Growth down in 07

February 1, 2009

While numbers show less growth, the $2.2 trillion spent on healthcare is still exceptionally high

Outlays for health accounted for 16.2% of Gross Domestic Product (GDP)-up slightly from 16% in 2006, to consume a larger portion of the overall economy. Expenditures for hospitals, physicians and other healthcare products and services rose faster than inflation, a trend likely at be aggravated by the recession, according to CMS actuary Richard Foster at a January briefing. "So we still have an affordability problem," Foster said, adding that he does not expect the such a low spending rate to continue.

LESS FOR DRUGS

That slowdown was due primarily to increased utilization of generic drugs, which accounted for 67% of drug dispensing in 2007, up from 63% in 2006, CMS reported. That shift reflects more blockbuster drugs coming off patent and the expiration of six-month exclusivity periods for some branded products.

Meanwhile, outlays for most healthcare goods and services sectors grew at similar rates or faster than in 2006. Hospital spending grew 7.3% compared with 6.9% in 2006, due to strong growth in Medicaid outlays. Spending for physician and clinical services increased 6.5% in both 2006 and 2007, curbed slightly by legislated changes that reduced Medicare payments for imaging services.

Spending for stand-alone clinics and urgent care centers services remained strong. Spending growth for both freestanding nursing homes and home healthcare services accelerated in 2007, due in part to faster price growth in both sectors. Free-standing nursing home spending grew 4.8% in 2007 compared with 4.0% in 2006, and freestanding home healthcare spending grew 11.3% in 2007 compared with 10.3% in 2006.

The data for 2007 reflects an overall slowdown in health spending growth over the last five years. Private health insurance premiums rose 6% in 2007, the same as in 2006, while benefit payments increased 6.6%. Consequently, the ratio of the net cost of private health insurance to total private health insurance premiums was 12.2% in 2007 versus 12.8% in 2006, typical of a downturn in the underwriting cycle.

Out-of-pocket spending growth accelerated in 2007, to 5.3%, compared to 3.3% in 2006, due primarily to higher out-of-pocket payments for prescription drugs, nursing home services, and nondurable medical supplies.

TECHNOLOGY FIX

Many analysts look to new technology to curb spending while advancing quality of care. But to continue to embrace technological innovations, says Sam Nussbaum, MD, WellPoint chief medical officer, "we need to reduce the 30% of healthcare spending that goes toward redundant or inappropriate care. New technology, such as e-prescribing, can provide better care and potentially reduce some costs."

The report might seem like good news, says Jonathan B. Oberlander, a health politics and policy expert and associate professor, University of North Carolina at Chapel Hill. "But in fact, the healthcare spending rate is rising faster than general inflation. Many Americans will lose their health insurance, and the uninsured population will grow dramatically unless the federal government takes decisive action."