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%.
Health spending as a share of the nation's gross domestic product hit 16% in 2006.
Total spending on physician and clinical services grew 5.9% to $448 billion, which was 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. Nursing home prices dropped; spending still grew 3.5% in 2006, less than the 5% increase in 2005. Home health services—the fastest growing component of personal health spending—grew almost 10% in 2006, down from 12% 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 administration for that benefit and for Medicare Advantage.
Medicaid spending dropped for the first time since the program began in 1965. The 0.9% decrease was largely due to Medicaid enrollees being shifted into Medicare for 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 up from the 5.8% rise in 2005. Half of the 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 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 like injectable biologics for rheumatoid arthritis and multiple sclerosis, and anemia drugs for oncology.
The rising availability of generic drugs, and programs designed to encourage their use, 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 analysis shows the largest category of health spending is still hospital care, consuming 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%. 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 did not allow them to determine whether the prescription drug benefit had increased or lowered overall health care spending.