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Healthcare Cost Growth Accelerates Slightly

 |  By John Commins  
   August 19, 2011

The average per capita cost of healthcare services covered by commercial insurance and Medicare grew 5.61% over the 12 months ending in June 2011, representing a second straight month of modest acceleration of cost growth, Standard & Poor's Healthcare Economic Indices show.

The index posted its lowest annual growth rate in its six-year history -- +5.37% in April 2011. Since then, the rate of growth accelerated slightly in May and June. Healthcare costs easily outpaced the 3.6% growth in overall inflation as measured by the Consumer Price Index for the same 12-month period ending in June, Bureau of Labor Statistics data show.

Cost reduction is among the top three priorities of healthcare organizations, the HealthLeaders Media Industry Survey 2011 shows.

"Although rates have been slightly up in most indices over the past two months, the overall story continues to be moderation in trends over the past 12-15 months," David Blitzer, chairman of the Index Committee at Standard & Poor's, said in the report. "As noted in prior reports, some market participants are reporting relatively low trends in office visits and hospital admissions, as well as steps being taken to address healthcare reform and control costs. If true, these could be contributing to these lower trends."

A further breakdown of the S&P data show that for the year ending June 2011, healthcare costs covered by commercial insurance increased by 7.48%, as measured by the S&P Healthcare Economic Commercial Index. During the same period, Medicare claim costs rose at an annual rate of 2.5%, as measured by the S&P Healthcare Economic Medicare Index. This was the lowest annual growth rate recorded for the Medicare Index in its history, which goes back to January 2005, S&P said.

The Hospital and Professional Services Indices reported increases of 5.16% and 5.89%, respectively, from their June 2010 levels. For the Hospital Index, this rate is slightly higher than the +5.08% posted in May 2011. The Professional Services Index is marginally lower than its +5.91% rate posted in May.

"Based on historic patterns, we also would expect a reduction in healthcare spending on a delayed basis following an economic downturn, due to the considerable lag between investments in healthcare and increased supply," Blitzer said. "So, much of the reduction in trends could be driven by reduced capital spending during the recession. We will need more data to determine whether the slight increase in the past two months is a temporary increase or if it is a sign that trends are beginning to rise."

The S&P Healthcare Economic Indices estimate the per capita change in revenues accrued each month by hospital and professional services facilities for services provided to patients covered under traditional Medicare and commercial health insurance programs. The annual growth rates are determined by calculating a percent change of the 12-month moving averages of the monthly index levels versus the same month of the prior year, S&P said.

The highest annual growth rate for the S&P Composite index in the past six years was during the 12 months ending May 2010, when it posted +8.74%.

It has taken less than nine years for healthcare costs to double for the average family of four covered by a preferred provider organization, the 2011 Milliman Medical Index shows.

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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