Study: Hospitalization and pharmacy costs drive up healthcare costs
A new study sheds light on some issues with recent overall cost increases in the US healthcare system. Michael Bailit, president of Bailit Health, a health policy consulting firm based in Needham, Mass., published an article Aug. 9 in the Forefront section of Health Affairs examining some of the elements involved in today’s healthcare cost landscape.
The central question posed by Bailit is encapsulated in the article’s title, “What is Driving Health Care Spending in States with Cost Growth Targets?” As Bailit explains at the start of his article, “In 2021, the Peterson Center on Health Care and the Milbank Memorial Fund partnered to support the state’s efforts to slow the growth of health care spending. Six states participating in the Peterson-Milbank Program for Sustainable Healthcare Costs have established per capita cost growth targets as a tool to improve transparency and encourage reductions in the rate of growth in healthcare spending for all payers and providers . The six states (Connecticut, New Jersey, Nevada, Oregon, Rhode Island and Washington) are supplementing their cost growth targets and public reporting of performance against target with a series of supporting activities. These include: in-depth analysis of claims data to better understand spending patterns and drivers of cost growth; identification of opportunities to target actions that will achieve the cost growth objective; and the adoption and implementation of cost growth mitigation strategies. And he notes that “some states have begun to publicly report per capita spending growth against their targets, including a breakdown of spending growth by service category within different markets (i.e. i.e. commercial, Medicaid, Medicare). Additionally, states have designed and implemented standard analytics using claims databases to gain insight.
Bailit reports that “although there are variations from state to state, per capita spending growth in the commercial market has generally been higher than in the Medicaid and Medicare markets”, and shows in a graph that, in the period 2018-2019, annual growth in Medicare per capita costs was 2.2% in Connecticut and 1.3% in Rhode Island (and not available in Nevada); but annual per capita cost growth was 6.1% in Connecticut, 4.7% in Rhode Island, and 9.2% in Nevada, in the commercial health insurance market. In the Medicaid market, Nevada also saw annual per capita cost growth of 9.2%, while in Rhode Island it was 4.1%. Connecticut saw a 0.9% decrease in average annual per capita costs, but, he explained in a note, “Connecticut’s negative trend for Medicaid in 2019 was driven by a reduction in the growth of long-term care expenses. After long-term care expenses were removed, Connecticut’s Medicaid trend was 2.2. percent.”
Additionally, Bailit writes, “This pattern of commercial spending growth outpacing public payer spending growth is consistent with national trends over the past 12 years. Nationally, between 2008 and 2020, per capita commercial spending grew 46.8%, compared to 28.2% and 21.2% for Medicare and Medicaid, respectively, despite declining commercial growth in 2020 The Centers for Medicare and Medicaid Services expect this model to continue. For two of the three states, the observed rates of growth in business health care spending in 2019 far exceeded wage growth, indicating that health care spending was displacing workers’ wages. For all of this, he writes that “While high per capita spending growth is a concern in any market, limiting spending growth in the commercial market deserves special government attention.”
So what’s behind these trends? Bailit writes in a title of the section on hospital and pharmaceutical cost issues, that “hospital and pharmacy spending were the primary drivers of spending growth,” adding that “this pattern emerged in commercial, Medicaid and Medicare, although there is variation by state, and within states by market. Evidence of this pattern appears in the analysis performed by Connecticut, Nevada and Rhode Island. For example, he writes, hospital spending and retail pharmacy were the main trend drivers in Connecticut and Rhode Island, although the role of hospital spending relative to inpatients varied between states. Outpatient and pharmacy trends in Connecticut hospitals each averaged more than 7% in the commercial market between 2015 and 2019 (and the hospital trend for inpatients was only slightly lower, at 6% ). The Rhode Island hospital outpatient trend averaged 5% and the pharmacy trend averaged over 6% between 2017 and 2019. Retail pharmacy was the only service category with growth spending in Rhode Island in 2020.” As a result, he writes, “In at least some states, cost growth mitigation work — in all markets — should focus on hospital and pharmaceutical services, as these sectors account for a disproportionate percentage of total spending growth.”
Bailit summarizes his findings in another headline, which reads: “Price increases – not increased service utilization – have generally been the cause of high rates of growth in hospital and pharmaceutical spending.” Indeed, he writes, “in most years, price increases have been highest in the commercial market. Although there are some variations between states, a national analysis of commercial claims data by the Health Care Cost Institute found that from 2015 to 2019, approximately two-thirds of the increase in expense growth was due to service price increases. Additionally, a 2022 Congressional Budget Office report stated, “The primary reason for the growth in per capita spending by commercial insurers – and the difference from the growth in per capita spending by Medicare FFS – was rapidly rising prices. that commercial insurers pay for the services of hospitals and doctors.
Further, he writes, “The Connecticut analysis found that commercial prices grew fastest between 2015 and 2019 for hospitals that primarily serve commercially insured patients. This indicates that hospitals’ market power and associated price discrimination drove prices higher, rather than hospitals reacting to lower payment levels from public payers (“cost shifting “). »
And, says Bailit, “While the past two years have demonstrated how unpredictable the future can be, the underlying dynamics that propelled past growth in healthcare spending, and in particular price growth, remain intact. . Market consolidation looks likely to only increase, creating upward pressure on prices, especially in the commercial market. In addition, the weak competition on the market and the absence of regulatory levers should result in continued strong growth in prices in pharmacies. Finally, rising labor and supply costs in 2021 and 2022 are expected to drive an upward trend for at least the next two years.