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Propelled by Drug and Hospital Costs, Health Spending Surged in 2000


By: Robert Pear
New York Times, January 8, 2002

WASHINGTON, Jan. 7 — National health spending shot up 6.9 percent to $1.3 trillion in 2000, the government said today. It was the largest one- year percentage increase since rising costs led President Bill Clinton to propose guarantee health insurance for all Americans in 1993.

Hospital and drug costs were the main factors in the latest increase. The report also cited more spending on Medicare and resistance to the constraints of managed care.

Growth in health spending outpaced the 6.5 percent growth of the economy as a whole in 2000 (before adjusting for inflation), the figures show. Health care now accounts for 13.2 percent of the nation's total output, up from 13.1 percent in 1999 and 12 percent in 1990.

Numbers in the report help explain why health care is roaring back as a potent issue in this election year.

The report, from the Department of Health and Human Services, says health costs and spending are likely to climb faster even though the economy has been weak. As a result, it says, consumers will have to spend more of their own money on health care, and employers may be less inclined to offer health insurance to workers because health benefits have become more expensive.

"Increased job layoffs in the slowing economy will lead to a less competitive job market, reducing private employers' incentive to shoulder rising health care costs, potentially increasing the number of uninsured persons," said the report, published today in the journal Health Affairs. "Competition may force employers to shift a larger share of rising costs to workers, who may no longer be able to afford accelerating out-of- pocket costs. Fewer employers may offer health insurance, and the recently unemployed are often left without coverage."

Consumer groups and employers have sporadically issued reports documenting a rise in drug prices and insurance premiums. But today's report is the first authoritative, comprehensive government study that pulls together data for all parts of the health care industry.

"The new national health spending estimates may well mark the end of an era of reasonably affordable health care cost growth," said Katharine R. Levit, chief author of the report. Ms. Levit is director of the national health statistics group at the department's Center for Medicare and Medicaid Services.

The surge in health costs puts pressure on politicians to respond, but also makes them anxious about the cost of expanding public programs or offering large new subsidies for the purchase of insurance. President Bush and Congressional Democrats have offered rival proposals to provide health benefits to the unemployed and prescription drugs for the elderly.

The nation spent an average of $4,637 on health care for each person in the United States in 2000, up from $4,377 in 1999, $4,001 in 1997 and $2,966 in 1991. These numbers were not adjusted for inflation.

Ms. Levit predicted "a stronger increase in the health spending share of gross domestic product in the near future." Health care employment, prices and premiums all increased last year, she said.

The study identifies two main reasons for the surge in health spending: resistance to managed care by doctors, hospitals and consumers, and a decision by Congress to restore money cut from Medicare, the federal program for the elderly and disabled, which accounts for 17 percent of all health spending.

"Consumers increasingly choose less restrictive forms of managed care," which cost more than health maintenance organizations, the report said. In addition, it observed, "the consolidation of hospitals into networks and systems" has increased their bargaining power, so they can extract higher payments from H.M.O.'s and other insurers.

National health spending rose $83.9 billion in 2000, and hospital care and prescription drugs accounted for 45 percent of the increase.

Spending on hospital care rose by $19.9 billion, or 5.1 percent, to $412.1 billion, while drug spending grew $17.9 billion, or 17.3 percent, to $121.8 billion.

The figures for hospitals were significant because hospital spending had not risen more than 4 percent in any year since 1993. Outpatient hospital revenue is growing twice as fast as inpatient revenue. Hospitals say they need the money to cover rising labor costs. Weekly wages paid to workers in private hospitals rose 4.1 percent in 2000; in 1999, the figure was 2.3 percent, the report said.

Congress slowed the growth of Medicare when it passed the Balanced Budget Act of 1997. But an all- out lobbying campaign by hospitals and other health care providers persuaded lawmakers that the cuts had begun to harm patients. So Congress, in 1999 and 2000, passed laws increasing payments to providers.

"Medicare hospital spending made a comeback in 2000, similar to that in nursing homes and home health agencies," the report said.

The growth in prescription drug spending slowed a bit from 1999 to 2000, but drugs were still the fastest- growing category of health spending. Drug spending increased 19.2 percent in 1999 and 17.3 percent in 2000, the sixth consecutive year of double- digit growth.

Total national spending on prescription drugs doubled in the five years from 1995 to 2000 and tripled in the decade from 1990 to 2000, according to government data.

The report cites several reasons for the rapid increase, including the effects of prescription drug advertising, wider availability of insurance to cover drug costs, an increase in the number of prescriptions written by doctors and a shift toward greater use of new, higher-price drugs. Some drugs can reduce health spending by reducing the need for hospital care, economists say, but that is not true of all drugs.

Hospitals accounted for 31.7 percent of all health spending in 2000, down from 42 percent in 1982. By contrast, prescription drugs accounted for 9.4 percent of the total in 2000, double their share in 1982.

The report also said that private health insurance premiums increased 8.4 percent in 2000, to a total of $444 billion, after rising less than 7 percent a year from 1996 to 1999.

In addition, Medicare spending on home health care rose 0.8 percent in 2000, the first increase in four years. Medicare spending for home care had declined by more than 35 percent from 1996 to 1999, after growing for years at double-digit rates.

The report also said that spending for nursing homes bounced back in 2000, after growth slowed from 1995 to 1999. Spending rose 3.3 percent in 2000, to $92.2 billion.