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Cost Institute Report Blames Rising Facility Prices for Health Expenditure Increases

By Nellie Bristol, CQ HealthBeat Associate Editor

May 21, 2012 -- Increases in per capita health spending for privately insured Americans from 2009 to 2010 were driven primarily by hospitals and other medical facilities raising their prices, not by people getting more and costlier services, according to a study released last week by the Health Care Cost Institute.

The research by this new group found large increases in prices for both inpatient hospital admissions and outpatient visits, at 5.1 percent and 10.1 percent, respectively. At the same time, use of the services at those facilities declined in many categories, including outpatient visits, down 3.1 percent, and inpatient admissions, down 3.3 percent.

The findings are included in the Institute's first study "Health Care Cost and Utilization Report: 2010." They are based on claims data from three major insurers—Aetna, Humana and UnitedHealthcare—covering 20 percent of the population with employer-sponsored group insurance. According to HCCI documents, the data reflect the health spending of 33 million privately insured Americans. They show actual prices paid for the services rather than just what was charged, and how much beneficiaries paid out-of-pocket.

"We can act as a trusted third party,'' said Martin Gaynor, an economics and health policy professor at Carnegie Mellon University and one of the founders of the non-profit, non-partisan Institute. HCCI was established with the mission of making data available for research, the group says. "We want to get this stuff out there, and then policy makers and others can make good decisions," Gaynor added.

The authors of the report said they were most surprised by the results that showed health expenditures increasing fastest for those 18 and younger, with an estimated annual expenditure growth of 4.5 percent. By contrast, growth for those 55 to 64 was 3.1 percent, and for those 45 to 54 was 2.2 percent.

Overall the report puts average per capita health spending at $4,255 for individuals under 65 in employer sponsored group insurance in 2010. The study shows a health care cost growth rate of 3.3 percent from 2009 to 2010, compared to a 1.6 percent rise in the Consumer Price Index.

The biggest increases in facility prices were in mental health and substance abuse inpatient admissions, at 8.6 percent; outpatient surgery, 8.9 percent; and outpatient emergency room visits, 11 percent. Estimated per capita health care spending by insurers rose 2.6 percent over the year and 7.1 percent for beneficiaries. The average out-of-pocket price of a hospital stay rose 10.7 percent—from $632 in 2009 to $700 in 2010.

In other findings, payments for professional procedures grew more slowly than many other categories. Those prices, which include doctor visits, lab tests and diagnostic imaging, grew by 2.6 percent, while the average overall price for outpatient procedures was 1.7 percent.

The Institute plans to produce cost and use reports annually along with regular supplements and to add more insurers to the program. Data from Kaiser Permanente will be included in future reports, it adds. Additional reports will focus on trends in specific areas including mental health and substance abuse, cancer and diabetes. In addition to performing its own analyses, HCCI will make data available to other researchers. Besides Gaynor, the Institute is headed by David Newman, formerly a specialist in health care at the Congressional Research Service, and Carolina-Nicole Herrera a health care economist. HCCI has start up funding of $2 million provided by the insurers involved.

Gail Wilensky, economist and Senior Fellow at Project HOPE, said the data is a good first step, although she noted it only includes administrative claims and not clinical information. The Institute's efforts to make the data available to researchers is "new and therefore promising," she said.

Chapin White, senior health research at the Center for Studying Health System Change, also praised the HCCI's effort to make the data publicly accessible. In addition, he said the first report adds detail to the trend of higher prices. "They put their finger on why we are having [premium increases] with employer sponsored insurance," he said.

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