Vital Signs

The Healthcare Business Blog

Costlier treatments, not more sick people, spur med spending growth: study

By Melanie Evans

The escalating cost to treat disease—not the growing number of ill and chronically ill—contributed most to health spending growth over roughly the quarter century ending in 2006, research shows.

Notably, rising costs for office visits and prescriptions contributed more than hospital costs to the 2.5% average annual growth in disease and condition treatment costs between 1980 and 2006, according to a study published in the journal Health Affairs.

Martha Starr, an associate professor in economics at American University in Washington, said results suggest that earlier diagnosis and more vigorous treatment have increased costs.

During the study period, cost accounted for 70% of the average growth in real health spending per capita. Annualized, per capita spending increased 3.5%.

For organizations investing heavily in primary care, disease management and population health, the results raise questions about whether—and when—such strategies will deliver savings. “It could bring down spending in the long term, but it won't necessarily in the short term,” Starr said.

For accountable care organizations and numerous hospitals and health systems that have invested to acquire physician practices and health plans to better manage population health, the findings may be sobering. ACOs enter into agreements to manage healthcare quality and costs in exchange for a share of savings they produce.

“I would interpret these findings as highlighting the need for ACOs to think about these dynamic trade-offs,” she said. “You can't just throw a lot of resource into prevention and expect them to bring down costs over time.”

New medications, more diagnostic or laboratory tests and greater use of specialists over time have increased the cost of routine care and disease management, she said. “The average person with a heart condition, or the average person with diabetes, or the average child birth or the average case of depression, those all cost more to treat,” she said.

Increased prevalence of disease accounted for 0.5% percentage points of the average growth. (That spiked between 1997 and 2006 to 1.6 percentage points, which Starr noted correlated with rising rates of obesity.) Insurance coverage and an aging population did not contribute significantly to gains.

Shifting treatment away from hospitals helped to hold down spending growth during the period by 0.5 percentage points.

The study sought to examine the relative roles of disease prevalence and the cost of disease treatment in overall spending growth after prior research produced conflicting results, Starr said.

Follow Melanie Evans on Twitter: @MHmevans


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