Health Care Spending Reached Record Level of Growth in 2001, Annual CMS Report Finds
Fostered by increased utilization of hospital services and prescription drugs, along with the "declining influence" of managed care, U.S. health care spending in 2001 rose 8.7% -- the fastest rate in a decade, according to government data, the New York Times reports. Last year, spending on health care rose to $1.4 trillion, accounting for 14.1% of the national gross domestic product, the largest share every recorded (Pear, New York Times, 1/8). The spending amounts to more than $5,000 per person in the United States (Bowman, Scripps Howard/Nando Times, 1/7). Published in Health Affairs today, the annual report on health care spending found that the "major reason" for the increase in health spending was an increase in the use of medical goods and services purchased for the aging population (New York Times, 1/8). The economic recession exacerbated by the Sept. 11 attacks also created a "sharp" increase in health spending, according to the report (Health Affairs release, 1/8). Katharine Levit, director of CMS' National Health Statistics Group, who supervised production of the report, said, "There was some increase in prices, but it was not as large as the increase in quantity." For example, more diagnostics tests were ordered, more days were spent in hospitals, more outpatient services were provided and there was greater use of technology, the Times reports.
Key findings from the study appear below:
- Prescription drugs: Spending on prescription drugs increased more quickly than spending on any other health service in 2001, up 15.7% from 2000 to $140.6 billion. This represents the first time drug spending surpassed expenses for nursing homes and home health care combined, the Times reports (New York Times, 1/8). Although prescription drug spending increased at twice the rate of other health care costs in recent years, it did slow "slightly" compared with previous years, as the industry introduced fewer new products and more cost control measures took effect, the Wall Street Journal reports (Lueck, Wall Street Journal, 1/8).
- Hospital care: Spending on hospital care accounted for 30% of the overall spending increase in 2001, mainly because of higher prices and greater use of services. Hospital spending in 2001 reached more than $451 billion, as the quantity of services used per patient increased from 2.2% in 2000 to 4.2% in 2001 (Health Affairs release, 1/8). Economists have attributed increased use of services to hospital consolidations, which have given the facilities increased negotiating clout with managed care companies (Carter, AP/Long Island Newsday, 1/8).
- Medicare: Medicare spending increased 7.8% in 2001 to $242 billion (Heldt Powell, Boston Herald, 1/8). The growth was 2.8 percentage points faster than in 2000. The report links the increase to a boost in Medicare provider payments. However, Medicare spending on managed care plans fell in 2001, as some plans withdrew from the program or limited their participation. For example, a 10% decrease in Medicare+Choice enrollment contributed to a 3.8% drop in capitated payments and a 10.3% increase in fee-for-service expenses (Health Affairs, 1/8).
- Medicaid: Spending on Medicaid "soared" 10.8% in 2001, the Times reports (New York Times, 1/8). Medicaid's total budget increased to $224.3 billion in 2001 (Health Affairs release, 1/8). Medicaid spending in 2001 increased at the sharpest rate since 1993, spurred partly by the economic recession, which helped increase enrollment (Wall Street Journal, 1/8). Further, states' increased use of Medicaid's upper payment limit, or so-called Medicaid "loophole"; state program expansions; and relaxed eligibility requirements contributed to the growth.
The report also found that while spending on physician and clinical services increased 8.6% to $314 billion in 2001, the growth did not surpass trends from the early 1990s. However, the report did cite an increase in the use of imaging procedures and physician visits as the probable cause of the spending increase.
Levit said that historically, such large increases in health care spending have encouraged private and public payers to reevaluate spending priorities (Health Affairs release, 1/8). "We probably should be on the lookout for some policy change or private-sector initiative that helps to put the brakes on spending growth," she added. CMS Administrator Tom Scully said, "If this isn't an argument for Medicare and Medicaid reform, I don't know what is." The Bush administration is drafting a plan that would overhaul Medicare and add a prescription drug benefit to the program (Wall Street Journal, 1/8). But Rep. Pete Stark (D-Calif.) said, "Medicare increased payments to providers ... and still managed to keep overall spending growth to 7.8% in 2001. Meanwhile, private insurance premiums went up 10.5%. ... I cannot understand why Republicans continue to devise plans for turning Medicare over to private health insurers and HMOs." However, Republicans said that under the current health system, consumers have no incentive to "shop for bargains" because they are insulated from most of the costs (New York Times, 1/8). The study is available online.This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.