Analysis Gets it Wrong on Health Care Spending

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Analysis Gets it Wrong on Health Care Spending
tjordan_drupal
Oct 6, 2020

A recent analysis from the Peterson Center on Healthcare and the Kaiser Family Foundation, “What drives health spending in the U.S. compared to other countries,” does not provide a full picture on health care spending in the U.S. while also downplaying the immense role that drug costs play in overall health care spending.

First, according to the Centers for Medicare & Medicaid Services, price growth for hospital care services was just 2.4 percent in 2018, and non-price factors such as intensity of services and inpatient bed days grew slowly as well. These factors combined for historic low growth in hospital spending. More recent data from the U.S. Bureau of Labor Statistics shows hospital prices have consistently grown less than 3 percent per year over the last decade and have frequently grown by less than the average rate of inflation. In fact, even when excluding the artificially low rates paid to hospitals by Medicare and Medicaid, annual price growth has still been below 3 percent in recent years.

Second, the analysis doesn’t fully account for the role that drug costs play in driving up overall health care spending. For example, the analysis’ inpatient spending trends includes spending on prescription drugs provided during an inpatient stay. This is also true for drugs administered in an outpatient setting. Hospital spending on prescription drugs has far surpassed medical inflation in recent years. According to a 2019 AHA study, total drug spending for inpatient and outpatient hospital drugs increased by nearly 19 percent between 2015 and 2017 per adjusted admission. This increase was on top of a double-digit percentage increase from 2013 to 2015.

The AHA study also showed that large percentage increases of over 80 percent were seen across different classes of drugs, including those for anesthetics, parenteral solutions and chemotherapy, and that one in four hospitals had to cut staff to mitigate budget pressures due to drug costs. It is also worth noting that a significant percent of outpatient costs are attributable to drug costs, such as infusion services for cancer patients, which have a significant drug cost component. 

Third, this analysis distills health spending into overly broad and blunt categories. For example, inpatient care as defined here includes inpatient hospital care, prescription drug or medical device spending that occurred during an inpatient stay, rehabilitative stays and admissions to skilled nursing facilities. Outpatient care here is defined as most of the services people receive from clinicians and health professionals, regardless of where this care is received (i.e. clinic, physician office, health center, outpatient facility, or hospital).

Finally, health spending in the U.S. grew at the same pace as other countries (3.7 percent vs. 3.6 percent) over the last 10 years. Comparing spending across countries while ignoring other differences is problematic. This analysis overlooks some key differences that may affect health spending, such as different disease burden and health status in each country, and differences in salaries, wages and other labor costs.

Aaron Wesolowski
Blog

Analysis Gets it Wrong on Health Care Spending
tjordan_drupal
Oct 6, 2020

A recent analysis from the Peterson Center on Healthcare and the Kaiser Family Foundation, “What drives health spending in the U.S. compared to other countries,” does not provide a full picture on health care spending in the U.S. while also downplaying the immense role that drug costs play in overall health care spending.
First, according to the Centers for Medicare & Medicaid Services, price growth for hospital care services was just 2.4 percent in 2018, and non-price factors such as intensity of services and inpatient bed days grew slowly as well. These factors combined for historic low growth in hospital spending. More recent data from the U.S. Bureau of Labor Statistics shows hospital prices have consistently grown less than 3 percent per year over the last decade and have frequently grown by less than the average rate of inflation. In fact, even when excluding the artificially low rates paid to hospitals by Medicare and Medicaid, annual price growth has still been below 3 percent in recent years.
Second, the analysis doesn’t fully account for the role that drug costs play in driving up overall health care spending. For example, the analysis’ inpatient spending trends includes spending on prescription drugs provided during an inpatient stay. This is also true for drugs administered in an outpatient setting. Hospital spending on prescription drugs has far surpassed medical inflation in recent years. According to a 2019 AHA study, total drug spending for inpatient and outpatient hospital drugs increased by nearly 19 percent between 2015 and 2017 per adjusted admission. This increase was on top of a double-digit percentage increase from 2013 to 2015.
The AHA study also showed that large percentage increases of over 80 percent were seen across different classes of drugs, including those for anesthetics, parenteral solutions and chemotherapy, and that one in four hospitals had to cut staff to mitigate budget pressures due to drug costs. It is also worth noting that a significant percent of outpatient costs are attributable to drug costs, such as infusion services for cancer patients, which have a significant drug cost component. 
Third, this analysis distills health spending into overly broad and blunt categories. For example, inpatient care as defined here includes inpatient hospital care, prescription drug or medical device spending that occurred during an inpatient stay, rehabilitative stays and admissions to skilled nursing facilities. Outpatient care here is defined as most of the services people receive from clinicians and health professionals, regardless of where this care is received (i.e. clinic, physician office, health center, outpatient facility, or hospital). Finally, health spending in the U.S. grew at the same pace as other countries (3.7 percent vs. 3.6 percent) over the last 10 years. Comparing spending across countries while ignoring other differences is problematic. This analysis overlooks some key differences that may affect health spending, such as different disease burden and health status in each country, and differences in salaries, wages and other labor costs.

Aaron Wesolowski

Drug Prices
Business of Health Care

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