It’s not too surprising that Centers for Medicare & Medicaid actuaries predict health care spending growth will rise a bit this year after an estimated increase in 2014 as well.
In CMS’ National Health Expenditure Projections 2014-2024, which was released yesterday, spending is expected to rise 5.5 percent in 2014 and 5.3 percent in 2015, both of which are greater than the less-than-5 percent growth the previous six years.
Based on their estimates, health care spending growth will still outpace growth in gross domestic product — rising 1.1 percent faster per year — meaning health spending as a percent of GDP is expected to rise to 19.6 percent by 2024, up from 17.4 percent.
The biggest reasons for the increase in costs in 2014 and 2015 are sharply rising drug costs — a well-known phenomenon — and an increase in insurance coverage, also no secret given the expansions tied to the Affordable Care Act. Drug spending grew 12.6 percent in 2014 to $305 billion. The Medicare program alone spent $3 billion on the hepatitis C drug Sovaldi in 2014 and $4.5 billion on new hep C drugs in overall. There are significant issues about paying for these drugs and those other blockbusters in the pipeline.
“We’re hearing from our hospitals that drug spending is going up for other recently released drugs, like cancer drugs and drugs for multiple sclerosis,” said Caroline Steinberg, vice president of trends analysis for the American Hospital Association.
Meanwhile, hospital spending grew just 4.4 percent in 2014 to $978.3 billion, benefitting from the coverage expansion through lower out-of-pocket spending that was offset by greater spending in the Medicaid program and by private payers, according to the CMS.
“It’s very significant that hospital (spending) growth is at its lowest rate since 1998,” Steinberg said. This happened while coverage expanded by more than 16 million people, she said.
But the health care system still apparently is not ready to handle the waves of baby boomers hitting Medicare age each year and the related aging of the U.S. population.
CMS actuaries say those demographics currently contribute to a return to pre-recession spending growth increases, climbing to 6.2 percent in 2019, reaching a peak at 6.3 percent in 2020 and remaining near those levels at least through 2024, according to the projections.
These numbers underscore one of the themes of Michael Porter’s keynote at the Health Forum and AHA Leadership Summit: true cost reductions require faster movement into bundled payment arrangements and less of a “we do it all” approach to service lines.
The changes being adopted by health care right now appear to largely be the right ones, they just need to be implemented more quickly.