Prescription Drugs Drive Growth in Health Spending Over 4%

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By USDR

Health spending in July 2014 grew 4.3% over July 2013, bringing the year-to-date increase to 4.4%.

This is well above the 3.6% growth rate estimated for 2013 by the Centers for Medicare & Medicaid Services and, with further acceleration expected in the final two quarters, puts 2014 on track to be the first year since 2008 in which growth has exceeded 4%.

The primary driver of this increase is spending on prescription drugs, which grew by 11% in July, the fifth consecutive month of double digit growth. Growth in spending on health care services (as opposed to goods) has remained below 4%.

Health care services include the services of hospitals, physicians, dentists, nursing homes, home health, and other health professionals. This is distinct from health care goods such as prescription drugs and durable medical equipment.

Health care gained a strong 34,000 jobs in August, and revisions to June and July showed a net increase of 15,500 jobs. The first quarter of 2014 averaged 15,000 new jobs per month; there was an average of 25,000 jobs per month in the second quarter; and for the first 2 months of the third quarter, the average is 27,000 new jobs per month. The health share of total employment rose to 10.62% from 10.61%, down from the high of 10.66% last seen in December 2012.

Health care prices in August 2014 were 1.7% higher than in August 2013, similar to the rates reported for April through June, but roughly half a percentage point higher than for the first quarter of 2014. Hospital price growth rose from 1.6% in July to 1.7% in August, still quite restrained historically. Growth in prescription drug prices moderated to 3.6% from 4.2% in July, which is the highest reading since March 2012 and followed negative price growth data as recently as July 2013.

“A complex narrative for the first half of 2014 is emerging in which spending on prescription drugs has driven the growth rate in health spending above 4% while the expected acceleration in spending on health care services has yet to materialize,” said Charles Roehrig, director of the Center. “The September Quarterly Services Survey showed 3.7% annual growth in spending on health care services, which is about the same rate experienced in 2013. We still expect expanded coverage to push this rate up in the second half of 2014.”

These data come from the monthly Health Sector Economic Indicators^SM briefs released by Altarum Institute’s Center for Sustainable Health Spending (www.altarum.org/HealthIndicators).