Drop in Health Care Spending Due to Slowdown in Rx Spending

Spending growth moderate in second quarter; coverage expansion and drug spending are still top drivers.
Staff portrait of Kathy Hempstead

Katherine Hempstead, PhD, MA, director and senior program officer, leads RWJF's work on health insurance coverage.

This ninth monthly trend report produced by the Altarum Center for Sustainable Health Spending and funded by the Robert Wood Johnson Foundation, builds upon data from their ongoing monthly Health Sector Economic Indicators and provides further analysis of the latest findings from the Census Bureau’s Quarterly Services Survey (QSS).  The next expanded report will be in September, after the release of new QSS data.

The health care spending growth rate slowed during the second quarter, with the quarterly growth rate at 5.9 percent, a notch down from the estimated 6.6 percent estimated for the first quarter. However, the two fundamental factors that are increasing health care spending growth above the historical lows experienced during the 2009-2013 period are coverage expansion and prescription drug spending. The relative falloff in Q2 spending is most likely attributable to the continued slowdown in the growth of prescription drug spending in 2015.

One factor contributing to this falloff is the decreased year over year spending on the expensive hepatitis C drugs in Q2 2015. Another intriguing trend is signs of abatement in price increases for generic drugs in Q2, perhaps due to reduced FDA approval times.  The average increase in Q2 2015 was 2.6 percent, as compared with 25.7 percent in Q2 2014.

If prescription drug spending growth continues to subside and the pace of coverage expansion slows, the rate of health care spending growth may move closer to the historically low levels in 2009-2013.  While the slowdown in coverage expansion is fairly easy to predict, the future trend in prescription drug spending is far less certain, with several expensive specialty drugs anticipated to come to market shortly.

In this second quarter of 2015, growth in health services prices remains very low. However, one potentially troubling sign is a growing wedge between public and private prices for hospital services.  This divergence is interesting in light of recent empirical research that has suggested that Medicare and private hospital prices move together—this trend bears watching.

Finally, job growth at hospitals continues at a healthy clip, with more than 15,000 jobs added in July, higher than the monthly average of 12,000.  With the anticipated slowdown in coverage expansion, hiring may not persist at the current pace, unless these figures also reflect increasing vertical integration within the industry.  If the pace of mergers accelerates, we may additionally see a check on job growth as combined systems trim redundant functions. Wage pressure appears to have not yet hit the hospital sector, although looming minimum wage bills in many regions may ultimately have an impact. 

 

ABOUT THE SERIES

Kathy Hempstead provides commentary on the Altarum Center for Sustainable Health Spending’s monthly trend reports. With funding from the Robert Wood Johnson Foundation, these trend reports provide a monthly summary of key trends in health care spending, prices, utilization, and employment.