Hospital and medical lab companies say demand for services dropped early this year because of the harsh winter. But you wouldn't know it from federal estimates showing 9.9% annualized growth in healthcare spending in the first quarter of 2014. At the same time, healthcare prices increased at an annualized rate of only 0.5%.
Experts speculate that the Patient Protection and Affordable Care Act's insurance expansion played a big role in that jump. During the first quarter, millions of Americans gained private insurance or Medicaid coverage under the law, which may have allowed people with pent-up medical needs to obtain treatment. Still, the disconnect between the federal spending estimates and healthcare companies' latest financial reports is puzzling.
Last week's Bureau of Economic Analysis' estimates, though preliminary, captured the attention of economists watching to see if healthcare spending rebounds after years of slow growth. According to the BEA's figures, spending on hospitals, doctors, nursing homes and other healthcare services will increase $44.3 billion this year if the first quarter's pace of spending holds. The BEA attributed the spending rise to ACA implementation.
That surge helped buoy the overall economy during the first quarter, which grew overall only 0.1%. “If healthcare spending had been unchanged, the headline GDP growth number could have been -1%,” wrote Ian Shepherdson of Pantheon Macroeconomics. Growth in hospital and physician spending following the insurance expansion indicated significant delayed demand, he said. “Next question: How long will it last?”
The estimated spending increase also suggests that government and private sector relief over the slowdown in medical spending may be short-lived.
Scott Hoyt, senior director of consumer economics for Moody's Analytics, said newly insured patients were behind the higher spending, and last-minute enrollments in March and April may drive a spending bump for the second quarter as well. After that, spending growth is expected to taper off. Nonetheless, growth in the first two quarters is “a real source of increased demand in the industry that has the potential to spark hiring and investment,” he said.
According to the BEA, hospital spending in-creased 7.1% in the first quarter this year compared with the same quarter a year ago, while physician spending increased 5%.