Health spending growth at lowest recorded rate

National overall health spending in 2008 increased by only 4.4%, and growth in spending on physician services -- 5% -- is at the slowest rate since 1996.

By Doug Trapp — Posted Jan. 18, 2010

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The economic recession restrained growth in health care spending in 2008 to the lowest it has been in at least 48 years. The downturn affected hospital revenues and out-of-pocket spending in particular and helped limit spending increases on physician services.

Overall health spending grew by 4.4% -- 1.6 percentage points slower than in 2007 -- to reach $2.34 trillion in 2008. That was the smallest percentage increase since the Centers for Medicare & Medicaid Services began tracking spending in 1960, according to "Health Spending Growth at a Historic Low in 2008," written by the CMS Office of the Actuary and published in the January Health Affairs.

While private spending growth slowed in 2008, the federal government shouldered a larger share of national health spending. Medicare spending increased, and more Medicaid funding shifted to the federal government. Spending on drugs remained restrained, and out-of-pocket spending by consumers decelerated.

Spending on physicians and clinical services increased by 5% to reach $496 billion in 2008, a growth rate that is 0.8 percentage points slower than in 2007 and the smallest percentage increase since spending grew by 4% in 1996, according to adjusted figures.

CMS economists estimated that patient volumes have decreased in part because about 1 million people lost private insurance coverage in 2008, according to the report. But the authors also suggested that the volume and intensity of services physicians provided might have increased, softening the economic impact.

For example, a higher percentage of patients with Medicare and Medicaid coverage are visiting the four-physician practice of Gregory Tarasidis, MD, an otolaryngologist in Greenwood, S.C., and president-elect of the South Carolina Medical Assn. And privately insured patients have become more likely to delay surgeries, Dr. Tarasidis said.

Government picks up the slack

The federal government paid a greater share of Americans' health care in 2008.

Federal health spending increased 8.2% in 2008, up from 6.4% in 2007. The most recent stimulus package and increased Medicare spending helped fuel this growth.

In contrast, private spending on health care grew by just 1.2% in 2008, and state and local spending increased 3.4% -- about half of the 2007 growth rate.

The stimulus package temporarily raised federal Medicaid spending starting in October 2008. Total Medicaid spending growth, however, slowed because of state cuts, particularly to hospitals. In contrast, the pace of Medicare spending quickened, largely because of higher fee-for-service hospital spending and increased enrollment in Medicare private plans, which offer higher pay than fee-for-service Medicare, the report said.

The recession, combined with a trend toward government health spending, affected hospitals in particular, the report said. Nonpatient private revenue -- which includes private investments -- decreased 20.3% to $6.9 billion in 2008, the report said.

"Anybody who has been relying on charitable contributions or investments has been hit hard," said Tony Carvalho, president of the Safety Net Hospital Alliance of Florida, an association of the state's 14 safety net hospital systems.

Hospitals around the country are treating greater numbers of uninsured and Medicaid patients and providing a greater amount of uncompensated care, according to surveys conducted in the last year by the American Hospital Assn. and the National Assn. of Public Hospitals and Health Systems.

Florida Medicaid pays hospitals between 56% and 85% of the cost of seeing patients, Carvalho said. "Everybody is losing money caring for Medicaid patients."

Still, health care spending continues to increase more quickly than much of the rest of the economy. Health spending accounted for 16.2% of the gross domestic product in 2008, 0.3 percentage points more than in 2007.

Fewer private patients

Physicians are reporting that their schedules are not as full since the recession began and that they're seeing fewer privately insured patients. Also, their patients are less likely to fill expensive prescriptions than in previous years.

"We have open slots, which has never been the routine before," said Chris Bush, MD, a solo family physician in Riverview, Mich., northwest of Detroit. Waiting times for orthopedic surgery also have declined in the area. But "the seniors have been pretty steady about coming in."

In a similar vein, a higher proportion of Medicaid patients are visiting Bruce Bethancourt, MD, an internist and chief medical officer for Banner Medical Group, a 200-physician practice in Phoenix. More patients are failing to manage their chronic conditions adequately, said Dr. Bethancourt, who also is past president of the Arizona Medical Assn.

Not taking medication

"Some of them just aren't taking their medicines," Dr. Bethancourt said. Most elderly patients typically won't say they're not taking their drugs, but when a physician probes deeper, they say they can't afford it, he added.

Dr. Bethancourt said he discovered that his own father was taking his daily cholesterol medication only every other day.

Other physicians also face tough choices, but not because of the recession or lower patient volume. Earl Van Volkinburg, MD, an internist in Salem, Ore., is closing his practice in March to work for Kaiser Permanente as a full-time staff physician.

Dr. Van Volkinburg's schedule has been full since he began practicing medicine 32 years ago. But overhead costs doubled over the last decade, while his patient mix changed from about 40% Medicare to about 60% Medicare.

Facing a choice of either leaving Medicare or closing his practice, he chose the latter, hoping that many of his patients would enroll in Kaiser's health insurance.

A smarter financial move would have been to opt out of Medicare and keep his practice, but Dr. Van Volkinburg said he didn't want to ration care. "That's just too mercenary for me," he said.

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A historic low

View in PDF

Click to see data in PDF.

The downturn in the economy was a major factor in the reduction in the rate of increase in health care spending. But although private spending lessened, the federal government picked up a bigger share of the tab.

Source: Centers for Medicare & Medicaid Services, Office of the Actuary, January (link)

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