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Analysis

U.S. Healthcare Spending Slowed to 3.9% in 2017

By Jack O'Brien  
   December 06, 2018

Newly released data from CMS found that national healthcare spending totalled $3.5 trillion in 2017 but grew at a rate almost 1% slower than it did in 2016, due in part to reduced hospital and retail prescription drug spending.

National healthcare spending grew by 3.9% in 2017, or $3.5 trillion, down from 4.8% growth in 2016 primarily due to a deceleration in the use and intensity of hospital care, physician and clinical services, and retail prescription drugs, according to data released by CMS' Office of the Actuary Thursday afternoon.

The statistics, published in Health Affairs, indicate that healthcare spending growth slowed for the second consecutive year, falling to the lowest level since 2013. 

The most consequential factors that contributed to slowing healthcare spending growth were the deceleration in spending on retail prescription drugs, which dropped from 2.3% in 2016 to 0.4% in 2017, along with the drop in hospital care as well as physician and clinical services, which both fell by over 1% to 4.2% last year. 

"As the rate of healthcare spending slowed, the overall economic growth accelerated in 2017, as total gross domestic product increased 4.2%, accelerating growth from 2.7% in 2016," report lead author Anne Martin said during a press call Thursday afternoon. "Although healthcare spending grew slightly more slowly than GDP in 2017, their growth rates converged leading to a 17.9% health spending share of GDP which was similar to the 18% share in 2016."

In February, CMS released projections for healthcare spending growth rates of 5.5% annually between 2017 to 2026, totalling $5.7 trillion. In that same study, CMS projected a rise in the healthcare spending growth rate due to the increase in hospital care, physician and clinical services, and retail prescription drugs, the same factors that contributed to the growth rate slowing last year.     

Related: Healthcare Spending Accelerating in U.S. as Prices, Incomes Rise

Annual spending growth rate decelerates

  • Nursing care facilities and continuing care fell from 3.1% to 2.0%
  • Dental services dropped from 5.2% to 3.2%
  • Other professional services slipped from 5.1% to 4.6%
  • Other nondurable medical products slid from 4.1% to 2.2%

Despite the overall deceleration in spending last year, annual growth did increase in two areas, 'other health, residential, and personal care' and durable medical equipment.

Related: Healthcare Spending at 20% of GDP? That's an Economy-Wide Problem

Spending by sources fall, too

One area which experienced a significant slowing in healthcare spending last year was private health insurance, which increased 4.2%, or $1.2 trillion. Private insurance spending, which constitutes more than one-third of total healthcare spending, experienced growth slowing by 2% compared to 2016, while also missing a CMS estimate from earlier in the year for 4.8% growth in 2017.

CMS stated this was due to "slower growth in medical benefits," and the effects of federal legislation in 2016 that halted collection of the insurance provider fee. 

While Medicare only fell by 0.1% compared to 2016, most sources of healthcare spending dropped significantly, including Medicaid which fell to 2.9% growth in 2017 after posting 4.2% the year before. Additionally, out-of-pocket spending grew only by 2.6%, a slowing of 1.8%, and other third-party payers and programs fell by 1.4%.

The only source that saw healthcare spending growth increase last year was the Department of Defense, Veterans Affairs, and CHIP, which was 5.8% in 2017, up 3.3% compared to 2016.

Jack O'Brien is the finance editor at HealthLeaders. 


KEY TAKEAWAYS

The biggest drivers were a deceleration in the use of hospital care, physician and clinical services, and retail prescription drugs.

This marks the second consecutive year of healthcare spending growth slowing, reaching the lowest level of annual growth since 2013.

Healthcare still maintains a sizable portion of the national GDP, registering at 17.9% last year.


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