Healthcare spending slows again

Sunday, January 14, 2007

WASHINGTON - CMS continues to chip away at growing healthcare spending. In a report filed with the Office of the Actuary last week, the agency reported that healthcare spending in the United States slowed for the third consecutive year in 2005, increasing 6.9% compared to 7.2% in 2004 and 8.1% in 2003.

Healthcare spending hit $2 trillion in 2005 or $6,697 per person compared to $6,322 per person in 2004.

Growth in retail prescription drug spending decreased for the sixth year in a row, increasing 5.8% in 2005 compared to 8.6% in 2004 and 10.6% in 2003. The slowdown was due primarily to a dramatic decrease in Medicaid prescription drug spending and an increase in the use of generic drugs. Total spending for prescription drugs was $200.7 billion in 2005 compared to $189.7 billion in 2004.

Hospital care represented the largest share of overall healthcare spending in 2005, reaching $611.6 billion. The growth rate remained at 7.9% in 2005 due primarily to hospitals' stronger negotiating positions and their ability to pass costs to private payers. Private payers accounted for 43% of hospital care spending in 2005

Other pieces of the healthcare spending pie:

* Physician and clinical services reached $421.2 billion in 2005. Medicaid cost-containment efforts, such as reduced or frozen payments to physicians, contributed to a 9.5% growth rate in 2005 compared to 10.4% growth rate in 2004.
* Free-standing home healthcare agencies grew the fastest among all services in 2005 reaching $47.5 billion, a growth rate of 11.1%.
* Free-standing nursing homes grew to $121.9 billion, a growth rate of 6% in 2005.

Growth in overall public spending--7.7% in 2005--outpaced growth in overall private spending--6.3%. Public spending growth has exceeded private spending growth in each of the last two years, primarily due to strong growth in Medicare spending. Public spending now accounts for 45% of total healthcare spending.