National health spending rose 3.9% in 2017 — a slower growth rate than the previous 2 years — mainly due to a slowdown in use and intensity of hospital care, physician and clinical services, and prescription drugs, the Centers for Medicare & Medicaid Services (CMS) said Thursday.
Spending reached $3.5 trillion, but grew more slowly than in 2016, when it increased by 4.8%, or 2015, when it grew by 5.8%, according to Anne Martin, lead author of the report and an economist in the National Health Statistics Group at CMS’s Office of the Actuary, who spoke on a phone call with reporters. The 2017 health spending growth of 3.9% is lower than the 4.2% increase the gross domestic product (GDP) for 2017; healthcare’s share of the GDP was 17.9%, similar to 2016.
The slowing growth rate compared with the last 2 years “is a pleasant surprise, in part because as the economy improves you worry that one of the unintended consequences … is that we might see an increase in spending, but that doesn’t appear to be happening,” Gail Wilensky, PhD, who served as CMS administrator under President George H.W. Bush, said in a phone interview. “It is especially promising as we’re continuing a 20-year cycle of having Baby Boomers age into Medicare,” although a single year of decrease doesn’t necessarily mean a trend, added Wilensky, a senior fellow at Project HOPE, in Bethesda, Md.
In terms of spending by sector, spending on physician and clinical services, rose 4.2%, down from 5.6% in 2016, Martin said. The rate of spending growth for retail prescription drugs also fell, from 2.3% in 2016 to 0.4% in 2017 — the slowest growth rate since 2010 — while spending growth for hospital care dropped from 5.6% in 2016 to 4.6% in 2017.
The drop in physician and clinical services spending could be impacted by a number of factors that CMS doesn’t specifically estimate numbers for, such as “[more use of] high-deductible health plans, which would affect physicans and clinics, and a shift in the site of care as you have services traditionally consumed in other settings being consumed in clinical and freestanding settings that they weren’t previously,” said Aaron Catlin, a coauthor of the report, who is also with the National Health Statistics Group at CMS. “What we can tell you is that price growth increased [only] slightly in 2017 for physicians and clinics, so the indications are that use and intensity have slowed.”
As for the slower growth in drug spending, that may have occurred because, while there was a large spending increase in 2014 due to the advent of expensive hepatitis C treatments, “[that growth] subsided as many were cured of the disease,” Martin said. “In addition, more spending is continuing to go to lower-cost generics, and price increases also have slowed.”
Marsha Simon, PhD, a healthcare consultant here, said she found it “concerning” that state and local Medicaid expenditures grew at 6.4% — “well in excess of GDP growth, while federal Medicaid expenditures increased just a modest 0.8% in 2017. State and local governments have fewer tools to absorb cost increases than the federal government — for example, all but one state is barred from deficit spending. As the federal share of the Affordable Care Act (ACA) expansion population continues to decline, so will state and local Medicaid costs continue to increase.”
“These data point to the need to achieve savings by allowing states to modernize the administration of Medicaid by eliminating outdated federal requirements such as permitting only government employees to determine and re-determine eligibility for Medicaid,” she said in an email. “This requirement impedes the adoption of integrated state health enrollment systems to better serve poor families, since the Children’s Health Insurance Program (CHIP) has no such requirement. It also prevents states from improving Medicaid program integrity.”
Ed Haislmaier, senior research fellow at the Heritage Foundation, a right-leaning think tank here, said in a phone interview that he found it interesting that “they’re attributing the slowdown in hospital and physician services to changes in volume and mix but not price, whereas you’ve seen decreasing prices playing a factor with drugs. That suggests that inflation — in the pure sense of price change — is pretty well under control in this sector, which hasn’t been the case in the past.”
The slowdown in drug price growth is not a surprise despite the sharp increases in price for some existing drugs and the introduction of new treatments with six-figure price tags, mainly because so few people overall are taking those pricey medications, Haislmaier said. “This is the problem people have — they see a large number associated with unit cost and they don’t understand the significant difference between the aggregate in the system and the unit cost … Yes, there are expensive cancer drugs, but 85% of all prescriptions are for generics.”
Joe Antos, PhD, scholar in health care and retirement policy at the American Enterprise Institute, another conservative think tank, was amused by the title of the
Health Affairs article that discussed the results, which included the subheading “Growth Slows to Post-Great Recession rates.”
“Somebody blew this big time; we’ve been at ‘post-Great Recession’ since 2010, including in 2017,” he said in a phone interview. “It really just means that the slowdown we’ve seen since that recession has continued, remarkably enough.”
While this report was definitely a positive, “having one more year of slow spending raises the question of will this good news continue indefinitely into the future,” Antos said. Although there is somewhat of a dark shadow on the spending horizon with the retiring Baby Boomers, “are we going to see things turn around dramatically? No, it happens more gradually, but a reasonable prediction is that sometime in the next 10 years, even if these good numbers hold out for a long time, we’re going to begin to see a turnaround … The question in our minds always is, when are we going to see a change?”
