Contrary to Projections, CMS Says Growth in Healthcare Spending Is Slowing Down

According to data newly released by CMS’ Office of the Actuary, national health spending overall grew at a rate of 3.9%—to $3.5 trillion—in 2017, a rate that is almost a full percentage point slower than 2016 growth.

The slowdown in overall spending was driven, in part, by reduced growth in spending on prescription drugs. In 2014, spending on retail prescription drugs grew by 12.4%, and in 2015, spending grew by a still-substantial 8.9%, largely on the basis of increased spending on high-cost therapies such as those that treat hepatitis C. This growth slowed to 2.3% in 2016 and just 0.4% in 2017.

According to CMS, in a paper published in Health Affairs,¹ this slowdown is primarily due to reduced growth in the number of prescriptions that are being dispensed, as well as a continued shift toward the use of lower-cost products and declines in the cost of generic drugs. Other factors include slower growth in the volume of some high-cost products and lower price hikes for brand-name products.

Other areas of healthcare that saw slowdowns in 2017 included hospital spending, which comprises 33% of total healthcare spending. In 2017, growth decelerated to 4.6%, or $1.1 trillion, versus 5.6% in 2016. This decline, says CMS, was largely due to slower growth in outpatient visits and steady growth in inpatient days. Physician and clinical services spending slowed to 4.2%, or $694.3 billion, following faster growth of 5.6% in 2016. The tapering off was largely a result of a deceleration of growth in the use—and intensity—of physician and clinical services.

Consumers also saw slowdowns in their spending growth; co-payments, deductibles, and spending not covered by insurance plans grew by 2.6% (to $365.5 billion) in 2017, which was slower than the 4.4% rate of growth in 2016.

Despite these reductions in the pace of spending, CMS points out that healthcare spending’s share of the economy in 2017 (17.9%) was similar to its share in 2016 (18.0%). This phenomenon is attributable to the fact that the 3.9% growth in healthcare pending was slightly slower than the pace of growth in the overall economy (4.2%).

Notably, 2017’s growth in spending on healthcare was slower than recent projections had assumed. A February 2018 paper in Health Affairs² estimated that spending would grow by 5.5% each year from 2017 to 2026 and would come to represent 19.7% of the economy by 2026.

Reference

1. Martin AB, Hartman M, Washington B, et al. National health care spending in 2017: growth slows to post—Great Recession rates; share of GDP stabilizes [published online December 6, 2018]. Health Aff (Millwood). doi: 10.1377/hlthaff.2018.05085.

2. Cuckler GA, Sisko AM, Poisal JA, et al. National health expenditure projections, 2017-26: despite uncertainty, fundamentals primarily drive spending growth. Health Aff (Millwood). 2018;37(2). doi: 10.1377/hlthaff.2017.1655.