Prices for Services Drive Rise in Healthcare Spending

Marcia Frellick

November 07, 2017

Half the $933.5 billion increase in healthcare spending during the last 2 decades in the United States is a result of increased prices for healthcare services, according to an in-depth analysis published in the November 7 issue of JAMA.

In contrast, disease prevalence and incidence was at the far end of the spectrum, with a 2.4% decrease during the same period.

The results have important policy implications for finding ways to reduce costs, say the authors of the study and a commentator who wrote an accompanying editorial.

Joseph L. Dieleman, PhD, from the Institute for Health Metrics and Evaluation in Seattle, Washington, and colleagues compared five factors, including population size, population aging, use of services, service prices, and disease prevalence to evaluate their effect on healthcare spending from 1996 to 2013.

Healthcare service prices and intensity were by far the highest contributors.

Table. Factors Driving Increases in US Health Spending, 1996 to 2013

Factor Associated Amount of Spending Increase/Decrease (in Billions) Percentage Increase Confidence Interval (in Billions)
Service Price, Intensity $583.5 50.0 $525.2 - $641.4
Increase in Population $269.5 23.1 $269-$270
Aging Population $135.7 11.6 $133.3 - $137.7 billion
Service Use No statistically significant change No statistically significant change No statistically significant change
Disease Prevalence, Incidence −$28.2 −2.4 −$10.5 to −$44.4 billion

Researchers also looked at these factors in the context of kinds of care and for particular diseases and conditions.

After adjustments for price inflation, annual health spending on inpatient, ambulatory, retail pharmaceutical, nursing facility, emergency department, and dental care increased by $933.5 billion in the study period, from $1.2 trillion to $2.1 trillion, and made up 17.8% of the US economy.

Ambulatory care showed the largest overall increase in cost, at $324.3 billion. Of that, increases in service utilization accounted for the largest fraction ($115.5 billion), followed by increases in service price and intensity ($92.5 billion) and population size ($88.6 billion). Inpatient care was second in line for greatest overall increase, at $258.1 billion.

In contrast, when analyzed by annualized growth rates, emergency department care topped the list at 6.4%, followed by retail pharmaceutical spending at 5.6%.

When analyzed by condition, diabetes showed the largest absolute increase, at $64.4 billion, in the study period, with retail pharmaceutical spending consuming $44.4 billion of that increase. Low back and neck showed the next largest absolute increase, at $57.2 billion, with inpatient and ambulatory care accounting for the largest fractions.

Regarding the costs of an aging population, the researchers found that although aging was linked to spending increases, it was associated with only half (50.2%) of the increase in spending resulting from a growing population.

"This suggests either that the relationship between an aging population and spending has yet to be realized or that the relationship is weaker than anticipated, a finding corroborated by previous work," the authors write.

Patrick H. Conway, MD, from Blue Cross Blue Shield of North Carolina in Durham, says in an accompanying editorial, "This report is a significant contribution to the literature because trends in health care spending over time, by major categories of spending, accounting for prevalence of disease, and across conditions have not been previously reported."

To arrive at these estimates, Dr Dieleman and colleagues analyzed data on the five contributing factors, 155 health conditions, 36 age and sex groups, and the six realms of care from the Global Burden of Disease 2015 study and the Institute for Health Metrics and Evaluation's US Disease Expenditure 2013 project.

Policy Implications

This study provides further evidence that US healthcare spending is on an unsustainable trajectory, Dr Conway writes.

"The report by Dieleman et al highlights that more than one-third of the annual increase in spending — that attributable to aging and growth of the population — is likely not modifiable, making it even more important to focus on the two-thirds of spending increases that is potentially modifiable," he writes.

Payers, hospitals, and clinicians must work to control prices, he said, pointing to some promising models.

Maryland and Vermont, he notes, each have state-level multipayer payment models. Another approach he suggests is an accountable care type of contract among payers, hospitals, and clinicians on a local level that allows financial success by meeting quality metrics and lowering costs while controlling price increases.

Competition for consumers based on transparent pricing may also help bring down costs, Dr Conway says.

"This has worked for some high-end procedures (eg, orthopedic) and imaging but still has not become common or widespread, and data are limited that this approach will be broadly successful," he writes.

The study also adds evidence that pharmaceutical prices must also be a target, Dr Conway notes. He highlights approaches including linking payment for a drug to health outcomes and more competition, and negotiation between health plans and pharmaceutical companies or the government and pharmaceutical companies.

Among limitations of the study are that estimates by the Disease Expenditure project only go to 2013. The authors acknowledge that pharmaceutical spending increased substantially in 2014 and 2015, and the implementation of the Affordable Care may have changed spending patterns since the end of this study.

This research was supported by the Peterson Center on Healthcare and by the National Institute on Aging of the National Institutes of Health. The authors and Dr Conway have disclosed no relevant financial relationships.

JAMA. 2017;318:1657-1658, 1668-1678. Article

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