Journal Club

Growth in National Health Expenditures:  It’s Not the Prices, Stupid

Mike Chernew is an accomplished health economist who has served as MedPac Chair and has made many excellent contributions to the literature and to applied health policy. His recent Health Affairs article, “Growth in National Health Expenditures:  It’s Not the Prices, Stupid,” is no exception.  He translates the 2024 National Health Expenditures (NHE) findings into everyday language we can all understand. The 2024 NHS report showed a 7.2% growth rate in 2024, just a tad down from 2023’s 7.4% growth. Chernew emphasizes that intensity and volume are the primary drivers that serve to increase health expenditures. Other contributors to the upward trend are the use of low value services, shifts to higher-priced settings, growth in coding intensity, and the use of more expensive drugs. Chernew concludes that continuing to spend at this rate is not affordable as the tax and wage pressures to finance it are extreme. He notes that we can’t cost-shift the problem away, either. Importantly, he doesn’t just talk about the problem; he suggests some recommendations:

• Focusing on strategies to reduce low-value care and inappropriate coding in fee-for-service settings
• Improving designs of alternative payment models (APM) that create incentives for providers to practice efficiently, including improved benchmark-setting rules and risk adjustment
• Regulating areas where markets fail (price regulation, standardization to support patient choice, simplification of administratively burdensome regulations
• Improving market mechanisms to induce more efficient care-seeking behavior