Healthcare Sector Expansion Slows

Healthcare spending and inflation continue to outplace inflation as measured by the Consumer Price Index, but that growth is at the slowest pace in three years.

Three key metrics of healthcare sector expansion – employment, spending, and inflation -- have seen their slowest growth in the past three years, according to data collected by the non-profit Altarum Institute.

Charles Roehrig, PhD, director of Ann Arbor, MI-based Altarum’s Center for Sustainable Health Spending, says the leveling off of insurance coverage made possible under the Affordable Care Act, and the ongoing uncertainty over the future of the ACA, may be dampening growth in the healthcare sector.

Healthcare job growth is down by 10,000 per month, prices are slowing across the board, and total spending growth also is down .5% from last year’s rate, which Roehrig says could be a respite for private and public sector purchasers compared to the accelerated health spending in the past three years.

“It appears that the growth in health services utilization is also slowing,” Roehrig says. “Health spending is on track for less than 5% growth in 2017, ending three consecutive years of greater than 5% growth.”

By comparison, annual inflation in the overall economy is approximately 2.2%, as measured by the Consumer Price Index.

Healthcare Job Growth

Healthcare added 24,300 new jobs in May, and job growth through the first five months of 2017 is averaging just under 22,000 jobs per month, versus 32,000 per month in 2015 and 2016, according to data from the Bureau of Labor Statistics.

The 2017 slowdown is occurring in both hospitals and ambulatory care. Hospitals added 5,500 jobs per month in early 2017, compared to 10,000 in 2016. Ambulatory settings (physician offices, clinics, home health) added 14,000 jobs per month in 2017, compared to 20,000 in 2016, BLS data show.

Despite the slowdown, the healthcare sector's share of total employment is at an all-time high of 10.75% because healthcare jobs grew 2.1% year over year, lower than the 2.5% average growth in 2016 but still faster than the pace of non-health job growth, at 1.6%, Altarum said.

The total unemployment rate in the larger economy dropped to 4.3%, the lowest in 16 years. The broadest measure of unemployment, the U-6, dropped to 8.4%, the rate seen prior to the recession, Altarum said, citing BLS statistics.

Healthcare Prices

Healthcare price growth in April continued to slow, rising just 1.6% above April 2016, down from 1.9% in March, and the lowest annual growth rate since June 2016, Altarum said.

Year-over-year hospital price growth rose one-tenth to 1.8% and physician and clinical services price growth rose from .4% to .5% in April. Annual drug price growth in April fell to a 3.1% rate, continuing its fall from the 20+ year high of 7% in November 2016. The small increases in hospital and physician price growth were easily outweighed by declining price growth in six other categories, especially drugs, dental services and medical products, hence the lower HCPI rate.

National Health Spending

National health spending growth also slowed in April to 4.4% year over year, the lowest growth rate in 16 months. For the first four months of 2017, the growth rate is estimated at 4.9%. Spending totaled $3.49 trillion (seasonally adjusted annual rate).

The health spending share of GDP was 18.3% in April, and while representing a downward revision from last month, this remains an all-time high share.

Spending in April 2017, year over year, increased in all major categories. Home health care grew the fastest, at 5.7%. Dental services grew at a 2% rate, the slowest among the major categories, Altarum said.