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January 10, 2015 12:00 AM

Healthcare spending expected to grow faster in 2015

Melanie Evans
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    Healthcare spending growth is expected to accelerate in 2015 as the nation's economic recovery continues. But it will continue to be constrained by the proliferation of high-deductible health plans, price-sensitive purchasers and consumers, and Medicare policies that drive down payment rates.

    For hospitals, medical groups and health plans, the demand created by the healthcare reform law holds the promise of higher revenue but also the prospect of tighter margins. For payers and policymakers, a rebound in spending would intensify pressure to introduce additional cost-control policies, such as lower rates, expansion of value-based payment models, greater price and quality transparency, tighter provider networks, or even rate regulation and global spending caps.

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    Not until the third quarter of 2014 did federal estimates of spending on healthcare services, which exclude pharmaceuticals, reflect faster growth. Spending increased 4.3% from the third quarter the prior year.

    Economists said the more robust third-quarter growth likely would continue into 2015. “We've finally begun to see the acceleration of healthcare spending,” said Paul Hughes-Cromwick, a senior health economist with the Altarum Institute.

    How rapidly costs will rise is uncertain. U.S. spending on visits to the hospital, doctor and pharmacy, and other healthcare expenditures is projected to grow 4.9% in the coming year, according to a federal estimate published in October. Hughes-Cromwick said that figure may be too low.

    The stronger economy also will boost health spending. “One of the things you spend your money on when you have more of it is healthcare,” Hughes-Cromwick said.

    Still, households continue to grapple with financial stress that is likely to curb health spending. Wage growth has been sluggish, and more health plans have introduced high deductibles and other cost-sharing that expose patients to a larger share of their medical bills.

    Still, consumers who gained coverage through private exchange plans or Medicaid expansion will be more familiar with their insurance and more connected with the health system in the coming year. That will spur spending growth, said Ani Turner, deputy director of the Altarum Institute's Center for Sustainable Health Spending.

    With prescription drug spending accelerating in 2014, Hughes-Cromwick predicted that area will be a battleground for cost-control efforts this year. Private insurers will also face heightened pressure to keep premiums down because of increased competition in public and private insurance exchanges, he said. At the same time, however, consumers may push back against narrow provider networks, which insurers say are key to their efforts to keep premiums affordable.

    The influx of newly insured people is projected to boost demand for inpatient care, which slumped with the Great Recession and has remained weak through the recovery. A more robust economic recovery also is projected to increase hospital use.

    That growth will be restrained by the growth of high-deductible health plans, which dampen consumer demand for medical services. With a high-deductible plan, “I may think twice as a consumer before I go for that elective service or whatever it is that I was contemplating,” said Moody's hospital analyst Lisa Goldstein. “We've all become more cost- and price-savvy and -sensitive.”

    Medicare policy also has dampened use. The CMS now designates some brief hospital visits as “outpatient” rather than admissions. In addition, payment rates to hospitals will remain under pressure from Medicare and private health plans.

    Follow Melanie Evans on Twitter: @MHmevans

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