Category: Health Care Costs

A Welcome Break – Moderate Health Spending Growth in Q2 GDP

Last week’s second estimate of Gross Domestic Product for the second quarter confirms that growth in health spending took a welcome break. Unfortunately, it is not a clear break in the trend of health spending consuming an increasing share of our national income.

When we compare 2015 Q2 to 2014 Q2 annualized spending, health care is still consuming a slightly disproportionate share of GDP. Health spending grew $106 billion, comprising 17 percent of the $632 billion change in GDP. GDP only grew 3.66 percent, while health spending grew 5.47 percent.

Health-Related Producer Prices Tame in July

BLSThe Producer Price Index (PPI) for July increased more than expected, but was still benign. Health-related producer prices were tame last month.

Prices for pharmaceutical preparations, which have increased faster than other producer goods in the long term (rising 9.4 percent since July 2014), finally turned around and actually dropped 0.4 percent last month (See Table I). This was a bigger decline than prices for all final demand goods (-0.1 percent) or for all final demand (0.2 percent).

Price Transparency Laws Don’t Work

HSAIn a functioning market, you know what you owe before you buy a good or service. That is not the case in health care, as we know. Because of increasing deductibles, the failure of price transparency is becoming increasingly irritating to patients.

Some believe a solution can be legislated. This has occurred in New York and Massachusetts; and one of my favorite state legislators, Senator Nancy Barto, has tried to legislate it in Arizona.

Effective January 2014, Massachusetts law requires health providers to provide a maximum price for a procedure within 48-hours of a prospective patient asking. Well, it has not worked, according to a ”secret shopper” survey of professionals conducted by the Pioneer Institute:

Health Spending Growth Moderate in Q2?

A recent report by actuaries working for the Centers for Medicare & Medicaid Services estimates that the rate of growth of health spending, subdued for many years, is picking up again: “The health share of US gross domestic product is projected to rise from 17.4 percent in 2013 to 19.6 percent in 2024.”

Readers of this blog’s discussion of regular releases of GDP estimates by the Bureau of Economic Analysis knew this was coming. This morning’s release of the advance estimate of second quarter GDP confirms health spending is chewing up more and more of a slow-growing economy.

Comparing Q2 2015 to Q2 2014, GDP increased by $570.5 billion, of which $106.7 billion was health services. That’s about one dollar in every five.

Comparing Q2 2015 to Q1 2015, health spending growth looks a lot tamer: $21.6 billion of $191.2 billion GDP growth. That is only one dollar in ten, about half of what it has been running at. However, the advance estimate is subject to significant revision. Last quarter’s slow growth of health spending may be idiosyncratic and/or inaccurate.

Dr. Pharmacist Will See You Now

A recent article in the International Business Times outlines how pharmacists are pushing for a bigger role in health care. According to the article, Washington recently became the first state to recognize pharmacists as health care providers, and require that insurers reimburse them for consultations. Beginning next year pharmacists in Washington can bill insurers for appointments just like doctors and nurse practitioners.

PwC: Medical Cost Trend 6.5 Percent In 2016; 4.5 Percent After Benefit Changes

PwC’s Health Research Institute has released its 10th annual report on Medical Cost Trend for the employer-based market, forecasting low growth in medical cost trend of 6.5 percent. However, after benefit changes such as higher deductibles and co-pays, PwC forecasts net growth rate of just 4.5 percent.  (The report also notes growth of 300 percent since 2009 in the number of employers offering high-deductible plans.)

PwC lists both “inflators” and “deflators” contributing to this growth. Deflators include:

  • The “Cadillac tax” on high cost benefit plans. Although not kicking in until 2018, it is already influencing plan design.
  • Virtual care. This encompasses telehealth and mobile health, which NCPA has endorsed.
  • New health advisers, who help patients make better choices.

Inflators include specialty drugs and cyber security. (This is the first I learned that security breaches were driving up costs. PwC estimates that the cost of a major data breach is $200 per patient record, versus $8 to prevent it.)

What is most unique about the PwC report is its conclusion that the rate of growth of health spending has been trending down since as far back as 1961 (although with a lot of variance, as shown in Figure 1.)

Producer Price Index: Pharma, Biologics Jump

The Producer Price Index (PPI) for June increased more than expected, as the effect of the drop in oil prices abated. As shown in Table I, producer price growth for health goods and services was in line with tame growth in overall PPI, which grew 0.4 percent on the month and dropped 0.7 percent on the year to June.

The exceptions were pharmaceutical preparations, which increased 2.5 percent on the month and are up 10.3 percent on the year; and biologic products (including diagnostics), which increased 3.1 percent month on month and 3.2 percent year on year.

Physician Payments, Patient Out-of-Pocket Payments Up a Little in 2014

The Robert Wood Johnson Foundation and athenahealth (NASDAQ: ATHN) have released their analysis of physician payments in 2013 versus 2014. athenahealth is an extremely innovative provider of cloud-based electronic medical records (EMRs) to physicians, and has a very complete set of data on their clients payments from all payers.

The result? Not much change from 2013 to 2014, the first year of full-throttle Obamacare:

Primary payments—those made by insurance carriers—to office-based physicians rose moderately between 2013 and 2014. Payments declined for orthopedics and surgery while increasing for primary care and obstetrics-gynecology. Patients’ payment obligations rose for all specialties, and deductibles were the largest category of increased patient spending.

(K. Hempstead, et al., “Tracking Trends in Provider Reimbursements and Patient Obligations,” Health Affairs, vol. 3, no. 7, July 2015, pp. 1220-1224)

Selling the Same Thing for a Different Price is Normal Market Behavior

Understanding the price of ketchup may go a long way towards explaining why mainstream health reformers give such bad reform advice.

Per capita health spending varies a great deal. It varies by geography, it varies by health status, it varies by demographics, and it varies by individual patient characteristics. Academics and government officials decry this variation. They think that health care spending and utilization should be the same everywhere. Despite ritual hand waving about the importance of clinical differences, their policy recommendations generally attribute variation to inefficiency, overuse, and waste.

Negotiate Your Doctors’ Bills!

The idea that patients should take control of what they pay for medical care is taking hold among personal finance columnists. Noting “employer-provided health plan deductibles have risen 47 percent since 2009,” Mandi Woodruff of Yahoo! Finance has some good, common sense, advice on figuring out how much to pay for medical care. Here’s the first tip:

Figure out your medical billing code. Every procedure has a unique billing code (a unique five-number code you’d find on your doctor’s or hospital bill next to the service). Once you’ve got the right code, that makes it easier to call around to compare rates. Just be sure to describe exactly what you’re looking for; for example, an MRI of your lower back will have a different billing code than an MRI of your abdomen.

I agree absolutely. Nevertheless, this shows how far we have to go. Whatever good or service you buy as a consumer has some sort of inventory or billing code in the provider’s system, whether it’s a hardware store or a law office.

As a customer, have you ever had to figure that out?