WASHINGTON — The nation spent $2 trillion, or $7,000 per person, on health care in 2006. While that was only a small increase from the previous year, America's prescription drug tab increased by 8.5%, fueled largely by the new Medicare Part D drug benefit.
Health spending as a share of the nation's gross domestic product continues to rise, hitting 16% in 2006.
Total spending on physician and clinical services grew 5.9% to $448 billion, the slowest rate of growth since 1999. Physician pay crawled almost to a halt, largely because of the freeze in Medicare's reimbursement rates in 2006. Private insurers seemed to have followed suit, said Cathy Cowan, an economist at the Centers for Medicare and Medicaid Services. Cowan, a coauthor of an annual analysis of the nation's health spending, spoke at a briefing on the report, which was published in the January/February issue of Health Affairs.
Spending on nursing home and home health declined from the previous year's growth. Spending still grew 3.5% in 2006, but that was less than the almost 5% increase in 2005.
Medicare had the fastest rate of growth since 1981, according to the report. Spending increased 19% in 2006 to $401 billion, driven largely by the prescription drug benefit and the cost of administration for that benefit and for Medicare Advantage, a managed care program.
Medicaid spending dropped for the first time since the program began in 1965. The 0.9% decrease was largely due to a large number of Medicaid enrollees who were shifted into Medicare for their prescription drugs.
Overall drug spending grew 8.5% in 2006—a far cry from the double-digit increases seen in the late 1990s, but still an increase from the 5.8% rise in spending in 2005. Half of the 2006 increase was due to greater utilization, not surprising given that about 23 million Medicare beneficiaries took advantage of the new benefit. Prescription prices increased by only a little over 3%, according to an annual analysis by actuaries at the Centers for Medicare and Medicaid Services.
The change in the drug rebate picture also contributed to rising drug costs. Under Medicaid, states received an average 30% rebate from drugmakers. Medicare, however, got only about 5% from manufacturers for the millions of beneficiaries who shifted out of Medicaid.
Medicare spent $41 billion on Part D in 2006, with $35 billion for drug purchases and $6 billion for administration and “net cost of insurance”—that is, the cost of subsidizing premiums for low-income beneficiaries and costs for transferring beneficiaries into private plans. Medicare paid for 18% of all retail drugs, compared with only 2% in 2005. Medicare took on costs that were previously covered by private insurers, Medicaid, and the uninsured. On average, each Part D enrollee received $1,700 in benefits, according to CMS.
The largest increase in drug utilization came from beneficiaries using the Part D benefit. But there was also increased drug use due to new indications for existing drugs, growth in several therapeutic classes, and rising use of specialty drugs such as injectable biologics.
The rising availability of generic drugs—and programs designed to encourage use of generics, such as smaller copays for that category—also drove an increase in pharmaceutical utilization. A $4 generic program offered by Wal-Mart contributed to that trend and also helped keep prices down, according to the CMS authors. Sixty-three percent of drugs dispensed in the United States in 2006 were generic, according to the report.
Overall, the CMS analysis shows that the largest category of health spending is still hospital care, which consumes 31% of the nation's health dollars. Other spending, which includes dental, home health, durable medical equipment, over-the-counter medications, public health, research, and capital equipment, consumes 25% of the health dollar. Physician and clinical services follow at 21%, then prescription drugs at 10%, administration at 7%, and nursing home care at 6%.
The authors said the data they had at hand and their analysis did not allow them to determine whether the prescription drug benefit had increased or lowered overall health care spending.
Richard Foster, the chief actuary at CMS, told reporters that the study showed that the “overall cost of prescription drugs has changed very little as a result of Part D.” A study by Consumers Union, however, seemed to refute that claim. (See box.)
Consumers Union: Drug Prices Up
Government economists have concluded that the Medicare Part D prescription drug benefit did not affect the price of pharmaceuticals in 2006, the program's first full year, but Consumers Union has issued a study charging that drug prices are indeed rising under the program.