U.S. HEALTHCARE SPENDING NEARING 20 PERCENT OF GDP
Seeking Alpha cites a Wall Street Journal report on July 31 that healthcare spending in the United States will soon reach 20 percent of Gross Domestic Product, a significantly higher proportion than any other major economy.
The key cost driver has been price hikes, not increased demand. Since 1960, the Consumer Price Index has risen ~700 percent while medical costs have risen 2,000 percent. Since 2000, prescription drug costs have grown 69 percent, hospital care 60 percent and physician and clinical services 23 percent.
Despite leading the world in healthcare spending, the United States lags other developed countries in many major measures of health, including life expectancy, the incidence of diabetes, heart disease, respiratory disease and infant mortality.
Consumers continue to be shielded from the bulk of the costs through insurance and tax breaks while corporations are able to deduct the costs of providing health insurance from their taxes, estimated at $854 billion last year.
Since 1985, the percentage of expenditures for healthcare for consumers has risen from less than 5 percent to 8 percent.
The average market price of AbbVie’s HUMIRA was $1,385 (95 percent of list) in Q3 2004 and $3,431 (84 percent of list) in Q3 2016, reflecting, in part, increasing rent from pharmacy benefit manager.
Consolidation in hospitals have given them more clout to demand higher prices from insurers. For example, in markets with monopoly hospitals, the cost of a lower limb MRI is over 23 percent more than markets with at least four hospitals.
The percentage of S&P 500 revenues reported by healthcare companies has risen from 4 percent in 1985 to almost 16 percent last year (the profit percentage would be more informative considering consolidation within the sector).
Healthcare companies have more than doubled lobbying spending since 1998, creating a headwind against meaningful changes to the status quo. VTN