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Rising hospital costs driving health care payments up

Updated:

WASHINGTON (AP) _ Larger hospital bills and rising prices for prescription drugs drove last year's large jump in health care costs, according to a private analysis released Wednesday.

At the same time, the premiums people pay to carry health insurance are going up even faster than the cost of health care itself, the report by the Center for Studying Health System Change said. The center attributed that rise to the desire of insurance companies for profits after several lean years.

The cost of health care grew 7.2 percent last year, the largest increase in a decade. The cost of hospital care accounted for nearly half the increase, the report said.

Hospitals were able to raise their prices as employers have gravitated toward looser forms of managed care.

In such systems, which give patients more choice of hospitals and doctors, a health insurance plan is likely to lose business if its network does not include the most popular hospitals, said Paul Ginsburg, the center's president and a co-author of the report, which is an annual study by the Washington-based independent research organization.

``There has been a change in the balance of power between hospitals and health plans,'' he said.

A spate of hospital mergers has lessened competition, giving the companies that remain more leverage in negotiations with the plans. And with fewer open beds, each hospital is less dependent on any one plan's patients, Ginsburg said.

Hospitals, squeezed by low Medicare payments, also are increasingly aggressive about making money through their private contracts, he said.

New technology and sharp wage increases, partly in response to the nursing shortage, also are driving up hospital bills.

Spending on outpatient care increased by 11.2 percent from 1999 to 2000, the report found. That's up from the 8.9 percent growth in the 1998 to 1999 period. This accounted for more than a third of the overall cost increase. Spending on inpatient hospital care also rose, by 2.8 percent, a sharp departure from the mid-1990s, when inpatient costs were falling.

Spending for drugs also rose _ by 14.5 percent in 2000 _ after jumping 18.4 percent in 1999. Drug costs accounted for about a quarter of the overall cost increase, down from 41 percent in 1999.

The center pointed to two factors for the smaller increase: no new ``blockbuster'' drugs that drive up demand, and an increased use of tiered pharmacy plans, where patients pay extra to get name-brand drugs and even more if the ones they choose are not on a discounted list.

Early data suggest that the cost of hospital care and prescription drugs is continuing to climb in 2001.

Last year, premiums increased by 11 percent, the report said.

That's because insurance companies expect continued cost increases and are trying to make up for profits lost in the late 1990s when they cut expenses to gain market share, the report said.

In recent years, employers have absorbed much of the blow of higher premiums. But with the softening economy, Ginsburg said most expect employers to pass some of the increases onto their workers.

Employers may wind up cutting back on their workers' health plans or dropping coverage altogether, said Kate Sullivan, director of health care policy for the U.S. Chamber of Commerce. ``Employers can't continue to absorb record health care premium increases and remain competitive.''
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