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U.S. healthcare spending slows in wake of insurance expansion and drug cost bump

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U.S. healthcare spending slows in wake of insurance expansion and drug cost bump

U.S. healthcare spending grew 4.3% in 2016, a slowdown from the two previous years as insurance enrollment and retail prescription drug costs plateaued, according to an analysis from the Office of the Actuary at the Centers for Medicare and Medicaid Services.

Healthcare spending reached $3.3 trillion, translating to an average of $10,348 spent per person in the U.S., CMS said in an article published in the policy journal Health Affairs. Those expenditures ultimately made up 17.9% of gross domestic product in the year, up 0.2 percentage points from a year earlier a slim margin compared to the increases in recent years.

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The latest growth rate is nearly on par with the 4.2% average growth rate from 2008 to 2015, CMS said. The 5.1% increase in 2014 and 5.8% in 2015 paralleled broader Affordable Care Act marketplace coverage, Medicaid expansion and the cost of retail drugs, or those bought through pharmacies and mail order rather than administered in hospitals.

"We saw two major things happen in 2014 and 2015: We had the enrollment expansion that impacted both Medicaid and private health insurance, with 10.2 million and 8.7 million people gaining coverage," Micah Hartman, a statistician for CMS' Actuary and lead author on the report, said in a press call on the report. In addition, "we saw very strong, rapid spending growth in retail prescription drugs."

These spikes in retail drug spending — 12.4% in 2014 and 8.9% in 2015 — were pinned to new drug launches and hepatitis C medicines specifically.

"The slower growth in 2016 was driven by fewer new drug introductions and less spending for drugs used to treat hepatitis C," Hartman said.

Gilead Sciences Inc.'s Harvoni and Sovaldi both launched in 2014 at roughly $1,000 a pill for eight- and 12-week treatments for the virus. Yet as patients are essentially cured, the hepatitis C market has dried up, leading Gilead to slash its revenue expectations for 2017.

Retail prescription drug spending grew just 1.3% in 2016.

"The new data reaffirm how our nation’s competitive marketplace for medicines controls costs while supporting the development of new treatments and cures," said Holly Campbell, a spokeswoman for industry group Pharmaceutical Research and Manufacturers of America. She noted that insurers and pharmacy benefit managers negotiate aggressively on prices, and generic utilization rates are nearly 90%.

"Furthermore, national health expenditure projections from earlier this year forecast spending on prescription medicines will grow roughly in line with overall health care cost growth through 2025 despite the expected introduction of many new first-in-class therapies," Campbell said.

Coverage trends

Medicare spending grew at a flat rate, even as enrollment remained stable from one year to the next. Slower growth in physician and clinical services and prescription drug spending helped this trend, while hospital care spending also remained stable.

Part of Medicare's lower spending growth also had to do with insulin prices, Ann Martin, a economist with CMS' Actuary, said on the call. Makers of insulin including Sanofi and Novo Nordisk A/S have said they expect pricing pressure in the U.S. to continue.

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Medicaid growth dropped sharply in 2016 as the enrollment spike following ACA's eligibility expansion plateaued. Since it was introduced with the ACA, Medicaid expansion, which widens eligibility and provides additional federal funds to support the program, has been voted in by 31 states. Efforts to expand Medicaid are ongoing, but have been nixed by legislatures in some states or governor vetoes in others.

Besides the broader ACA enrollment trends, the increase in high-deductible plans likely played a role in private insurers' slower spending growth, from 6.9% in 2015 to 5.1% in 2016.

CMS highlighted the fact that clinical services spending growth outpaced physician services' spending growth for the twelfth consecutive year, largely driven by high growth in ambulatory surgical and emergency center spending.

"The most recent time we saw all three of the major goods and services slow, it was in 2010," Hartman said. "But I don't think we've seen, recently, the three major goods and services and three major payers slow down."

Hartman added that enrollment trends likely pushed the broad slowdown in hospital, drug and services spending, as newly enrolled ACA and Medicaid patients might have sought more medical attention at first and then tapered off in the time since.

Hospital care services represented 32% of healthcare spending, the largest share of overall expenditure but unchanged since 2013, CMS said.

Growth in expenditures for hospital care dropped 1 percentage point to 4.7% in the latest year, reflecting lower growth in the use and intensity of services even as hospital prices increased from a 0.9% rate in 2015 to 1.2% in 2016.

Notably, out-of-pocket spending on hospital costs spiked 4.8% after two years of declining. CMS said the decreases in past years had to do with the expansion of health insurance coverage while hospitals' uncompensated care costs declined.