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Medicare Drug Plan Fuels Health-Care Spending

But Medicaid spending slowed for first time since its inception in 1965,,

TUESDAY, Jan. 8 (HealthDay News) -- The new Medicare prescription drug plan was largely responsible for an 18.7 percent increase in Medicare spending in 2006, which was double the increase in spending from the year before, U.S. health officials report.

In 2006, Medicare spending reached $401.3 billion, an increase from $338 billion in 2005, officials from the National Health Statistics Group at the U.S. Centers for Medicare and Medicaid Services, Office of the Actuary, said.

"National growth of health-care spending in 2006 was slightly faster than in 2005, increasing 6.7 percent following growth of 6.5 percent," Cathy Cowan, an economist in the National Health Statistics Group at the U.S. Centers for Medicare and Medicaid Services, Office of the Actuary, said during a news conference Monday afternoon.

"Expenditures reached $2.1 trillion or $7,000 a person," Cowan added. That rate was up from the 6.5 percent rate in 2005. The 2005 rate was the slowest growth since 1999.

The report appears in the January/February issue of Health Affairs.

At the same time that the Medicare drug plan increased spending, spending by Medicaid dropped for the first time since 1965, to $310.6 billion in 2006 from $313.5 billion in 2005. This drop was mostly due to drug coverage for people who were eligible both for Medicare and Medicaid being transferred to Medicare, Cowen said.

Richard Foster, chief actuary at the National Health Statistics Group at the U.S. Centers for Medicare and Medicaid Services, said the cost of the Medicare drug program, which took effect in 2006, was less than originally projected.

"The actual cost of Part D in 2006 was significantly below the cost we estimated before the program was implemented, and it continues to be lower than later estimates based on the actual bids from the plans," Foster said during the news conference.

After slowing for six years, prescription drug spending increased to 8.5 percent in 2006, compared with 5.8 percent in 2005. "This increase is due to increased use, lower rebates, new indications for existing drugs, growth in several therapeutic classes and increased use of specialty drugs," Cowen said.

However, more use of generic drugs helped keep the growth in drug cost low, Cowen said. The 2006 growth rate was less than the average annual rate of 13.4 percent per year from 1995 to 2004, she said.

Other than Medicare and prescription drugs, there was a general slowdown in spending by hospitals, physicians and clinics. In addition, home health care, nursing home care and dental care all grew at slower rates in 2006 than in 2005, Cowen said.

The Medicare drug plan was also responsible for a decrease in the rate of out-of-pocket spending for health care, Cowen noted.

Dr. Sidney M. Wolfe, director of the Health Research Group of Public Citizen, said he thinks the significant increase in expenditures in the Medicare drug program was due to the law that prohibits the government from negotiating prices with the drug companies, as well as a great deal of waste in administering the program.

"If you have a segment of health care completely out of control as in prescription drug prices for Medicare -- it's a strong argument why there should have been price controls and negotiated prices," Wolfe said.

Wolfe said that both the U.S. Department of Defense and the U.S. Veterans Administration negotiated prices with drug companies. "The drug companies used their lobbyists to fight to the death against price controls because they knew they would make much less money if there were price controls," he said.

There are also massive administrative wastes in the Medicare program, Wolfe said. "They are somewhere between $350 and $400 billion a year thrown down the drain because of excessive administration," he said.

In another study in the same journal issue, researchers at the London School of Hygiene and Tropical Medicine found that the United States ranked last of 19 developed countries when it came to deaths from conditions that could have been prevented by timely and effective health care.

The study looked at deaths from treatable conditions before age 75 between 1997 and 1998 and between 2002 and 2003.

The researchers found a 16 percent drop in deaths in the 18 other countries, but only a 4 percent decline in the United States. While many factors may contribute to this finding, "comparatively poor performance of the U.S. health-care system" is a factor, the researchers said.

More information

For more on Medicare, visit the U.S. Centers for Medicare and Medicaid Services.

SOURCES: Jan. 7, 2008, teleconference with: Cathy Cowan, economist, Richard Foster, chief actuary, National Health Statistics Group, U.S. Centers for Medicare and Medicaid Services, Office of the Actuary, Baltimore; Sidney M. Wolfe M.D., director, Health Research Group of Public Citizen, Washington, D.C.; January/February 2008 Health Affairs

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