Overall Health Care Costs Rise 7.2% Due to Higher Hospital, Drug Costs

Health care costs rose 7.2% last year -- the "largest jump in a decade" -- due primarily to increasing hospital and pharmaceutical costs, according to a study by the Center for Studying Health System Change, the Washington Post reports. Published exclusively online by the journal Health Affairs, the report found that while drug costs and "higher utilization" drove health cost increase prior to 2000, increased hospital costs accounted for 47% of overall health costs increases last year (Connolly, Washington Post, 9/27). By comparison, health cost increases linked to prescription drug spending dropped from 41% in 1999 to 27% last year. According to the study, the drug inflation rate slowed because fewer "blockbuster" drugs were introduced into the market last year and more health plans required higher co-payments for "newer [drug] brands" (Bowman, Scripps Howard News Service/Bergen Record, 9/27). While the drug inflation rate did rise last year, for the first time in the seven years, the costs increased at a rate slower than the previous year -- 18.4% in 1999 compared to 14.5% last year (Washington Post, 9/27).

Health costs have also increased in response to patient demand, as managed care organizations have eased restrictions on access to specialty care (Scripps Howard News Service/Bergen Record, 9/27). While managed care had previously "checked" hospital costs, the study found that managed care cost containment strategies are "in full retreat" due to patient demands (Winslow, Wall Street Journal, 9/27). The study also found that to "quell" the backlash against the industry, MCOs are "reducing their reliance on ... cost-control mechanisms such as gatekeepers, pre-authorization and capitation" (Washington Post, 9/27). "It's really increasing use of hospital services that's driving increased hospital spending," Carmela Coyle, a senior vice president for the American Hospital Association, said. For example, the study found that spending on outpatient care rose 11.2% last year, after an increase of 8.9% in 1999, and spending on inpatient care rose 2.8% last year, compared to a 1.6% increase in 1999 (Bloomberg News/Los Angeles Times, 9/27). Paul Ginsburg, president of the Center for Studying Health System Change, said, "Hospital spending is back with a vengeance, and the likely causes are the retreat from tightly managed care." Spending this year is expected to rise as well (Scripps Howard News Service/Bergen Record, 9/27).

In response to the higher costs and the slowing economy, the study found that workers will be forced to pay more for their health care through increased premiums and co-payments. In addition, employers may "scale back" their coverage to contain employee health costs, which could increase the number of uninsured (Wall Street Journal, 9/27). "We've seen employers absorbing more in recent years and with a weakening economy, I don't expect that to continue," Ginsburg said (Bloomberg News/Los Angeles Times, 9/27). "It's not a question of if consumers will pay more, it's a question of when. The slower the economy gets, the sooner that day is going to come," he added (Wall Street Journal, 9/27). The study is available online in HTML or in a PDF file.