Physician's Capitation Trend-Nation's health bill spending holds steady
Drug costs penetrate other cost ceilings
National health expenditures increased by 5.6% from 1997 to 1998 — the government's most recent data — but the good news is that this marks the fifth year in a row that the growth rate remained below 6%.
In fact, the growth closely matches overall economic growth, say officials with the Health Care Financing Administration (HCFA) who released the data. The result is stable spending patterns for health and all other goods.
Interestingly, public sector spending continued to slow down in most years since 1991 — increasing 4.1% in 1998. The private sector did the reverse. It increased from 4.8% in 1997 to 6.7% in 1998.
HCFA officials credit the government's performance to increased fraud and abuse efforts and the early effects of the Balanced Budget Act of 1997. The biggest economic blow for both the private and public sectors can be attributed to drug costs, HCFA officials say. (See related stories on the controversies surrounding capitation contracts which include prescription drugs in Physician's Managed Care Report, October 1999, p. 151, and July 1999, p. 103.)
The rising number of new, higher priced drugs and an increase in consumer demand stimulated by direct to consumer advertising are two trends driving higher drug costs, officials point out.
Traditionally, hospital and physician expenditures have accounted for most health care spending. In recent years, these two areas of expenditures have declined, as have payments for home health care. But drug costs moved into center stage to garner the most attention for sharp economic impact.
In the area of costs, experts are predicting even more cost hikes for the private sector — as much as a 12% increase on average in 2000. Specifically, they're pointing to increases in what purchasers will have to pay for their health care insurance. William J. Falk, a principal with Towers Perrin, a New York City-based employer benefits consulting firm, predicts these cost increases will characterize both fee for service and managed care contracts, with little difference between the two, he says.
For active employees, Falk predicts an 11% rise among indemnity plans, a 10% increase for preferred provider arrangements, and 10% for HMO contracts.
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