DME spending rises 6.5%, CMS reports

January 13, 2003 WASHINGTON - Medicare spending for durable medical equipment grew by 6.5% in 2001, more than two percentage points slower than the 8.7% rate increase in overall healthcare spending. The overall 2001 growth rate, compared with 7.4% in 2000, and 6.1 in 1999, marked the fifth consecutive year in which health spending grew at an accelerating rate. In 2001, CMS laid out $4.9 billion for DME, meeting the previous year's estimate. Overall, healthcare spending in the U.S. rose to $1.4 trillion in 2001. Health spending increased more than three times faster than the 2.6% nominal rate of growth in the economy in 2001. Health care spending averaged $5,035 per person in 2001, compared to $4,672 in 2000. "While still the greatest in the world, our healthcare system is stretched and stressed to the point of nearly breaking," Health and Human Services Secretary Tommy G. Thompson said. "We have launched a series of town hall meeting across America to listen to Americans and develop solutions to rising health costs and other challenges. What will emerge from these meetings will be a series of legislative proposals and pilot projects that can be adopted by states to strengthen our healthcare system." CMS economists said in the report that the health share of gross domestic product (GDP) increased from 13.3% in 2000 to 14.1% in 2001. That increase results less from increases in actual health spending than from slower economic growth resulting from the national recession that began in March 2001 and exacerbated by the September 11 terrorist attacks. This was similar to the spike in the health-spending share of GDP leading seen before the 1990-1991 recession. In the 1990s, managed care restrained health expenditure growth by slowing the rate of price increases to providers, and to a lesser extent by slowing growth in quantity of services per capita. While a slowdown in medical price growth curbed overall spending during the mid-1990s, a rise in the quantity and intensity of services consumed, along with slow and steady price increases, caused aggregate spending to accelerate in 2001, the report says. An 8.3% rise in hospital spending accounted for 30% of the health spending increase in 2001. This was the first time since 1992 that hospitals' contribution to the annual rate of increase had been this significant. Although hospital spending contributed the most in absolute terms to the overall health spending increase in 2001, prescription drug spending grew at the fastest rate of any spending category, although that rate was slowing. In 1999, prescription drug spending grew by 19.7%, by 16.4% in 2000 and 15.7% in 2001. Spending for physician services accelerated from 6.9% in 2000 to 8.6 percent in 2001. Public spending, accounting for 45% of national health expenditures, increased 9.4% in 2001. This is the second consecutive year that public spending growth exceeded private spending growth. Important sources for this growth were Medicare payment increases granted providers by the Balanced Budget Refinement Act of 1999 (BBRA) and the Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA), as well as increased Medicaid spending. Medicare spending growth accelerated 2.8 percentage points in 2001, to 7.8%. Medicare payment to hospitals, home health agencies, and nursing homes were particularly affected by changes in public policy, first experiencing moderate reductions in payments through the Balanced Budget Act of 1997 (BBA), then benefiting from BIPA in 2001. Medicare spending for these providers increased by 3.6% in 2000, and 8.6% in 2001, following a decline of 1.9% in 1999. Legislation added $7.5 billion to total Medicare spending in 2001, with $2.6 billion alone benefiting inpatient hospital spending. Spending for Medicaid increased 10.8% in 2001, totaling $224.3 billion. This was the fastest growth rate since 1993. An 8.5% rise in Medicaid enrollment contributed to increased spending, with some enrollment growth related to the national recession, and some from separate program expansions for the uninsured. Medicaid spending accelerated in 2001, with double-digit increases for all health services except nursing home care. "If there ever was an argument for Medicare and Medicaid reform, this report is it," said CMS Administrator Tom Scully. The recession and rapidly growing Medicaid expenditures, which climbed to an average of 20% of state spending, contributed to severe budgetary shortfalls for state governments in fiscal year 2001. Some states also were affected by reductions in the Medicaid Federal Medical Assistance Percentage, which were calculated based on data from periods when economic conditions were stronger. Private health insurance premium growth accelerated in 2001 for the fourth consecutive year, with benefits growing more slowly than premiums in the last three. Premiums rose 10.5% in 2001 to reach $496.1 billion, while benefits grew 10.1%.