Health Care Spending Slows for Third Year

BALTIMORE–Health care spending growth in the U.S. slowed for
the third consecutive year in 2005, CMS announced last week.

A report from the agency’s Office of the Actuary said 2005’s
6.9-percent spending increase compares to 7.2 percent in 2004 and
8.1 percent in 2003, marking the slowest growth rate since 1999
when spending rose 6.2 percent.

Despite the slowdown, health care spending in 2005 reached
almost $2 trillion, or $6,697 per person, up from $6,322 per person
in 2004.

Spending for hospital care accounted for the largest portion of
overall health spending, reaching $611.6 billion in 2005. Spending
in the sector was stable at a 7.9 percent increase, CMS said, due
to hospitals’ stronger negotiating positions and their ability to
pass costs on to private payers.

Growth in overall public spending, 7.7 percent in 2005, outpaced
overall private spending growth of 6.3 percent. Public spending now
accounts for 45 percent of total health care spending, and its
growth has exceeded that of private spending in each of the last
two years, according to CMS.

Medicare spending rose 9.3 percent to $342 billion in 2005,
following growth of 10.3 percent in 2004.

Medicaid spending growth increased 7.2 percent to $311 billion
in 2005, compared with 7.5 percent in 2004. Efforts by states to
implement cost-containment initiatives, such as provider payment
cuts or freezes, pharmacy cost and usage controls, increased fraud
and abuse control and greater use of disease or case management
programs, contributed to the slowdown.

The report also found:

–Growth in retail prescription drug sales decreased for the
sixth consecutive year at 5.8 percent in 2005, following 8.6
percent in 2004 and 10.6 percent in 2003. CMS attributed the
deceleration primarily to a significant decrease in Medicaid
prescription drug spending, along with increased use of generic
drugs. Total spending for prescription drugs was $200.7 billion in
2005 compared to $189.7 billion in 2004.

–Spending for physician and clinical services was $421.2
billion in 2005, an increase of 7 percent over 2004.

–Spending for freestanding home health care agencies, although
only 2.4 percent of total health spending, grew the fastest among
all services in 2005, increasing 11.1 percent to $47.5 billion.

–Growth in freestanding nursing home expenditures increased 7.7
percent in 2005 to $121.9 billion.

To access the full report, click here.