Health Care Spending Growth Appears to Stabilize in 2016, 2017

December 15, 2017

Ann Arbor, MI — New data released by the Centers for Medicare & Medicaid Services (CMS), which show slower growth in 2016, combined with other slow-growth trends in 2017, suggest overall national health spending is stabilizing, according to Altarum’s monthly Health Sector Economic Indicators briefs.

Among the indicators of stability is health spending as a share of GDP. Since first hitting 18% in February 2016 (after first getting to 17% in January 2009), this ratio has not fallen below 17.9% nor risen above 18.1%. In October, the health spending share of GDP was 18.1%.

Another key trend of 2017 is the slowdown in hospital spending and hiring. “This has continued into our most recent data,” said Dr. Charles Roehrig, senior economist and fellow at Altarum.  “Hospital spending growth is averaging 3.3% through October, down from 4.7% in 2016. Monthly hospital job growth has averaged 5,400 through November, compared to 9,900 in 2016.”

Finally, official data released last week by CMS put national health spending growth in 2016 at 4.3%, slightly lower than Altarum’s previous estimate of 4.6%. Surprisingly slow growth in prescription drugs—at 1.3%—kept spending down. “The lower official growth rate for prescription drugs is likely due to adjustments for rebates, which official government spending figures include while our monthly tracking data do not,” said Roehrig. “We are researching ways to adjust our monthly prescription drug tracking data for rebates."

Health Care Spending

National health spending, as measured by the National Health Expenditure Accounts (NHEA), grew by 4.3% in 2016. Spending in October 2017, year over year, increased in all major categories. Dental services grew most rapidly, at 5.9%, while growth in hospital care spending was lowest, at 2.5%.

Health Care Employment

In November 2017, health care added 29,500 new jobs, mostly in ambulatory settings which added 25,300 jobs. The 2017 slowdown is occurring in hospital hiring, with 2,200 new jobs in hospitals, down from the 12-month average.

Hospitals have added 60,000 jobs in 2017, but by this time last year, hospitals had added 109,000 jobs. While hospitals have slowed hiring, it is continuing in physician offices, home health, and outpatient care centers.

Health Care Prices

Overall health care price growth in October was 1.1%, the same rate as in September, and the lowest growth rate since the all-time low of 1.0% in December 2015.

Across all payers, year-over-year hospital price growth, and physician and clinical services growth in October remain surprisingly muted, at 1.4% and 0.5%, respectively. After hitting a multi-decade high of 7.0%, annual price growth for prescription drugs has fallen back to 1.0% as of October 2017.

We recognize that private and public sector price growth may be different than the national rate of increase and will be developing methods in 2018 to better distinguish these payer trends.

View Reports: December 2017 Health Sector Economic Indicators Briefs

Altarum is a nonprofit organization that works with federal and state agencies and foundations to design and implement solutions to improve the health of individuals with fewer financial resources and populations disenfranchised by the health care system. We achieve measurable results by combining our expertise in public health and health care delivery with technology, workforce training and continuing education, applied research, and technical assistance. Our innovative solutions lead to better health for beneficiaries and better value for payers.