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Our Take: Health care spending up in 2018 but not as much as the GDP

Dec 16, 2019
CMS’ latest National Health Expenditures (NHE) report shows that health care spending in the U.S. grew by 4.6% in 2018 to a total of $3.6 trillion — or $11,712 per person. That reflects a slightly higher rate of growth than in 2017 (4.2%) and the same as in 2016.

The federal government and households (think out-of-pocket expenses, insurance premium payments, and payroll taxes for Medicare) were the largest contributors to health care spending, at 28% each. Private businesses accounted for another 20%, and state and local governments for 17%.

Growth in personal health care spending — the actual amount spent on health care goods and services — held steady from the year before at 4.1%.

Health care’s share of the gross domestic product (GDP) was slightly less in 2018 than in the two previous years (17.7% vs.17.9%). That’s because the 5.4% growth in the GDP outpaced growth in health care spending — which seldom happens.

“Health care spending growth picked up across all major payers in 2018 as medical prices grew faster, due in part to the reinstatement of the health insurance tax on all health insurance providers,” said Micah Hartman, lead author of the report. “However, economic growth outpaced health care spending, and the share of the economy devoted to health care fell,” he noted.

Our Take

If you want to delve into the minutiae to see exactly where spending increased or decreased, Health Affairs published the CMS study online (subscription required) along with a helpful synopsis in a blog post.

If you’re interested, but comparing lots of year-over-year percentages isn’t the best use of your time, here are some additional highlights from the report:
  • Net health insurance costs grew by 13.2% in 2018, up from growth of 4.3% in 2017. As Micah Hartman indicated, the main driver was the reinstatement of the Affordable Care Act’s health insurance tax. Congress suspended the tax in 2017, reinstated it in 2018 (resulting in the collection of $14.3 billion), and then suspended it again in 2019. What happens in 2020 remains to be seen.
  • Spending for private insurance increased by 5.8% to $1.2 trillion (34% of total NHE), for Medicare by 6.4% to $750.2 billion (21% of NHE), and for Medicaid by 3% to $597.4 billion (16% of NHE).
  • Spending on retail prescription drugs increased by 2.5% to $335 billion (9% of NHE). Of note, retail drug prices dropped last year (by 1%) for the first time since 1973, largely because of greater use of generics.
  • Employer spending on health care grew 6.2% in 2018 — the largest increase since 2003 — even though the number of covered employees decreased slightly. Growth in employee contributions to employer-sponsored insurance was 3.4%, down from growth of 6.8% in 2017.
  • Per capita spending for those with private health insurance, not including out-of-pocket expenses, increased by 6.7% to $6,199, the highest increase since 2004.
  • Compared with 2017, price increases for hospital care and physician and clinical services accounted for more of the increased growth in spending in both categories, but lower use and intensity of services helped to offset the overall increase in spending in these categories.
What else you need to know

The House passed legislation Thursday that would lower prescription drug prices by allowing CMS to negotiate prices with drugmakers for up to 250 commonly prescribed drugs, including insulin. The Elijah E. Cummings Lower Drug Costs Now Act would make substantial changes to Medicare, including new vision, dental, and hearing benefits. It would also place a $2,000 cap on out-of-pocket drug costs for Medicare beneficiaries. The bill is not likely to pass in the Senate. House Republicans proposed their own bill, which also would cap out-of-pocket expenses and would require insurers to provide patients with drug pricing information before physicians write prescriptions, but it would not give Medicare the power to negotiate prices.

Sanofi is buying San Diego-based biotech Synthorx Inc. for $2.35 billion. Synthorx has developed a proprietary technology to create “optimized” biologics. Its lead immuno-oncology product candidate, a variant of interleukin-2, is in clinical development in various solid tumor types. Sanofi will pay $68 per share in cash, representing a 172% premium to the closing price of Synthorx shares on Dec. 6, according to the news release. Both boards have approved the transaction, which is subject to customary closing conditions and is expected to close in the first quarter of next year. Separately, Sanofi’s new CEO, Paul Hudson, unveiled the company’s new strategic framework last week. Essentially, the company will focus on its vaccines, immunology treatments such as Dupixent (dupilumab), and treatments for oncology, hematology, rare diseases, and neurology, while exiting R&D efforts in the areas of diabetes and cardiovascular disease.

UnitedHealth Group (UHG)/OptumRx will pay $304 million for Diplomat, a Flint, Mich.-based specialty pharmacy and infusion services provider that has been considering a possible sale or merger since August. Diplomat was valued at $3 billion as recently as 2015, according to Healthcare Dive, but the company has since lost ground to heavyweights such as CVS Health — and UnitedHealth. Along with the cash tender offer of $4 per share (a substantial discount to Diplomat’s closing price of $5.81 on the business day before the deal was announced), UHG/OptumRx is assuming outstanding debt of approximately $563 million, The Associated Press reported, giving the transaction a total value of nearly $900 million. UHG said in its announcement that Diplomat’s board unanimously approved the acquisition, which is expected to close early next year.

Seven provider organizations signed risk-sharing agreements with Blue Cross Blue Shield of Michigan in a “transformative new payment relationship,” the insurer announced last Wednesday. Under the value-based Blueprint for Affordability model, each of the participating health systems and physician groups — which include Ascension Michigan, Henry Ford Health System, and Trinity Health – Michigan — agreed with Blue Cross on annual targets for the cost of providing care to members of the insurer’s commercial PPO and Medicare Advantage PPO plans. If a provider’s aggregate costs end up being less than those targets, the provider will receive “additional financial rewards.” If costs exceed the targets, the provider will rebate a portion of the excess spending to Blue Cross and “ultimately [the health plan’s] customers.” The five-year agreements take effect Jan. 1, 2020.

Blue Cross Blue Shield of Massachusetts has integrated Amazon’s PillPack into its member app, giving eligible members the ability “to order, pay for, track, and get prescriptions delivered” right to their front door at no extra charge, the insurer said in a press statement announcing the news. The company is the first payer to take this kind of step with PillPack. Initially, the service is being offered to members of commercial, fully insured accounts who take multiple maintenance medications. Specific features of the service aim to avoid gaps in medication adherence, ensure correct dosing, and prevent adverse drug interactions.

Gregory Adams is Kaiser Permanente’s new chairman and CEO, the company announced Tuesday. He had been serving in both roles on an interim basis since Bernard Tyson died unexpectedly last month. Adams joined Kaiser Permanente in 1999 and was the company’s executive vice president and group president before taking on the more senior-level positions.

Walgreens and Kroger formed a group purchasing organization called the Retail Procurement Alliance. The joint venture, which expands on a collaboration the two companies began last year, is intended to create efficiencies across the companies’ supply chains and “drive innovation for customers, including both of our private-label brands, to further meet their evolving needs for value and convenience,” Alex Gourlay, co-chief operating officer for Walgreens Boots Alliance, said a corporate press release.

What we’re reading
Primary Care Spending in the Commercially Insured Population. JAMA, 12.10.19 (subscription required)
MedPAC Chief Expects Waning Support for Medicare’s MIPS. Medscape, 12.13.19 (registration required)
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