October Health Spending Up 5.5% — Rx Component Slows to 3.5%

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National health spending in October 2016 grew at an annual rate of 5.5%, driven up by the hospital component (6.6% growth) and dampened by prescription drugs (3.5% growth). This puts 2016 on pace for 5.6% health spending growth, slightly below the official 5.8% rate just released for calendar year 2015. At $3.43 trillion, the health spending share of gross domestic product was 18.2% in September, falling just below the all-time high of 18.3% seen in each month from May to August 2016.

Health care prices in October 2016 grew 2.2% above the October 2015 level, with prescription drug prices leading the way at 7.0%, a 24 plus year-high. Prices for physician services showed almost no growth while hospital prices rose 1.5%. Health care prices have now grown faster than economy-wide prices for 9 consecutive months.

Health care added 28,400 jobs in November, less than the 12-month average of 34,000 jobs, and continuing a slow deceleration from the more than 40,000 new jobs per month added in mid-2015. Health jobs grew 2.7% year over year, down from rates above 3% seen in mid-2015 through mid-2016, but higher than non-health jobs at 1.4%. This put the health share of total employment at an all-time high of 10.8%.

These data come from the monthly Health Sector Economic IndicatorsSM briefs released by Altarum Institute’s Center for Sustainable Health Spending (http://www.altarum.org/healthindicators).

“Our current estimate of 5.6% growth in health spending for the first ten months of 2016 is likely to be revised slightly downward once findings from the December Quarterly Services Survey are incorporated,” said Charles Roehrig, founding director of the Center. “Thus, 2016 will show a slowing in spending growth relative to the 5.8% growth in 2015 shown in the new national health expenditure account data. We remain puzzled by slow growth in prescription drug spending despite high price growth, and high growth in hospital spending despite low price growth.”

Altarum Institute (www.altarum.org) integrates objective research and client-centered consulting skills to deliver comprehensive, systems-based solutions that improve health and health care. Altarum employs over 450 individuals and is headquartered in Ann Arbor, Michigan, with additional offices in Portland, Maine, and the Washington, D.C., area.