Reform Update: Pricey technology may drive growth in health spending, not economy or reform, analysis finds

High-priced technology—not the economy and not healthcare reform—has the most potential to drive U.S. health spending growth upward in the years ahead, a new analysis published by the Brookings Institution (PDF) has found.

Economists at Harvard University and Dartmouth College said pricey brand-name drugs and capital-intensive technology are “the primary determinant of long-term growth.” They also said that despite sluggish spending on prescriptions in recent years, “there is little evidence of slowdowns in the technology pipeline.”

Policymakers and economists continue to puzzle out the record slowdown in health spending, now in its fifth year, and to worry about whether spending growth will take off again. Any speedup in costs would have serious consequences for household budgets, employers and federal and state government budgets. The Great Recession and the soft economic recovery have been named frequently as key factors behind the slowdown in U.S. healthcare spending; costs have grown just 3.9% a year since 2009. Other research has credited public and private efforts to make healthcare delivery more cost-efficient.

But study authors Amitabh Chandra, Jonathan Holmes and Jonathan Skinner are not convinced. They said, “we find little evidence that the Great Recession alone was the cause (income effects in healthcare are small) or that the 2010 Affordable Care Act could take credit (it still hasn't phased in yet).” Their analysis said the growth of health plans that expose consumers to greater out-of-pocket costs contributed to the slowdown.

Data released earlier this week found privately insured patients are paying a greater share of healthcare costs.

Healthcare spending growth per capita likely will rebound to exceed the growth in gross domestic product by 1.2 percentage points, the study authors said.

National health spending projections released last week—which cited the economy as a major factor in the slowdown—estimated that by 2022, per capital U.S. health spending would increase 5.6% as the economy grew 3.9%. An economic recovery and a large number of aging baby boomers will drive health spending growth, CMS officials said.

Chandra, Holmes and Skinner said reform efforts may produce “fundamental changes” that could slow spending, such as moves by insurers not to pay for treatments that lack empirical support.

Still, the authors said medical technology and new drug development will continue to be spending drivers. For instance, twice as many proton beam accelerators will be operating next year as in 2010, the said.

Austin Frakt, an economist at Boston University and blogger at the Incidental Economist, said research has identified technology, insurance coverage, benefit design and national income as major drivers of health spending.

One final note: The authors of the Brookings analysis said costs for privately insured Americans may slow to 2% annually from 3.6% between 2008 and 2012 as antitrust regulators do more to check hospital consolidation and as hospitals face more market pressure from “superior quality measurement, transparency, narrow networks and tier networks.”

Rising prices for generic drugs, which were also used more widely last year as blockbuster drug patents expired, contributed to a 3.8% increase in prescription drug spending among privately insured Americans last year, the Health Care Cost Institute said. That's a notable departure from the projected growth in drug spending included in federal estimates released last week, which show a 0.8% drop in drug costs.

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