Spending growth on physician services sinks to record low

Washington -- Consumers continued to cut back on health care in 2010, which led to record-low growth in spending on physician services and moderate-to-low increases in spending on other health care services and products.

National health spending increased by 3.9% in 2010 to $2.6 trillion, nearly a repeat of 2009's historically low growth of 3.8%, according to an annual report released Jan. 9 by the Centers for Medicare & Medicaid Services Office of the Actuary and published in the January issue of the journal Health Affairs. The recession officially lasted from December 2007 to June 2009, but its impact on the health system is ongoing, according to the report's authors.

"The slower growth in personal health care spending was mainly driven by the slowdown in the use and intensity of health care services," said Anne B. Martin, the study's co-author and an economist with the CMS Office of the Actuary. People had fewer hospital procedures, filled fewer prescriptions and visited the doctor's office less frequently, she said. People remained cautious about their health care spending because of losses in private health insurance coverage, lower median household incomes and general financial uncertainty, according to the report.

Total spending on office-based physicians and clinical services -- a combined measure in the report -- grew by only 2.5% in 2010, 0.8 percentage points slower than in 2009 and the slowest annual growth rate since the federal government started keeping track in 1960. The decline occurred in part because people delayed or reduced their physician office visits and because of a relatively light influenza season, said David Lassman, a study co-author and statistician at the CMS Office of the Actuary.

Growth in spending on clinical services, which includes outpatient clinics and ambulatory care centers, has outpaced spending growth for office-based physician services since 2005, Lassman said. Clinical services accounted for 19% of total physician and clinical services in 2010, up from 17% in 2005.

Some health care analysts have suggested that physician office visits might not rebound to pre-recession levels even as the economy improves. For example, office visits decreased by 2.7% in the six months ending in September 2011, according to an October 2011 report by JP Morgan Chase.

Drug spending nearly flat

Prescription drug spending growth in 2010 sank to a record low of 1.2%, 0.9 percentage points slower than in 2009. Drug spending was restrained because of the increased use of generic medications, the loss of patent protection for certain popular brand-name products, the introduction of fewer new drugs than in previous years, and an increase in mandatory Medicaid rebates, the CMS study said.

A spokesman for the Pharmaceutical Research and Manufacturers of America said the association did not dispute the spending estimates. But a May 2011 report by the IMS Institute for Healthcare Informatics concluded that annual drug spending will grow at a modest rate of 3% to 6% in the next five years. The slight rebound is expected to be driven by growing drug spending in developing markets but held in check partly by a large number of drugs losing patent protections, according to the report.

Spending on hospital services also was restrained, growing by slightly less than 5% in 2010. This was due to slower growth in private insurance spending at hospitals, a decline in hospital admissions and fewer outpatient surgeries. It was the fourth consecutive year of relatively slow spending on hospitals, Lassman said.

The national health system reform law's coverage expansions, which take effect in 2014, are expected to cause a dramatic increase in health spending. The law did not have a significant impact on overall health spending in 2010, when it was enacted, the CMS report concluded. However, the statute's payment reductions to Medicare private plans helped restrain overall Medicare spending growth to 5% in 2010.

Private premiums outpace benefits

Other categories of health spending bucked the overall trend toward restrained growth. For example, spending on durable medical equipment grew by more than 7% in 2010 after nearly flat growth in 2009. Also, government and nonprofit spending on health care research grew by nearly 2% in 2010 after decreasing by nearly 5% in 2009. This category includes spending on the National Institutes of Health, among other entities.

For the first time in seven years, private insurance premiums grew faster than the cost of benefits used by enrollees, according to the CMS study. Premiums grew by 2.4% in 2010, continuing a slowdown in growth that began in 2003. But spending on benefits grew by just 1.6%.

Health plans increased their premiums in 2010 based on their estimated costs from benefit mandates included in the health reform law that year, according to a statement by America's Health Insurance Plans. These included the requirement that most plans allow dependents to stay on their parents' health coverage until age 26.

But spending on benefits in 2010 did not increase as fast as health plans anticipated. That was in part because consumers continued to pay attention to the cost of health care after the recession. Fewer people had private coverage, and employers continued to increase cost-sharing for those who did, said Aaron Catlin, a report co-author and deputy director of the Health Statistics Group at the CMS Office of the Actuary.

Employers generally aren't taking advantage of continued weakness in the job market by shifting health care costs to employees with the expectation that workers will pay more. Rather, employers are seeking to increase employee awareness of health care costs, said Paul Fronstin, PhD, a senior research associate with the Employee Benefit Research Institute.

A few employers are beginning to offer benefits that allow workers with chronic illnesses to access needed health care more easily, he said.

"You don't want costs to be one of the reasons why people don't comply with the treatment regimen," Fronstin said.