CMS data show hospital spending growth slowed last year. Here's why.

Demand for provider and hospital services slowed slightly in 2016, compared with strong demand for such services in 2015, according to an annual federal report published Wednesday in Health Affairs.

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The report, by CMS' Office of the Actuary, is widely viewed as the authoritative breakdown on health care spending in the United States, according to the Washington Post's "Wonkblog."

National health expenditure findings

Overall, the actuaries found national health spending increased by 4.3% to $3.3 trillion in 2016, a decline from growth rates of 5.8% in 2015 and 5.1% in 2014. The actuaries said the 4.3% growth rate was more in line with moderate growth levels seen after the 2007-2009 recession.

However, they found that health spending growth still outpaced overall spending growth on goods and services, which measured 2.8% in 2016, and that health care expenditures accounted for a growing share (17.9%) of the gross domestic product.

The report showed that the health spending growth slowdown stemmed from lower growth rates in several areas, including spending on hospitals, Medicare, Medicaid, private health insurance, and prescription drugs.

One factor driving the decline, according to the report, was a reduction in the use and intensity of health care services. Total spending for physician and clinical services in 2016, for instance, grew by 5.4% to $664.9 billion, down from a growth rate of 6.3% in 2015. Total spending on hospital services—which according to Kaiser Health News accounts for the highest share of health expenditures—grew by 4.7% to $1.1 billion in 2016, down from a growth rate of 5.7% in 2015.

Further, the actuaries found national spending on prescription drugs rose 1.3% to $328.6 billion in 2016, down significantly from growth rates of 12% in 2014 and 9% in 2015. CMS said drug spending accounted for 10% of overall health spending. According to "Wonkblog," that figure does not include drugs administered by physicians or hospitals. CMS attributed the slowdown in drug spending in part to lower spending on two costly Hepatitis C drugs, a reduction in new drugs hitting the market—22 in 2016, compared with 45 in 2015—and a slowdown in prices for brand-name and generic drugs.

Meanwhile, private health insurance spending in 2016 grew by 5.1% to $1.1 trillion, down from growth rates of 6.9% in 2015 and 5.7% in 2014, according to the report. The actuaries attributed the slowdown to lower enrollment growth. According to the actuaries, private health insurers continued to be the largest payers for health care, accounting for 34% of total health care spending.

The Medicare spending growth rate slowed from 4.8% in 2015 to 3.6% in 2016, with total Medicare spending reaching $672.1 billion in 2016. According to Modern Healthcare, CMS' actuaries during a media call Wednesday could not say whether CMS' value-based payment models contributed to Medicare's slowing growth rate, but they did say that the growth rate for fee-for-service Medicare spending slowed slightly from 2.2% in 2015 to 1.8% in 2016.

The growth rate for state and federal Medicaid spending slowed from 9.5% in 2015 to 3.9% in 2016, with total Medicaid spending reaching $565.5 billion in 2016.

Consumers' out-of-pocket spending growth rate accelerates  

However, the report found the growth rate for consumers' out-of-pocket spending hit 3.9%-—the fastest growth rate recorded since 2007. Out-of-pocket spending grew fastest on medical equipment and supplies, while prescription drug out-of-pocket spending fell slightly.

The actuaries attributed the growth in consumer costs to the shift toward high-deductible health plans. According to the report, 29% of consumers with employer-sponsored coverage were enrolled in high-deductible health plans in 2016, compared with 20% in 2014. Further, the report found the average deductible for individual health plans rose by 12% in 2016, compared with a 7% increase in 2014 (Galewitz, Kaiser Health News, 12/6; Johnson, "Wonkblog," Washington Post, 12/6; Dickson, Modern Healthcare, 12/6; Mangan, CNBC, 12/6; Hartman et al., Health Affairs, 12/6).

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