Is the Slowdown Slowing Down?

Had the American Health Care Act passed into law, it was widely expected that sharp reductions in health care spending growth, due to both coverage losses and reduced-per-enrollee spending, would have occurred. Yet in the absence of the bill becoming law, there is every reason to anticipate a slowdown in health care spending growth, as the sizable coverage expansion of the last three years has largely been completed.

The Altarum Institute's monthly reports have been documenting this trend, and their most recent analysis suggests that this slowdown is unfolding at a more leisurely pace than anticipated. Health care services spending, seemingly on its way down in the final three quarters of 2015, gave way to somewhat stronger growth in 2016. While overall health spending growth in 2016 was lower, at 5.2 percent, than the 5.8 percent reported for 2015, the 2016 quarterly health care services growth rates send a somewhat mixed message—with the Q4 growth rate of 6.1 percent the highest since Q2 2015. Health care services spending growth did not show a markedly downward trend during 2016, suggesting that perhaps spending growth will not return to pre-expansion levels so quickly. For its part, prescription drug spending growth declined steadily throughout the year, and was well below overall trend by the third quarter.

The continued high growth in health care services spending is particularly concentrated in the outpatient setting. Since 2014, growth in spending in physicians' offices has exceeded that in hospitals, and this trend persisted through the first two quarters of 2016. For 2015, and all but one quarter of 2016, physician spending grew by more than 6 percent. Consistent with this trend, health care jobs grew in ambulatory settings the fastest.

From what we can tell, this trend largely reflects continued growth in utilization, since health care services prices seem to have increased relatively little since 2014. This stands to reason—since utilization increases among those who gain coverage—as financial barriers to health care are reduced. Additionally, among some newly insured populations there may be “pent-up demand,” as long deferred health care needs are addressed.

Aside from coverage expansion, there are other factors that may be affecting trends in ambulatory utilization. New forms of ambulatory care have grown in recent years, both new physical settings—like retail and urgent care clinics—and various types of telemedicine. Health systems are investing heavily in both channels, adding urgent care centers and seeking to add telemedicine capacity. Meanwhile consumers are seeking out telemedicine services, sometimes purchasing packages that augment their insurance plan. These recent changes in the availability of new settings for ambulatory care, along with benefit design changes and new payment models that emphasize primary care, have the potential to influence the utilization patterns of the entire population.

A number of studies have suggested that new ambulatory settings are complements rather than substitutes for traditional physician office visits, and may actually increase net utilization. A recent study of MinuteClinic use found that more than half of visits represented new uses of medical services rather than a replacement for a visit. Retail and urgent care were recently estimated to comprise 20 percent of primary care encounters. The Blue Cross Blue Shield Association estimated that retail visits doubled among commercially insured members between 2011 and 2015.

To the extent to which they may serve as an accelerant to overall utilization, the proliferation of these new sites of care may be changing patterns of health care services use in ways that go beyond meeting the needs of the newly covered, and may affect the trend in spending on health care services.

Coverage expansion is without question a very important component of recent health care spending growth, and as this expansion slows and pent-up demand is satisfied, it would be expected that overall rates of utilization growth would begin to slow as well. And it does appear that some softening in growth has occurred. Altarum estimates that the growth rate in utilization fell from 5.1 percent in 2015 to 4.4 percent in 2016. Echoing this trend, job growth in health care declined considerably in 2017, from more than 30,000 new jobs per month in 2015 and 2016 to less than 20,000 in the first few months of 2017.

There is an unfortunate shortage of timely data on ambulatory care use at the population level, but factors other than coverage expansion may be affecting utilization patterns. Going forward, it will be important to better understand these patterns and see what implications they may have for trends in health care services spending.