Rise in Healthcare Spending

Is a growing number of sick patients responsible for rising healthcare costs in the U.S.—or has the cost of treating each patient increased?

Martha Starr, Ph.D., an associate professor at American University, and Ana Aizcorbe, Ph.D., a research professor at Virginia Tech University, analyzed the data to find out. They've published their results in this month’s issue of Health Affairs. They report that higher prices for treatment make up about 70 percent of the recent growth in healthcare spending.

They assessed information on surveys conducted between 1980 and 2006. They evaluated various segments of Americans who had different diseases, along with the cost of services used to treat them. Aizcorbe said they used data that covered a longer time period and a larger number of healthcare issues than previous studies had.

The researchers found that the growing incidence of disease raised spending by just 0.5 percent per year, compared with 2.5 percent for rising cost per case.

“Rising costs of treatment have had a much greater impact on driving up average spending than increased disease prevalence,” Starr said. This is why solutions to the problem must focus on slowing the growth of spending on procedures, treatments, and drugs used to treat diseases, she added.

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Mounting prescription-drug costs are part of the equation, and the rising prices contributed nearly one percentage point to the 2.5 percent annual growth in treatment costs during the 26-year period studied. 

“More people are taking medications on a long-term basis, and the costs per prescription have been going up, up, up,” Starr said. Recent data indicates that the growth in drug prices could be tapering off, but no one knows whether the slowdown will last.

Better Care, Better Outcomes?

If there had not been a shift away from using hospital services, the rate of spending growth for treatments could have hit 3.5 percent annually. Even patients' use of office-based care instead of emergency care did not cause a reduction in spending. The rise in the cost of using these services—as well as factors like selecting brand-name drugs instead of generics—drove costs up.

Would decreasing the number of people with chronic conditions help lower spending on treatments? Yes, Starr said, but it would not result in massive savings.

When looking at healthcare spending, economists usually focus on the aging of the population, along with changes in insurance coverage. Aizcorbe and Starr said those were minor factors in the overall economic picture.

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The Impact of Preventive Care

What about preventive care? Is it effective? It still is, Starr said.

“Going forward, it will be important to make sure intensified efforts to promote preventive care do eventually work to slow growth in spending on acute care,” she said, adding that it could be “tricky” to study because the benefits of greater prevention will take time to materialize and could be difficult to trace in the data.

This study didn’t follow individual patients over time, so the researchers can’t tell whether boosting preventive care now will reduce the amount of acute care people will need later in life.

But we do find a long-term shift in American healthcare toward increased routine care—annual check-ups, regular screening for common conditions, increased use of diagnostic tests, more monitoring of people with chronic conditions, and so forth,” Starr said.

She said that this type of preventive care could be helpful for avoiding more spending in the future, but the study revealed that it also contributed to rising healthcare costs in the past.

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Reform Could Drive Changes in Healthcare Spending

Another factor that could impact healthcare spending is the Affordable Care Act“The new emphasis on accountable care in healthcare reform puts responsibility on healthcare providers for doing a better job of making sure the care people receive yields high value,” Starr said.

Doctors, clinics, and hospitals are supposed to make sure that people (and insurers) get their money's worth out of their healthcare dollars in terms of health improvements, well-being, and life expectancy. This is why many healthcare providers receive financial incentives to do better at optimizing operations and patient care.

For example, physician groups that prescribe generic medicines instead of brand names or that limit high-cost imaging tests to patients that really need them, may get "shared savings" payments from Medicare or health-insurance companies to reward these groups for emphasizing value.

“In principle, accountable care should help promote efficient use of preventive care, not just broad-based increases in [care] with low benefit,” Starr said.