Latest CMS Forecast: Hospitals and Physicians Will Grab Most of the $1.3 Trillion Increase in U.S. Healthcare Spending

The econowonks at the Centers for Medicare & Medicaid Services (CMS) have recently published new projections for U.S. National Health Expenditures (NHE). You’ll find links and my data analysis below.

As you will see, total U.S. spending on healthcare is projected to grow, from $3.5 trillion in 2017 to $4.8 trillion in 2023. Spending on hospitals and professional services is expected to grow by a combined $750 billion—about 59% of CMS’s projected $1.3 trillion increase in U.S. healthcare spending.

CMS also projects that spending on outpatient prescription drugs will account for only 9% of the total increase in U.S. healthcare spending. What’s more, total growth in spending on healthcare administration by the government and insurance companies is roughly equivalent to the growth in total spending on outpatient prescription drugs. Guess which of these categories will contribute more to patients’ well-being!

These sobering figures put the debate about drug spending in context. To say that slashing drug spending would solve the healthcare spending problem is like saying you can afford a New York City penthouse by making fewer trips to Starbucks.

SHOW ME

As always, I encourage you to review the source materials:

• Health Affairs article: National Health Expenditure Projections, 2018–27: Economic And Demographic Trends Drive Spending And Enrollment Growth (Available for free to subscribers and to others for purchase.)

• National Health Expenditures data files (Projected)

For important details about these data, see the Notes for Nerds section below.

ICYMI: The most recent historical data are from 2017. I review these figures in CMS Confirms It (Again): Minimal Drug Spending Growth, While Hospital and Physician Spending Keep Going.

Below, I focus on projections through 2023, which I consider a reasonable planning horizon for most Drug Channels readers.

THE MONEY

The chart below presents the most current CMS forecasts for annual growth in total national healthcare expenditures and net spending on outpatient prescription drugs.

[Click to Enlarge]

As you can see, drug spending is expected to grow along with all other healthcare spending. From 2018 to 2023, total health spending is projected to grow at an average rate of 5.5%, while prescription drug spending is projected to grow at a comparable average rate of 5.6%.

Consequently, CMS projects that drug spending will remain a stable portion of overall U.S. healthcare expenditures. CMS projects that outpatient prescription drugs will account for 9.5% of 2023 national healthcare expenditures, compared with 9.4% in 2017.

CMS has assumed that utilization will accelerate as new therapies are launched and the U.S. population ages. CMS also projects that employers and insurers will reduce barriers to the use of maintenance drugs by enrollees with chronic conditions.

KA-CHING!

Total U.S. spending on healthcare is projected to grow, from $3.5 trillion in 2017 to $4.8 trillion in 2023.

The chart below shows the projected total growth in spending for the four largest categories: hospital care, professional services (physicians, dentists, and other healthcare professionals), outpatient prescription drugs, and healthcare administration costs. These four categories account for more than three-quarters of total U.S. healthcare spending in both 2017 and 2023. They also account for 78% of the projected total $1.3 trillion in healthcare spending growth.

[Click to Enlarge] 

Here is the summary for the next five years:

• Spending on hospital care is projected to grow by $416.8 billion, from $1.1 trillion in 2017 to $1.6 trillion in 2023.

• Spending on professional services is projected to grow by $333.2 billion, from $920 billion in 2017 to $1.3 trillion in 2023.

• Spending on government and private insurance administration is projected to grow by $119.6 billion, from $274.5 billion in 2017 to $394.2 billion in 2023.

• Spending on outpatient prescription drugs is projected to grow by $118.9 billion, from $333.4 billion in 2017 to $452.4 billion in 2023.

The hard reality is that the U.S. still pays the highest prices in the world for hospital care, healthcare services, pharmaceuticals, and physicians. It looks like the America will remain the most expensive place to get sick for some time.

Maybe it's time for someone to fund Patients for Affordable Healthcare.

NOTES FOR NERDS

• Outpatient U.S. drug spending in the NHE is roughly equivalent to total retail, mail, long-term care, and specialty pharmacies’ prescription revenues minus manufacturer rebates to third-party payers. It therefore differs from pharmacies’ prescription revenues, manufacturers’ revenues, and the “invoice price spending” data reported by IQVIA.

• We define “Professional Care” to include the following NHE categories: Physician and Clinical Services; Dental Services; and Other Professional Services.

• The NHE data do not measure total U.S. spending on prescription drugs. Inpatient prescription drug spending within hospitals and nearly all provider-administered outpatient drugs are reported in other categories. This spending accounts for estimated additional expenditures of 4% to 5%.

For more on payment and spending for pharmaceuticals, see Chapter 4 of our new 2019 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.