Healthcare spending pace slows

By Theresa Agovino
Associated Press

NEW YORK — The rate of growth in healthcare spending fell for the second year in a row in 2003 as demand for health services dropped because workers were forced to pick up more of the tab for their care and a surge from a change in managed-care policies ebbed.

However, experts said costs are still outpacing inflation and remain a grave concern as more people can't afford healthcare.

Healthcare spending per privately insured person increased 7.4 percent last year, down from a 9.5 percent rise in 2002 and 10 percent gain in 2001, according to a report being released today by the Center for Studying Health System Change, a public-policy research organization in Washington, D.C.

The growth rate is still historically high. The inflation rate in 2003 was 1.9 percent. And the gap between the rise in health spending and gross domestic product, which was 3.8 percent last year, widened to 3.6 percent percentage points, compared with a 30-year average of 2.5 percentage points.

"The bad news is this is still a high rate of increase, and the fact that it is lower than last year doesn't mean it has gotten easier to find affordable healthcare," said Paul Ginsburg, the center's president.

The cost-shifting was most prevalent in prescription drug plans, Ginsburg said.

More health insurers instituting three-tiered drug plans that force employees to pay more for brand-name drugs, making cheaper generic medicines more popular. That's a major reason pharmaceutical spending rose 9.1 percent — down from the 12.3 percent rise in 2002.

According to pharmacy benefit manager Express Scripts Inc., the average price of a prescription drug before discounts rose 7.9 percent last year, down from a 13.1 percent spike a year earlier. The company cited increased use of generic drugs.

The study by the Center for Studying Health System Change also said drug price inflation shrank to 3.1 percent last year, down from just over 5 percent a year earlier.

Spending on hospital outpatient centers rose 11 percent— the largest jump in the study. A year earlier, spending in that sector increased 12.9 percent. Ginsburg said spending in such centers is growing because advances in technology allow more outpatient procedures.

The 6.5 percent increase in spending on hospitals worried Ginsburg because it resulted from higher costs, not more use. In fact, use was only up 0.9 percent last year. Hospital prices for both inpatient and outpatient care increased 8 percent in 2003, compared with a 5.2 percent jump in 2002.

Ginsburg said use of health services was beginning to normalize as managed-care policies that restricted use of doctors and hospitals in the late to mid-1990s were abolished and paved the way for pent-up demand in the late 1990s and early 2000s.

But Ginsburg said hospitals realize that health plans need broad networks to satisfy customer demand and are using that advantage to raise prices. "They are playing catch-up," he said.

But hospital executives insist they are faced with rising costs, especially for labor and new devices and technology.

Shortages of several kinds of health professional such as nurses and pharmacists mean they can demand and receive higher salaries.

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