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Hints emerge about rebounding healthcare spending

Reform Update: Uptick hinted in healthcare use, spending


By Melanie Evans
Posted: April 16, 2014 - 4:15 pm ET
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Recent indicators provide increasing evidence that health spending may be accelerating, even before millions of Americans newly insured through the federal and state insurance exchanges and Medicaid expansion start their healthcare shopping. Signs point to a rebound in healthcare use, which has been soft since the recession and has forced hospitals to slash operating expenses to offset falling revenue.

The latest snapshot, by IMS Institute for Health Informatics, shows patient demand for physician office visits and prescription drugs increased last year. Despite 2 million fewer patients admitted to the hospital through emergency rooms, more patients arrived for scheduled and non-emergent stays while hospital admissions were flat.

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Those findings bolster evidence of an uptick in healthcare use in 2013 identified by an Altarum Institute analysis, which shows the trend has continued this year. Demand for hospital and physician services, prescription drugs, home health and nursing home care and dental visits increased 4.8% between February and the same month the prior year, sharply faster than the average 12-month utilization growth rate of 2.4% the previous year.

Prices and population growth also contribute to overall health spending, but price growth has cooled to 1.2% annual growth, as of February, from 2.1% two years ago, Altarum data show, demonstrating that inflation isn't the main reason for increased spending the past year.

Official federal estimates for 2013 healthcare use, prices and spending won't be available for months, but signs of a resurgence in demand for medical care suggest that more increases are likely as the economy revives, leaving employers, households and state and local policymakers to revisit the painful debate over how to pay for rising costs. For hospitals, more demand will mean more revenue under insurance contracts that continue to pay by the sheer volume of procedures, tests and visits.

But those contracts are slowly giving way to quality of care payments that leaves providers at risk for losses when spending accelerates, said Martin Arrick, an analyst with Standard & Poor's who tracks the operations and finances of not-for-profit hospitals and health systems.

Hospitals are largely reporting flat growth last year after factoring in 2% to 8% declines in hospital admissions and increasing demand for outpatient services, Arrick said.

Hospital outpatient volume climbed 3.2% last year compared with a decline of 0.6% the prior year and incremental growth of 0.1% the year before that.

Ambulatory-care gains were reflected in physician office visits, which increased by 2.7% after a drop of 0.8% the prior year and 4.2% the year before that. The growth was likely pent-up demand from the recession, when nerves or job losses prompted people to put off medical care, said Michael Kleinrock, the research director for the IMS Institute. “The longer people stay away in big numbers from their physicians, the more they need to come back,” he said. “Ultimately, for a lot of chronic conditions there really is nowhere to go but back to the doctor.”

Prescription drug use accelerated for the second year, as doctors wrote 1.6% more prescriptions. The prior year, demand for drugs increased 1.2%. Expired patents contributed to slower growth in prescription drug spending in 2013 though not as significantly as 2012. But spending on specialty drugs increased 11% last year and branded drug spending increased to $20 billion from $15.6 billion the prior year.

Federal estimates, which are released each January with a lag of one year, revealed a small uptick in the use of healthcare services in 2012 even as combined spending growth for hospitals, doctors, drugs and other services remained at a record low. Use of services accounted for half the 3% growth in spending per capita that year, compared with one-fifth of spending growth the prior year.

Estimates for 2013 won't be available until early next year.

But those 2012 federal estimates underscore how specialty drug growth has dampened the recent slowdown in drug spending. The United States spent $264.3 billion on prescriptions in 2012, marginally more than the prior year, despite an increase of 1.4% in the total number of drugs dispensed.

That's because prices fell as brand name drug patients expired. Savings from greater use of cheaper generics was offset by “strong growth in prices for specialty drugs,” a team of federal analysts said in January in the journal Health Affairs.

The data hint that would-be patients kept away by financial and economic insecurity may be returning to the health system, joining the newly insured in physician offices and hospitals. If true, that may return some volume to providers, but will also challenge providers with an even larger population of patients with potentially unmet medical needs.

New payment models develop

Policies under the Affordable Care Act seek to test new payment models, most notably accountable care and bundled payment, but innovation in the marketplace has developed some models of its own including reference pricing, which could cut health spending by 1.6% across a half-dozen services for those with insurance though an employer, a new report by the Employee Benefit Research Institute said. Reference pricing allots a fixed amount for services and leaves shopping to individual patients, who must pick up the cost of care for providers who charge higher prices.

Follow Melanie Evans on Twitter: @MHmevans


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