It’s The Price Stupid!

Health care costs are going up because providers are charging more and we collectively agree to pay these increases. This article proves the point…………………………….
“The only way to pay less for health care is to pay less for health care.” – Author/s Unknown

Health Spending Growth Is Accelerating In Spite of Utilization Decline
MyHealthGuide Source: Niall Brennan, John Hargraves, Amanda Frost Sally Rodriguez, 2/9/2018,Health Affairs Blog (full text)

We present recent trends in health spending and utilization based on our annual Health Care Cost and Utilization Report. Our analysis relies on claims data for individuals with employer-sponsored insurance (ESI) that the Health Care Cost Institute (HCCI) receives from four national health insurers: UnitedHealthcare, Aetna, Humana, and Kaiser Permanente. Collectively these findings represent the health spending and utilization of 40 million working Americans and their dependents, and have been weighted to reflect the entire ESI population in the United States (157 million individuals in 2016).

Between 2012 and 2016, total health spending increased 15 percent, more than three times the rate of growth of the consumer price index for all urban consumers (CPI-U) over the same time period. Cumulative spending by health service category ranged from a low of 1.6 times CPI-U growth for professional services to more than 5 times CPI-U growth for prescription drugs.

HCCI Exhibit 2
Cumulate Change in Price, Utilization and Sending 2012-2016
Source: Health Care Cost Institute
Why is spending rising?
Based on our data, it is not because of changes in health care utilization. Utilization declined between 2012 and 2016 for hospital inpatient, outpatient and professional services, while increasing a modest 1.8 percent for prescription drugs (Exhibit 2). Therefore, we conclude that spending increases are largely due to increases in the spending-per-unit of health care (which, for simplicity, we refer to as “price” per unit).

We understand that differences in service mix and the introduction of new, sometimes expensive, but also sometimes “game changing” technologies and therapies do play a role in driving overall health spending and distort the overall price effect we calculate.

Inpatient Admissions
  • Inpatient utilization declined steadily from 2012 to 2016, continuing a long-established trend of declining inpatient utilization.
  • The cumulative decline in inpatient utilization from 2012 to 2016 was 12.9 percent, while spending increased by 8.3 percent meaning that the price of the average inpatient admission increased by 24.3 percent over this period.
  • Surgical admissions were the largest contributor to the spending and price trends within the inpatient category.
  • The price of a surgical admission, measured as the average facility fee for the average surgical admission, increased by nearly $10,000 from 2012 to 2016 (to $41,702) leading to a 9.2 percent increase in spending despite a 16.0 percent decrease in utilization.
Outpatient Services
  • The use of outpatient services declined from 2012 to 2014, but increased between 2014 and 2016, resulting in a small net decline in outpatient utilization between 2012 and 2016.
  • However, outpatient spending rose every year, with a cumulative increase of 17.7 percent, which appears to be largely attributable to increases in price per unit.
  • For example, while emergency room utilization increased by only 1.8 percent between 2012 and 2016, the average price of an ER visit increased by 31.5 percent, ultimately driving a 33.9 percent increase in ER spending
Professional Services
  • Decline in the use of professional services is a relatively recent trend, as use of these services decreased every year since 2013.
  • Despite decline in use, spending on professional services increased a cumulative 11.2 percent from 2012 to 2016, while the average price per service increased a cumulative 14.6 percent.
  • The professional service subcategory with the greatest increase in average price per service was administered drugs.
  • The average price of administered drugs has increased dramatically since 2012; it rose a cumulative 41.9 percent to an average of $581 in 2016.
Prescription Drugs
  • Although the utilization of prescription drugs remained relatively constant over the study period, spending on prescription drugs grew a cumulative 27.2 percent.
  • A large component of this growth was increased spending on brand name prescription drugs.
  • While annual spending growth on generic drugs has been driven largely by increased use, increased spending on brand prescription drugs was due to increases in average price per filled day.
  • The average price—measured through allowed amounts, not including any coupons, discounts, or rebates—for a brand prescription drug increased more than 20 percent per year from 2012 to 2015, and grew 15.0 percent from 2015 to 2016, for a cumulative growth of 110 percent from 2012 to 2016.
  • Part of the substantial price growth of brand prescription drugs may be explained by the introduction of new drugs that feature both high prices and breakthrough clinical improvements and outcomes (e.g., hepatitis C antivirals that first became available in 2013) and the decline in use of lower cost brand drugs after patent expirations (e.g.,
  • Singulair in 2012, Lexapro in 2012, and Nexium in 2014). However, the change in the mix of prescription drugs due to innovative new therapies and patent expirations does not fully explain why spending on brand prescriptions continues to increase each year as use continues to fall.
About the Health Care Cost Institute
The Health Care Cost Institute was launched in 2011 to promote independent, nonpartisan research and analysis on the causes of the rise in U.S. health spending. HCCI holds one of the largest databases for the commercially insured population, and in 2014 became the first national Qualified Entity (QE) entitled to hold Medicare data. Visit and follow us on Twitter @healthcostinst.