April 3, 2020

National health care spending in the United States is expected to grow at an average annual rate of 5.4% from 2019 to 2028, outpacing the gross domestic product's (GDP) average annual growth rate of 4.3%, according to preliminary projections from CMS' Office of the Actuary published last week in Health Affairs.

Overcome the major barriers to achieving outsized revenue growth

The report's projections do not account for the new coronavirus epidemic.

Spending growth details for 2020 and beyond

CMS in the report estimated that national health care spending reached $3.81 trillion in 2019 and would increase to $4.01 trillion in 2020. CMS projected that by 2028, health care spending would reach $6.19 trillion, and would account for 19.7% of GDP, up from 17.7% in 2018.

This rise in spending will be driven largely by higher overall health care prices, CMS said. In the report, CMS estimated that prices for medical goods and services would grow at an average annual rate of 2.4% from 2019 to 2028 and would account for 43% of total projected growth in personal health care spending during that time.

"This acceleration in price growth largely reflects faster expected growth in health-sector wages and follows the unusually slow rate of personal health care inflation observed in 2014-18, when price growth for medical goods and services was 1.2% and represented 25% of expenditure growth," the report stated.

CMS also estimated that Medicare spending reached $800.7 billion in 2019 and will increase to $858.5 billion in 2020. Average Medicare spending is expected to grow at an average annual rate of 7.6% from 2019 to 2028. Meanwhile, Medicaid is projected to rise by 4.5% in 2020 and then reach an average of 5.7% from 2021 to 2023, and 5.8% from 2024 to 2028. Commercial payers are expected to see a more modest average annual growth rate of 4.8% from 2024 to 2028, the report said.

Meanwhile, the spending growth rate for prescription drugs is projected to increase to 3.7% in 2020. According to the report, much of the increase stems from a projected increase in drug prices. While the growth rate for drug prices fell by 0.3% in 2019, the report projects the rate of growth will increase to   1.1% in 2020, up from a 0.3% rate of decline in 2019. The reported stated, "This reversal reflects anticipated slower growth in drug rebates, as well as an expected return to positive growth in prices for generic drugs."

From 2021 to 2023, prescription drug spending growth is projected to increase be an average of 5.4% per year, and then by 5.9% from 2024 to 2028.

According to the report, hospital spending was projected to have grown by an average annual rate of 5.1% in 2019 to a total of $1.3 trillion. The growth rate is expected to remain the same in 2020, according to the report. However, the report said the hospital spending growth rate is expected to increase at an annual rate of 5.9% from 2021 to 2023, before rising slightly to an annual average of 6% from 2024 to 2028.

CMS also projected that spending for physician and clinical services will grow at an average annual rate of 4.9% in 2020 and by 5.5% from 2021 to 2023 in part because of a projected increase in private health insurance spending,  the report said.

Overall, the report estimated that the share of Americans who have health insurance would decrease from 90.6% in 2018 to 89.4% in 2028.

 Experts raise concerns about inflation, aging baby boomers

Glenn Melnick, a health care finance professor from the University of Southern California, said the report is a sign that "[w]e need to get price inflation under control." He added that the projected increase in Medicare spending "will put increased pressure on the federal budget and likely will increase pressure to reduce payment rates to hospitals under Medicare."

Sean Keehan, an economist at CMS' Office of the Actuary and lead author on the study, said the report shows "[t]he government is projected to pay a larger share (nearly half) of the nation's total health bill by 2028, as the baby boomers continue aging into Medicare and the program's beneficiaries consumer $1 out of every $4 spent on health care. Policymakers and other stakeholders will undoubtedly continue to monitor these trends and their implications for the health sector, federal and state budgets, and the economy as a whole."

Ge Bai, an associate professor of accounting and health policy and management at Johns Hopkins University, said, "Even without the coronavirus outbreak, the growth trajectory for health care spending isn't going to be bent in the foreseeable future. With the coronavirus outbreak, the trajectory will be boosted instantaneously and keep ballooning as we invest more in national health security" (LaPointe, RevCycleIntelligence, 3/25; Kacik, Modern Healthcare, 3/24; Keehan et. al., Health Affairs, 3/24).

Overcome the major barriers to achieve outsized revenue growth

Successfully growing market share is a critical component of a sustainable margin management strategy, but hospitals and health systems across the country are struggling to win the growth they need.

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