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      Settling In for Some Slowth? Health Care Spending Growth Slows Down at Year’s End

      Brief Feb-08-2017 | Katherine Hempstead | 3-min read
      1. Insights
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      3. Settling In for Some Slowth? Health Care Spending Growth Slows Down at Year’s End
      RWJF Staff Profile
      Kathy Hempstead / RWJF

      Katherine Hempstead

      RWJF Senior Policy Adviser
      Learn more about Katherine

      As seen in the most recent Altarum monthly trend report, health care spending is projected to grow at 5.4 percent for 2016. The first thing to note is this is a bit higher than predicted, since the CMS Office of the Actuary had estimated an annual spending growth rate of 4.8 percent. Yet in the last few months of the year, a downward trend in spending growth was seen, as overall spending growth was estimated at 5.1 percent for October and November. Since 5.1 percent is the annual growth rate projected by CMS for 2017, it would appear the end of the year trend is right in line with expectations.

      However, an important caveat applies. The CMS projection assumed that the Affordable Care Act would remain in full effect, but this is far from certain. In fact, many argue that a pall was already cast over the end of the 2017 open enrollment period, leading to a roughly 500,000 drop off in enrollment. This, combined with further destabilization in the individual market, may lead to declines in coverage, and with it, slower growth in health care spending and employment.

      When looking at the growth for 2016 the Altarum analysts observed a pattern that may seem a bit contrary to expectations: physicians' office visits grew far more than predicted (6.2% versus an expected 4.5%). On the other hand, prescription drug spending, frequently the subject of health care cost conversations, increased less than expected (5% as compared with a predicted 6.3%).  As the year ended, drug spending trended down further in October and November, growing by only 3.4 percent.

      Ambulatory Utilization

      The Altarum data show that prices for health care services grew very little during 2016, a pattern we have seen for a few years now. Hospital price growth rose from 1.0 percent in Q1 to 1.6 percent in the fourth quarter, while prices for physician services scarcely grew at all, and the anemic growth rate managed to decline from 0.2 percent in Q1 to an even smaller 0.1 percent in Q4. This suggests that the higher than expected growth in spending on health care services during the year was driven primarily by increased utilization, although that inference implies a fee for service paradigm that is perhaps decreasingly realistic. Inpatient hospital use has been flat or declining for quite some time in the country. Overall, ambulatory utilization is unfortunately less well measured, but these data suggest that it increased at a brisk rate during the year. 

      The Murky Channel

      When it comes to prescription drugs, the ability to understand price and utilization trends is complicated by the increasingly large gaps between the list price (or the wholesale acquisition cost) and net price, and the growing complexity of the drug supply chain. Manufacturers are increasing their list prices but negotiating larger discounts, and various participants in the supply chain are compensated based on the list price, while others benefit based on the size of these discounts. In an attempt to respond to increasing complaints about channel murkiness, Merck recently took the step of publishing their average list and net price increases, and other manufacturers may do the same.  

      These transparency initiatives reflect manufacturer awareness of widespread concern about drug prices and the potential for various unpleasant federal or state policy responses such as attempting to set prices, permitting price negotiations by federal payers, allowing international purchasing, or requiring the publication of pharmaceutical cost structures. The price disclosures may help manufacturers make the point that concerns about drug price increases shouldn’t be based on list price, but the details of the discounts will likely remain shrouded in mystery, much like allowed amounts in provider contracts. In that sense, the manufacturers’ list price is analogous to the infamous hospital charge description master, price data which are widely available but which “nobody” pays.

      It remains to be seen whether these actions will quell concerns about drug prices. The fact that growth in drug spending has been declining throughout the year does not seem to have had much effect on public discourse, which seems driven more by lurid stories about the prices of individual drugs such as EpiPen or insulin, rather than aggregate trends. As long as these stories are available, this narrative arc is likely to continue.

       

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