Retail prescription drug expenditures rise only slightly

BETHESDA, Md. — Growth in prescription drug expenditures tailed off despite an overall gain in 2016 U.S. health care spending, according to the Centers for Medicare and Medicaid Services (CMS).

Last year, U.S. health care spending totaled $3.3 trillion, up 4.3%, compared with growth of 5.8% in 2015 and 5.1% in 2014, according to a new analysis from the CMS Office of the Actuary published online Wednesday by the health policy journal Health Affairs.

The decelerated growth in health care expenditures for 2016 reflects smaller spending increases for retail prescription drugs, hospital care, and physician and clinical services, the study found. CMS noted that the rate of spending growth last year was more in line with the average annual rate of 4.2% from 2008 to 2015. In 2014 and 2015, Affordable Care Act (ACA) provisions had expanded coverage for individuals via Marketplace plans, and sharp spending growth for Medicaid and retail prescription drugs.

Spending growth dissipated in 2016 for all three major payers: private health insurance, Medicaid and Medicare. The analysis said an enrollment slowdown impacted health care outlays for private health insurance and Medicaid, while lower per enrollee growth rates reined in growth in Medicare spending.

Retail prescription drug spending edged up 1.3% in 2016 to $328.6 billion, which accounted for 10% of total U.S. health spending. The gain was far below the increases of 8.9% in 2015 and 12.4% in 2014.

CMS attributed the deceleration in 2016 to decline spending for hepatitis C drugs, fewer new drug introductions, and lesser growth in prices for branded and generic drugs. Prescription drugs’ share of national health expenditures in 2016 was similar to their share in 2009, despite sizable fluctuations in growth rates over the past several years, CMS said.

“Over the last decade, the U.S. has experienced unique events that have affected the health care sector, including the most severe economic recession since the Great Depression, major changes to the health care system because of the ACA and historic lows in medical price inflation,” Micah Hartman, a statistician in the CMS Office of the Actuary and lead author of the Health Affairs article, said in a statement. “In 2016, the slowdown in health care spending followed significant insurance coverage expansions under the ACA and very strong growth in retail prescription drug spending in 2014 and 2015.”

National health spending for 2016 grew 3.5% on a per capita basis to $10,348. Medical price hikes represented 1.4 percentage points of the per-capita increase, while growth in the residual use and intensity of health care goods and services accounted for 1.6 percentage points. CMS said changes in the age and gender mix of the population fueled 0.6 percentage point of the growth in per-capita health spending.

During 2016, outlays for physician and clinical services were 20% of overall health care spending and hit $664.9 billion, up 5.4%, compared with a 5.9% year-over-year gain in 2015. The CMS analysis indicated that spending growth for clinical services (8.2%) outpaced that of expenditures for physician services (4.6%) for the 12th straight year. Higher spending at freestanding ambulatory surgical and emergency centers drove much of the growth in clinical services spending.

Hospital expenditures climbed 4.7% to $1.1 trillion last year and accounted for 32% of overall health care spending. Still, the increase was less than the hospital spending growth of 5.7% in 2015. Slower growth in the use and intensity of services reflected decelerated enrollment growth, partly offset by a faster rise in hospital prices, which accelerated to 1.2% in 2016 from 0.9% in 2015.

Private health insurance remained the largest payer for health care goods and services in 2016, accounting for just over a third of U.S. health care spending, according to CMS. Outlays by private health insurance rose 5.1% to $1.1 trillion last year down from 6.9% growth the year before.

The reduced private health insurance spending growth stems from slower gains in enrollment and expenditures for retail prescription drugs, as well as a continued shift to high-deductible plans, the study revealed. On a per-enrollee basis, private health insurance spending was up 5.1% in 2016, about the same as the 5% uptick in 2015.

Medicare spending advanced 3.6% to $672.1 billion last year and was 20% of the nation’s health care outlays. Spending growth for the program fell from a rate of 4.8% in 2015, though enrollment growth remained relatively stable.

Medicaid expenditures were 17% of overall health spending and grew 3.9% to $565.5 billion in 2016, down from growth rates of 9.5% in 2015 and 11.5% in 2014. CMS said the 2014-15 gains reflect the initial impact of the ACA’s expansed Medicaid eligibility, which lifted health insurance enrollment.