Healthcare spending is slowing: Here’s why

Healthcare growth slowed in the second quarter, mainly because the expansion of healthcare coverage has basically stopped, according to a new study.

The latest data from the Altarum Institute’s

, finds that overall healthcare spending increased by 4.4% the first two quarters of 2017, which is slightly lower growth than all of 2016 (4.6%).

Hempstead

“Growth is slowing because the increase in utilization associated with coverage expansion has really slowed down, and also because there has been a certain amount of substitution of cheaper for more expensive ways of delivering services, which has kept growth in healthcare prices quite low,” says Katherine Hempstead, PhD, MA, senior advisor, at the Robert Wood Johnson Foundation.

 This slowdown may mean that there will be continued push for merger and acquisition activity as systems seek to reduce administrative costs and reduce excess capacity in unprofitable service lines, and increase market power, according to Hempstead.

“Softening growth in some markets may impact provider contracts, although this will certainly vary geographically and by segment,” she says.

Other findings

The study also found that:

• Healthcare service prices are growing very slowly, but this slowdown in growth rates actually preceded the ACA and suggests a longer-term restructuring of the market. Most growth in spending is being driven by increased use of services rather than rising prices,” Hempstead says. “Healthcare price growth was 1.8% in the first half of 2017, less than half the growth rate in spending. This means that the increase in spending is due in large part to an increase in the frequency of consumers using healthcare services.”
• Spending on physician services has risen faster since insurance coverage expanded, while increases in spending at hospitals have slowed. “This reflects a continued flat-lining/downturn in demand for inpatient services, where we have seen increased substitution of ambulatory care,” she says.

Based on the study, Hempstead has this advice for healthcare executives.

“Think critically about profitable and unprofitable lines of business and where there might be overcapacity, and keep an ear to the ground for policy changes,” she says. “If we see stability on the ACA front, there may be some further Medicaid expansions, which could have a significant impact on some markets.

“The future of value-based payment models may be drive more by the private sector than the government, since appetite for mandatory demos in D.C. seems to be dimming,” she says.

Overall there is not much room for huge additional growth in demand for healthcare services in the short run, with the exception of some particular services, according to Hempstead. “Needless to say, demographic change in general and population aging in particular will continue to be a factor,” she says.