U.S. Health Care Cost Inflation Rate Decreased in 2002, Study Finds
The inflation rate of U.S. health care costs decreased last year after five years of increase, prompted by a decrease in the inflation rate of prescription drug and hospital costs, two of the "most stubborn drivers of medical inflation," the Wall Street Journal reports (Martinez, Wall Street Journal, 6/11). The health care cost inflation rate in 2002 decreased to 9.6% from 10% in 2001, according to a study in the journal Health Affairs; the U.S. consumer price index increased by about 2.4% over the same period (Dixon, Reuters, 6/11). The trend of decreased health care cost inflation may continue in 2003, the Journal reports. The health care component of the CPI increased 2.1% for the three-month period that ended in April, compared to 4.4% a year earlier. However, the health care cost inflation rate is "still more than five times as fast as the pace of price increases for all goods and services excluding the volatile food and energy categories," the Journal reports. In addition, the "early indications that health care costs are slowing could reflect temporary conditions, and health care costs could begin to accelerate shortly," and the cost decrease "is so far too small to make an immediate difference in consumers' wallets," the Journal reports.
A decrease in the inflation rate of prescription drug costs has contributed in large part to the recent decrease in the health care cost inflation rate. U.S. prescription drug costs increased 12% to $192.2 billion in 2002, compared to a 17% increase to $172 billion in 2001, according to consultant IMS Health. The loss of patent protection on the allergy medication Claritin, recent studies that have raised health concerns about hormone-replacement therapy and reduced sales of the anti-cholesterol treatment Lipitor have contributed to the decrease in the inflation rate of prescription drug costs, the Journal reports. Officials at Pfizer, which manufactures Lipitor, also attributed the trend to higher prescription drug copayments and reductions that some companies have made in health coverage for retirees. Health insurance plans also have contributed to the trend through programs that promote the use of generic medications and restrict the use of brand-name drugs. In addition, the Journal cites "significant slowdowns" in the number of prescription drugs launched in recent years: pharmaceutical companies launched 17 new medications last year, compared to 53 in 1996. Meanwhile, U.S. hospital cost inflation, one of the largest components of health care costs, has decreased at the nation's two largest for-profit hospital chains -- HCA and Tenet Healthcare. HCA said that fewer outpatient surgeries and a mild flu season have decreased the demand for services, and Tenet officials cited revisions in the practice that the company uses to bill Medicare for services.
John Hindelong, a hospital analyst for Credit Suisse First Boston, said "anecdotal evidence" indicates that "demand remains sluggish" for services at hospitals in the second quarter and predicted "somewhat slower growth in admissions versus the last four years." He added, "The soft economy and higher copayments may retard growth for a while" at hospitals. John Rex, a health care analyst who surveyed over 120 benefit managers, said that employers expect a 12.1% increase in health care costs for 2004, compared to an expected 12.7% increase in 2003. Rex added, "2004 is a very important inflection point in that it could be the first year in some time where the rate of premium increases might be lower than the preceding year." However, William McGuire, CEO of UnitedHealth Group, said that recent indications of a decrease in health care cost inflation are not "sufficiently mature to suggest" a permanent trend (Wall Street Journal, 6/11).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.