Altarum: Hospital spending growth rate lowest in 28 years

Dive Brief:

  • Altarum’s Center for Sustainable Health Spending’s latest Health Sector Economic Indicators reported overall national health spending growth decreased in the second quarter. Spending increased by 4% in the quarter, which was less than the 4.6% that Altarum predicted for the quarter.
  • A major reason for the slower spending growth was connected to hospital second-quarter spending growth, which was only 1.3% rather than the expected 4% growth rate.
  • Overall, year-over-year hospital spending increased by 1.1% in July. Hospital spending increased in June by 0.8%, which was the slowest growth rate year-over-year since January 1989.

Dive Insight:

A growth in the number of insured individuals and less hospital utilization are slowing hospital spending growth, according to Altarum. Overall, the researchers found health spending growth between May and July was slower than GDP growth; health spending accounted for 18% of the GDP.

The news of slowed hospital spending growth will please payers, who for years have created policies and designed plans to nudge members toward lower cost services rather than hospitals. These plans charge less for services at a primary care physician, urgent care center or standalone imaging center rather than a hospital. Plus, services that once required hospitalizations are now being performed as outpatient procedures.

In recent months, health insurance companies have looked to go further to reduce hospital utilization. Anthem, a major Blues insurer in 14 states, has led the way recently in creating policies to push members into getting care at less expensive locations rather than hospitals. Anthem said it will no longer pay for MRIs and CT scans at hospitals in 13 states unless Anthem deems it’s an emergency. Instead, the payer wants members to go less to expensive freestanding imaging centers.

Anthem also recently announced it would no longer cover emergency department (ED) visits that it deems unnecessary in Missouri. Anthem has the same policy in Kentucky and Georgia which it may expand to more states. Anthem said the Kentucky policy has been in place since 2015 and has only denied a small percentage of ED claims.

Also, the CMS is proposing to make costs more site neutral by paying services at off-campus hospital outpatient departments at 25% of regular outpatients rates. The same proposal also includes a small increase (1.75%) for outpatient payments.

All of these changes hope to further reduce hospital spending growth, while forcing hospitals to find ways to improve margins despite less utilization. Altarum’s report shows payers’ efforts are working as hospital spending growth was the slowest major healthcare category over the past year.

Despite seeing the smallest spending increase, hospitals still account for the highest percentage of health spending. In July, hospitals made up 32% of health spending, which easily outdistanced physicians and clinical services (20%). Home healthcare, which had the biggest rate increase (6.6%), still only accounted for 3% of overall health spending.

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