What Contributes Most to High Health Care Costs?

Authors: Pritchard, D; Petrilla, A; Hallinan, S; Taylor, DH; Schabert, V; Dubois, RW.
Publication: Journal of Managed Care & Specialty Pharmacy. February 2016.

A small segment of the population—often the sickest patients—drive the majority of health care spending. This study, which examined the spending patterns for these high resource patients (HRP), found that inpatient expenditures are the largest contributing factor, and offers insights and recommendations that could inform care strategies to improve quality and bring down costs for patients.  

The authors examined medical and pharmaceutical claims data from the IMS LifeLink Health Plan Claims Database, which represents claims for 74 million unique patients from more than 80 U.S. health plans. The data allowed researchers to examine direct health care expenditures by:

• Place of service—Outpatient, inpatient and pharmacy
• Payer type—Commercially insured, Medicare Advantage and Medicaid managed care
• Therapy area—Comparing use of services between the full population and HRP

Previous research has found that the top five percent of patients based on total expenditures account for approximately half of all health care expenditures. This study examined health spending patterns within this group of high-resource patients compared to the full population of managed health care users. Study authors noted the following trends:    

• Spending patterns of HRP differ from those of the general population—The mean total expenditure for HRP was $43,104 compared to $3,955 per patient within the full population.
• The share of expenditures related to inpatient services was significantly higher for HRP compared to the full population—Roughly 50 percent of HRP had at least one hospitalization compared with less than five percent in the full population. As a result, inpatient services make up a higher share of overall expenditures and are the primary contributor to higher health care costs in HRP.
• Pharmaceutical costs do not impact higher HRP spending as much as inpatient expenditures do—Pharmaceutical expenditures made up only 18.1 percent of all health care expenditures in HRP compared with 21.4 percent of expenditures in the full population.

The study also identified the top 20 health conditions that contribute to total health care expenditures in HRP. Back disorders and osteoarthritis represented the largest share in both HRP and the full study population; chronic kidney failure, heart disease and some oncology treatments consume the next largest share of expenditures among HRP. The conditions for which HRP expenditures were disproportionately higher compared to the full population include chronic kidney failure, maintenance chemotherapy and radiotherapy, breast cancer, implant complications, rehabilitation care, heart attack and blood infections. Among those conditions, only chemotherapy-treated cancer is heavily driven by drug expenditures, whereas most of the other conditions are dominated by expenditures in the inpatient and outpatient facility settings.

Study authors concluded that understanding the spending patterns of HRP, including prevalence of conditions and resource use across inpatient, outpatient and pharmacy settings, will help shape medication management, resource utilization and cost-management policies.