Total Health Spending Rises 6.7%, Tops $2.1 Trillion during 2006

HEALTHCARE COSTS totaled $2.1 trillion in 2006, according to the January/ February issue of Health Affairs. That is an increase of 6.7% over total spending in 2005, wrote researchers in an analysis titled “National Health Spending In 2006: A Year Of Change For Prescription Drugs.”

Outside of a big, 8.5% jump in spending on prescription drugs, there was a slow-down in the cost of most of the major healthcare services and a 0.2 percentage point slowdown in personal healthcare spending. In fact, when higher costs for prescription drugs are excluded, growth in personal health spending declined from 7.0% in 2005 to 6.3% in 2006, noted the study’s authors.

Trend In Coming Years

These facts raise a question for pathologists, lab directors, and all healthcare providers. What can they expect in the coming years about healthcare cost trends? In an analysis in the same issue, Paul B. Ginsburg, President of the Center for Studying Health System Change in Washington, D.C., explains the factors driving costs. His analysis, “Don’t Break Out The Champagne: Continued Slowing Of Health Care Spending Growth Unlikely To Last,” shows that about 50% of the growth in 2006 reflects rising healthcare prices, 16% reflects population growth, and the remaining 34% reflects real per capita growth in spending.

Several factors that are difficult to manage are causing this rise in costs, Ginsburg explained. “Increasing incidence of obesity is a major factor behind rising costs,” he said, adding that, “The influence of the economic cycle on health spending, which has lowered the trend in recent years, is likely to reverse its impact shortly.”

Another factor that encourages growth in spending is how entrepreneurial physicians are seizing opportunities to increase the number of outpatient procedures, such as surgery, imaging, endoscopies, and cardiac testing. These physicians recognize the high returns from facility fees—as opposed to professional fees.

“Physicians also have brought capabilities to perform profitable ancillary services into their offices,” wrote Ginsburg, who noted that physician self-referral is another factor causing costs to rise. Research shows much higher referral rates for procedures when physicians have an ownership stake in the facilities they use.

Hospitals have also contributed to increased costs. Ginsburg observed that hospitals have expanded specialized facilities (such as adding operating rooms and imaging facilities) to serve patients with the latest technology.

Alert readers will note that several of the factors driving up healthcare spending have hit the radar screen at the federal Centers for Medicare & Medicaid Services (CMS). In particular, CMS has stated concern about how office-based physicians are establishing ancillary services within their group practice, particularly referencing in- house anatomic pathology and radiology.

One CMS effort to curb physician self-referral is the implementation of anti- markup rules affecting physician-owned pathology laboratories. (See pages 7-9.) CMS has stated it will seek to curb what it considers to be physician overutilization in several clinical services.


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