How US Health Spending Grew $1 Trillion

US health care spending has had a notorious reputation for high spending and low outcomes.1 A new study in November’s JAMA tackles from a high level perspective the question of why the US is such an outlier with its high health care spending. Dieleman et al (2017)2 identified the most prominent cost drivers from 1996-2013 across type of care (ambulatory, inpatient, pharmaceuticals, nursing facility, emergency), demographic trends (growth, aging), disease prevalence, service utilization, and service price and intensity.

 

Service price and intensity accounted for more than half of the nearly $1 trillion increase in US health care spending, according to their study (red dot, top figure).2 Among the different care locations, emergency and dental care spending increases were almost entirely driven by price and intensity (last two rows, bottom figure).2

 

Given limitations of the data, the authors could only separate some measures of service. Service utilization (e.g. number of visits) is measured separately from price (cost per visit). However, the data could not separate price from service intensity – the amount or level of service (e.g. E/M code level) rendered in a particular transaction. For example, if the price of an inpatient hospitalization increases to $2,000 from $1,000, the data cannot differentiate whether the price went up because the same services were twice as expensive (price) or more tests were ordered (intensity), or a combination of the two. While patients may be getting more per service, many studies demonstrate that the same care in the US is simply more expensive.3,4

 

Knowing where the spending is growing may provide objective guidance on where to go from here. The fact that service price and intensity drives over half of the spending makes other often-cited spending drivers secondary. Such drivers may include more hospitalizations or doctor visits, population aging, medical technology, high levels of comorbidity, and lack of primary care. All of these things matter, but focusing on those areas may not be where we are going to get the most bang for our buck.

 

Controlling growth of price and intensity requires thinking about system-level factors. Consider, for example:

  • The role of government: How much should the government intervene to regulate prices? Currently, Medicare cannot legally negotiate for lower drug prices.5
  • Market consolidation: What is the right level of bargaining power of the buyers and sellers? Insurance companies and hospitals are in a race for consolidation – growing in size by mergers or acquisitions – to have an upper hand in negotiating payments. It is unclear if this trend will make prices higher or lower.3,6
  • Care rationing: How desirable are price increases from more extensive workups? Did the patients in their last year of life in 2011 want all of the $205B worth of interventions they received?7

 

This study2 points to which types of policies can have the most impact on spending increases. We should recognize that if policy makers are looking towards the role of service price and intensity, that is where physicians need to actively engage in as well. Rising prices can seem distant from our daily clinical work, but if we do not spend time shaping the policies that dictate prices, other people will. If we do not responsibly self-regulate the intensity of our work-ups, other people will.

 

For more posts, please visit my blog Margin and Mission.

 

References
  1. Mahon M. US Spends More on Health Care Than Other High-Income Nations But Has Lower Life Expectancy, Worse Health. Commonw fund 2015;1–4.
  2. Dieleman JL, Squires E, Bui AL, et al. Factors Associated With Increases in US Health Care Spending, 1996-2013. Jama [Internet] 2017;318(17):949–54. Available from: http://jama.jamanetwork.com/article.aspx?doi=10.1001/jama.2017.15927
  3. Anderson GF, Reinhardt UE, Hussey PS, Petrosyan V. It’s the prices, stupid: Why the United States is so different from other countries. Health Aff 2003;22(3):89–105.
  4. Squires D, Anderson C. Issues in International Health Policy U.S. Health Care from a Global Perspective: Spending, Use of Services, Prices, and Health in 13 Countries. Commonw Fund 2015;15:1–16.
  5. Cubanski J, Neuman T. Searching for Savings in Medicare Drug Price Negotiations. 2017;Available from: http://files.kff.org/attachment/issue-brief-searching-for-savings-in-medicare-drug-price-negotiations
  6. Dafny L. The Risks of Health Insurance Company Mergers. Harv Bus Rev [Internet] 2015;(September). Available from: https://hbr.org/2015/09/the-risks-of-health-insurance-company-mergers
  7. Aldridge MD, Kelley AS. The myth regarding the high cost of end-of-life care. Am J Public Health 2015;105(12):2411–5.

 

 

 

 

 

 

 

 

 

 

 

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EM Resident PGY1. MD/MBA graduate of UNC Chapel Hill. 

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