Economists looking to June for clearer picture of health spending

Economists were likely not surprised by the latest estimate of U.S. first-quarter health spending, which came in a bit lower than an initial guess released by federal officials in April. They're instead already looking ahead to June when a third revision should give a much more concrete indication of what actually is happening with health spending.

The U.S. Bureau of Economic Analysis on Thursday released a second estimate for the nation's economic growth during the first quarter. The revised snapshot looked bleaker for the overall economy, which contracted instead of achieving marginal growth as initially reported. But for health spending, which has seen a pronounced and welcome slowdown in recent years, the latest estimate of economic growth delivered good news.

Consumer spending for healthcare services such as hospitals, nursing homes and physician visits grew at an annualized rate of 8.9% based on the revised estimate, said Paul Hughes-Cromwick, a senior health economist with the Altarum Institute. In other circumstances, that figure would be an unsettling break from recent annual growth of slightly less than 4%. But this growth estimate is slower than the nearly 10% surge in health spending projected in April and may be considered confirmation of doubt that many expressed in such rapid acceleration.

“The headline health spending growth rate—9.9% in the first quarter of 2014 (annualized)—is particularly likely to be wrong and revised downward in the future,” health economist Austin Frakt wrote in his blog the Incidental Economist.

“The simple story here is that many analysts, and that includes our Center for Sustainable Health Spending, have predicted the 10% rate that everyone was going crazy about would be revised downward,” Hughes-Cromwick said.

It's also not the last estimate, or the most accurate.

Hughes-Cromwick and others are waiting for a final estimate to be released in June, which will be the first to benefit from actual survey data on economic activity. Compiling that data across the economy requires time, said Hughes-Cromwick. “Think about the zillions of moving parts in the economy,” he said. “We will really understand what happened in Q1 only in June.”

Early federal estimates of health spending also were complicated by attempts to estimate increased use of healthcare by the newly insured thanks to the Jan. 1 expansion of health insurance under the Patient Protection and Affordable Care Act.

Use of healthcare services is the primary culprit behind the estimated health spending acceleration. Prices have not risen significantly.

But other data and anecdotal reports from hospital systems do not suggest a surge in demand. Large publicly traded hospital chains including LifePoint and HCA reported continued decline in hospital admissions during the first quarter.

Hughes-Cromwick said he expects to see the federal health spending growth estimate fall further in June. “If you're not seeing it with utilization and you're not seeing it with prices, it's hard to see it,” he said.

Follow Melanie Evans on Twitter: @MHmevans