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Unpacking Spending Growth

On March 13, 2018, the pronouncement was made that in 2016 price, once again, was the major reason the U.S. spends twice as much on health care as other developed countries (JAMA.2018;319(10):1024-1039). 

At the end of their article the authors frame this a health policy issue: “As patients, physicians, policy makers, and legislators debate the future of the health care system, data such as these are needed to inform policy decisions.”

Categorizing U.S. health care prices as a health policy issue seems somehow to let the rest of us off the hook. But how can we leave it up to policy makers when the prices employers and employees are paying today are the real underlying cause of their increasing spend?

Perhaps there has not been enough private sector action on price because the significance of the issue has not been recognized. A new report from Memphis Business Group on Health lays out the case that price deserves increasing employer attention. 

The complete report, based on analyses conducted by the Health Care Cost Institute (HCCI) ( and published in HCCI's 2016 Health Care Cost and Utilization Report (January 2018) and Issue Brief #13 (August 2017), is available to MBGH employer Members and Annual Supporters. The report includes MBGH-prepared charts, graphs, and analysis focused on the points of interest to employers, including upper-level management, that make the case for focus on price.

Highlights from the report include:

  • Total U.S. health care spending increased 4.6% from 2015 to 2016, the highest increase in the last four years
  • Nationally, utilization actually declined from 2012 to 2016 for inpatient (-12.9%), outpatient (-0.5%, although there was an approximately -5% from 2012-2014), and professional service (-2.9%) categories. Prescription drugs was the only category to experience a slight increase (1.8%)
  • During this same time period, cumulative price increases occurred across all categories ranging from a low of approximately 15% for professional services to a high of approximately 25% for prescription drugs. 
  • Declining utilization along with significant increases in prices resulted in total spending increasing 15% from 2012 to 2016.
  • In Memphis, prices were consistently below national averages in inpatient, outpatient, and physician services for the period 2012-2014.
  • With the exception of inpatient services, Memphis prices closely mirrored national increases from 2012 to 2014.
  • Memphis prices were in the middle of the pack with Nashville being a higher priced market and Knoxville being a lower priced market.

Please refer to the publications on for detailed descriptions of data sources, methods, and limitations of this information.

It is not surprising that as utilization has declined (almost across the board), price has increased. If the health care system wants to maximize revenue while experiencing declining utilziation, the only reaction is for them to increase prices. Since employers and their employees and families are paying for these price increases, they are the ones bearing this burden; often to the detriment of their own business and personal financial status.

Although prices in Memphis were consistently below the U.S. average (2012-2014), we know that the U.S. average is too high and is increasing significantly across all categories and local rates are increasing similarly (except for inpatient). Memphis may be fairing better than many markets but we should not take comfort that our high prices are lower than high prices in other markets.

The impact of price on spend means that employers need to change their purchasing approach, moving away from the traditional focus on discounts, to more targeted purchaser strategies that unpack the growth spend and address the underyling factors of price, utilization, and quality/safety. The MBGH report suggests strategies employers should deploy, such as analyzing their own data to identify price and utilization trends; pegging payments to Medicare prices; setting fair prices in new payment models;  and selecting netowrks with high quality/safety performance.

If you work for an MBGH Member employer or Annual Supporter and have not yet received your copy of the complete report, please email [email protected] for a copy.


Posted by Cristie Travis at 3:26 PM

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