Rising prices, not utilization, boost health spending

Healthcare spending, which has continued to climb in recent years, is driven by ever-rising prices charged by providers, not increased utilization of healthcare services, said a new report from the Health Care Cost Institute (HCCI).

HCCI concluded that medical spending for consumers with employer-sponsored insurance increased 4.6 percent last year, which outpaces the rest of the economy and is higher than the 3.8 percent growth seen in 2010, Kaiser Health News reported.

"Rising prices--not rising utilization--was the primary driver of spending growth, a trend we also observed in our inaugural spending report," HCCI Executive Director David Newman said. "Price increases were driven by changes in fees, not intensity of services."

Healthcare costs for privately insured consumers increased to $4,547 a person, up from $4,349 in 2010, largely because providers are raising the prices for their services. What's more, the cost of the average emergency room visit rose by 5.4 percent to $1,381 in 2011, the cost of professional procedures increased 3.3 percent and prescription drug costs surged 17.7 percent, reported The Washington Post's Wonkblog.

The biggest offender, the report found, has been the cost of outpatient services, which grew at double the rate of inflation.

Part of the problem is that employers and insurance companies aren't pressuring providers enough to lower the cost of care. "No insurer wants to be known as being obsessively aggressive against price increases," Gerard Anderson, director of the Johns Hopkins University's Center for Hospital Finance and Management, told the Post. "If you're an insurance company, you stand to lose a large client [the hospital] all to gain a small rate reduction."

Plus, the reform law has led to an increase in provider consolidation, which can inflate their pricing power, Douglas Holtz-Eakin, president of the American Action Forum, told Bloomberg. "If you don't bend the cost curve, ultimately insurance gets more expensive," he said.

To learn more:
- here's the HCCI report
- see the Kaiser Health News article
- read the Post's Wonkblog article
- check out the Bloomberg article

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