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Reduce Health Care Costs Based on Facts

Health care costs are a major issue nationally and here in Virginia. A large piece of our state budget is Medicaid and that will increase unless medical costs are reduced. The price of health insurance is a major cost for employers and employees. Peter Orszag, the White House budget director, has said controlling the increase in medical costs is “the single most important thing we can do to improve the long-term fiscal health of our nation.”

As the health care debate heats up, let’s try to focus on some important facts. Research shows the price of medical care is increasing due to the rising cost of hospitals, doctors, clinical services and home care. Surprisingly, prescription drug costs are a smaller and declining share of the health care dollar. So controlling the price of drugs is not a panacea for controlling the price of health care.

The federal government’s Centers for Medicare & Medicaid Services (CMS) recently released figures on national health care spending for 2007. Total health care spending was 6.1 percent higher in 2007 than the year before. Growing faster than the national average were hospital care (+7.3 percent), physician and clinical services (+6.2 percent) and home health care (+11.3 percent). But prescription drugs only grew at an average rate of 4.9 percent.

CMS’s estimates of 2008 costs show similar results. Total health care spending increased 6.1 percent. The growth of Hospital care, physician and clinical services remained at about the same as the year before. The growth rate for home health care decreased a little but remained above the average while the growth rate for prescription drugs increased only 3.5 percent. This is a decline in the growth rate for prescription drugs of a surprising 29 percent year over year.

According to the CMS, prescription drug spending has declined in seven of the last eight years.  And a study on health care published by Health Affairs found that drug spending in 2007 fell to its lowest growth rate in more than 30 years.

As we enter this emotional debate on how best to control health care costs, it is important that we focus on the major areas of increase and not just on the cost of drugs which seems to be coming down. This overall debate will center on government control versus a more market oriented approach to containing health care costs. The major cost drivers of health care seem to be doctors, hospitals, clinical services and home health care rather than prescription drugs. Understanding this is critical to finding a solution to our rising health care costs without undermining the health of our citizens.

The upcoming battle on health care reform nationally and here in Virginia will be a tremendous battle. Let’s hope it focuses on facts. Health care expenses are an emotional issue and the health industry is one of the most complicated. Reform should be focused on improving the system, not just changing it.

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