Drew Altman, president of the Kaiser Family Foundation, is usually an astute observer of the healthcare scene. But his latest column on the Wall Street Journal website missed identifying the main drivers behind the recent uptick in healthcare spending.
The Altarum Institute last week reported that overall healthcare spending in December rose 5.6%, up from a 4.5% growth rate a year ago and 3.3% in December 2012. When compared to the growth rate in the overall economy, healthcare is once again sprinting ahead.
That's cause for alarm. Altarum now pegs healthcare spending at 17.8% of gross domestic product, up from 17.5% a year ago. As a society, we're once again moving in the wrong direction.
Altman went looking for a culprit in a separate price report from Altarum. He absolves overall healthcare prices (up just 1.8%); hospital prices (up just 0.9%) and, curiously, drug prices (up 6.4%). “Drugs represent 10% of national health spending so it doesn't contribute a lot to overall spending increases,” he wrote.
Spending must be rising because of rising demand for services “as the economy improves and as more people get insured under the Affordable Care Act,” he concluded. “We need to get a better handle on the amount of services and the kinds of health services provided.”
Hmm. Let's do the math. Drug prices overall may be up just 6.4% (it's an index number), but the spending report showed drug spending surged $36.6 billion, or 13%, last year, which dwarfed every other sector in percentage terms except the health insurance overhead, which was up $23.5 billion, or 10.6% (See the chart on p. 3 of this report). The skyrocketing prices slapped on a handful of specialty drugs like Sovaldi inflated overall spending on drugs last year—and probably will for years to come.
What would last year's spending increase have been if drug spending and insurance overhead went up at the same rate as, say, hospitals, which rose 5.4% year-over-year? That would have saved taxpayers and premium payers $33 billion. And it would have held the increase in overall healthcare spending to 4.5%.
That would have given pundits like Altman cause to celebrate. The reality is that except for drugs and insurance costs, overall healthcare spending remains under control.
Follow Merrill Goozner on Twitter: @MHgoozner