Medicare Compliance & Reimbursement

In 2006, the new Medicare prescription drug benefit contributed to an 18.7 percent increase in Medicare spending, which rose to $401.3 billion, up from $338.0 billion a year earlier, according to a report published in Health Affairs (Jan./Feb. 2008).

On the other hand, Medicaid spending dropped for the first time since its initiation in 1965, to $310.6 billion in 2006 from $313.5 billion in 2005. Analysts from the Centers for Medicare & Medicaid Services (CMS) have said that this 0.9 percent drop occurred mainly due to the transfer of drug coverage for people who are dually-eligible for Medicare and Medicaid coverage, the report indicates.

The annual report by economists from the National Health Statistics Group in the CMS Office of the Actuary provides the most current and comprehensive data on the health care sector. It studies national health spending trends in the public and private sectors.

On the whole, health care spending in the United States grew 6.7 percent in 2006 to $2.1 trillion, or $7,026 per person -- a slight improvement over the 6.5 percent rate in 2005, which marked the slowest growth since 1999. Health care spending accounted for 16 percent of the gross domestic product (GDP) in 2006, exceeding overall nominal GDP growth by a 0.6 percentage point.

In 2006, retail U.S. prescription drug spending accelerated to 8.5 percent, as compared to 5.8 percent in 2005, the study shows. Apart from this development, the 2006 growth rate failed to compete with the average annual rate of 13.4 percent between 1995 and 2004.

Study author Aaron Catlin, an economist with CMS, said, "Implementation of the Medicare Part D drug benefit shifted the funding of retail drug purchases and impacted the rate of overall drug spending growth."

Moreover, the public share of drug spending improved from 28 percent in 2005 to 34 percent in 2006. On the other hand, the private share decreased from 72 percent to 66 percent. Part D implementation contributed in the increase of Medicare's share of total retail prescription drug spending from just 2 percent in 2005 to 18 percent in 2006. However, Medicaid's share fell from 19 percent to 9 percent.

The growth rate in other major health services has declined in 2006. In 2006, there was a marginal hike of 6.6 percent in the personal health care spending as compared to 6.8 percent in 2005. Health care price growth was responsible for more than half of the growth in 2006.