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While the stock market keeps heading southward, health care costs are moving in the opposite direction, spurring sirens of concern about unnerving levels of inflation for the remainder of this year. That’s the finding from two research organizations in March — both the Health Care Financing Administration (HCFA) and a private-sector group, the Center for Studying Health System Change (HSC) in Washington, DC. The government is forecasting steady but not out-of-control medical inflation, while HSC has gone further and declared a resurgence of the "medical arms race" that characterized the pre-managed care 1980s. Both groups say health care is at an important juncture.
"Initial findings from recent site visits indicate that the U.S. health system is at a critical turning point," says Paul B. Ginsberg, HSC president, in a recent report summarizing site visits conducted with 12 health system leaders across the country.1 Ginsberg is the former chairman of the Physician Payment Review Commission, now the Medicare Payment Advisory Commission in Washington, DC.
"Managed care as we knew it in the early and mid-1990s appears to be in retreat in both the commercial market and public programs. With growing provider clout and increasing resistance to risk-based contracting, there seems to be a move back to the future’ in the financing and delivery of health care." Cost controls based on strict physician panels as well as requirements for prior approval of specialist referrals are disappearing.
Further reductions in providers’ income won’t be happening much longer either, Ginsberg predicts. "There may be less potential for further savings through reduced payment rates to providers, given the degree to which they have been squeezed in recent years."
According to HCFA, U.S. health care spending increased 5.6% in 1999 from the previous year. Spending totaled $1.2 trillion in that year, the most recent year for which figures are available. Yet the increase still represents the seventh year in a row that the rate of growth fell below 6%, Levit and colleagues report.
Levit and team do not expect double-digit inflation in health care. They project spending to be at 8.3% in 2000 and 8.6% in 2001 before it moderates again at 6.5% by the year 2010. At the top of the cost list are prescription drugs, for which spending rose 16.9% in 1999 to $100 billion. HCFA projects this category to grow an average of 12.6% a year, accounting for 16% of total personal health spending by 2010.
After 2002, HCFA officials project a move back toward more restrictive health plans as economic growth slows, stimulating private health insurance premiums to rise and employers to push for more cost controls. Overall, HCFA economists project spending to grow at rates faster than the 1990s but slower than the previous three decades.
1. Back to the future? New cost and access challenges emerge. Issue brief #35. Washington, DC: Center for Health System Change; February 2001.