But he provided a caveat to this observation: “Whether we’re getting what we pay for is another question.”