It Takes a Recession to Slow U.S. Health Care Cost Increases

It takes a recession to slow what has normally been runaway U.S. health care costs. The trend may be part of a road map to keep costs down. These costs have risen at close to double digits in some years over the past decade. The Centers for Medicare and Medicaid Services reported that the same costs rose at a rate of only 3.9% in 2010. The agency said it was the most modest increase in the 51 years for which data has been kept.

The news was not as good as it may sound. CMS research showed that:

As such in 2010, the health spending share of the overall economy was unchanged at 17.9 percent. In the past, this share has increased, rising over time from 5.2 percent in 1960.

But, based on the past, the trend is good news.

The primary causes of past increases in health care expenditures were sharp increases in drug costs, the cost of hospital stays and doctor compensation. The government already has shown that, by regulating rises in Medicare reimbursements, private insurance companies use the trend as an excuse to lower their reimbursements. Doctors receive less, and usually then charge less for services. Physicians have argued that this has caused them to struggle financially and that patient care has suffered. But the reduction in compensation may encourage a new wave of physicians who are trained to treat more people for less remuneration.

Hospital costs are driven to a some extent by the number of days people spend in these facilities. Patients with incomes hurt by the recession probably cut the time they stayed in hospitals. There is no sign that this trend has hurt results. That is an indication that regulated length of days in hospitals may work to bring down costs.

The government also has approached the cost of drugs as a major target for price reductions. This is married with private sector activity. Availability of generics have brought down costs. Large retailers like Walmart (NYSE: WMT) have dropped the price they charge for prescription drugs.

CMS did not indicate that its leaders were concerned that health care results were hurt by the low 3.9% growth in health care expenditures. If that is so, there is a strong argument that any effort to maintain this slowing pace is a reasonable goal.

Douglas A. McIntyre