U.S. healthcare spending hit $1.3 trillion in 2000

March 1, 2002

Pharmaceutical Representative

After nearly a decade of stability, healthcare spending grew to $1.3 trillion in 2000, up nearly 7% from 1999, according to a report released by the National Health Statistics Group at the Centers for Medicare and Medicaid Services.

After nearly a decade of stability, healthcare spending grew to $1.3 trillion in 2000, up nearly 7% from 1999 and the fastest acceleration in 12 years, according to a report released by the National Health Statistics Group at the Centers for Medicare and Medicaid Services. These changes mark the "end of an era of reasonable healthcare cost growth throughout most of the 1990s," according to federal officials. Consequently, consumers will pay more out-of-pocket for healthcare services, and employers will be less inclined to offer health insurance to workers as health services become more expensive. The report was featured in the journal Health Affairs (vol. 21, no. 1).

In a major change, healthcare spending consumed 13.2% of the gross domestic product in 2000. This is the second consecutive year that health spending growth has outpaced growth in GDP, and a signal that the nine-year period of stability in which healthcare spending grew in tandem with GDP is over, the authors said.

Data for 2001 indicate that GDP growth has continued to slow, whereas healthcare employment, medical inflation and premium growth have escalated. "This suggests a stronger increase in the health spending share of GDP in the near future," said the authors. This rise in healthcare spending is occurring amid a sluggish economy that is producing job layoffs and less profitability for businesses. As a result, both public and private payers are feeling increased pressure to find ways to finance accelerating healthcare costs with decelerating incomes and revenues.

Hospitals driving growth

In contrast to previous years, hospitals drove spending growth in 2000. Hospital spending rose to $412 billion in 2000, a 5.1% increase from 1999 and the first such rise since 1993. Medicare hospital spending grew 4.5%, the highest rate of growth since 1997.

The rise in Medicare hospital spending growth is attributable to recent amendments to the 1997 Balanced Budget Act. Swayed by hospital complaints, Congress passed the Balanced Budget Refinement Act in 2000. This law reduced mandated Medicare cuts under the Balanced Budget Act for certain hospitals. The effects of the Balanced Budget Refinement Act boosted total Medicare spending growth to 5.6% in 2000.

A retreat from strict insurer management of medical care and providers' reactions to managed care have led to higher expenditures. Consolidation into networks and systems has increased hospitals' bargaining power for higher payments from insurers, and they are taking a stronger stance in negotiating with managed care plans.

Hospitals also have seen a rise in their labor costs. Weekly wages paid to workers in private hospitals grew 4.1% in 2000, up from 2.3% in 1999, according to the report. Hospitals have had to hire costlier temporary staff, provide more flexible work arrangements and offer signing bonuses to meet their staffing needs.

Rx spending still rising

Although hospital spending contributed more to net growth in overall health spending, spending on outpatient prescription drugs grew at a much faster rate. Growth in prescription drug spending slowed from 1999 to 2000, but drugs were still the fastest-growing service in 2000. Spending on prescription drugs grew 17.3% in 2000, the sixth consecutive year of double-digit growth. Consumer spending for outpatient prescription drugs (20%) represented the largest single component of out-of-pocket spending. The rapid rise in outpatient drug spending was due to increased direct-to-consumer advertising, more coverage by private health insurers and newer drugs in the market. PR

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