Rising prices will drive healthcare spending near 20% of US GDP by 2025
Americans spend more on healthcare than any other nation in the world, but few people, including doctors and consumers, know the true value of what they are buying and selling. An opaque market and rising consolidation are contributing to a quickening pace of spending.
The U.S. will soon spend close to 20 percent of its gross domestic product (GDP) on health, according to The Wall Street Journal, up from the current level of about 18 percent. In December 2017, the healthcare industry became the nation’s largest employment sector.
However, this spike in spending isn’t being driven by demand—but by price increases. And the higher spending isn’t leading to any improvements in most major measures of health.
“The pace of improvement by other advanced nations has been faster on most measures since 1970,” the WSJ reported.
The price of medical care since 1960 has risen more than 2,000 percent, while the consumer price index has risen about 700 percent. Among the three largest components of health spending—prescription drugs, hospital care and physician and clinical services—drug prices have risen the most. Since 2000, drug prices have risen 69 percent, followed by hospital (60 percent) and physician and clinical services (23 percent).
The opacity of the market is helping drive up prices, particularly around prescription drugs, according to the WSJ. Many prices for medicines are hidden because pharmacy-benefit managers (PBMs) negotiate confidential discounts and rebates with drugmakers, and it isn’t known how much of those discounts are passed onto employers and consumers and how much is kept by the PBMS.
Hospital consolidation is also increasing opacity, as their market size can lead to more effective negotiations for higher prices from insurers, the WSJ reported.
“Hospitals with a monopoly in a geographic market charge significantly more for procedures than those in markets with four or more competing hospitals, according to researchers,” the WSJ report reads.
As prices rise, healthcare companies are cashing is, with revenues representing nearly 16 percent of the total revenues in the S&P 500 in 2017, according to the WSJ. In 1984, the sector represented just 4 percent of S&P 500 total revenues. Companies are also taking a more active role in the healthcare environment over the last several years, with overall lobbying spending doubling since 1998.
Amy joined TriMed Media as a Senior Writer for HealthExec after covering home care for three years. When not writing about all things healthcare, she fulfills her lifelong dream of becoming a pirate by sailing in regattas and enjoying rum. Fun fact: she sailed 333 miles across Lake Michigan in the Chicago Yacht Club "Race to Mackinac."