Hospital Spending Drove 40% of US Health Cost Growth (2022-2024)
- National health spending continues its upward trajectory, reaching 2024 levels of $5.3 trillion – representing 18% of the Gross Domestic Product (GDP).
- Data from the Centers for Medicare & Medicaid Services (CMS) National Health Expenditures Accounts (NHEA) reveals that hospital spending alone increased by $277 billion during this two-year period.
- The recent acceleration in hospital spending isn’t solely driven by price increases.
National health spending continues its upward trajectory, reaching levels of $5.3 trillion – representing 18% of the Gross Domestic Product (GDP). This growth places a significant strain on families, employers, and public health programs. A substantial portion of this increase is attributable to hospital care, which accounted for 40% of the growth in national health expenditures between and .
Data from the Centers for Medicare & Medicaid Services (CMS) National Health Expenditures Accounts (NHEA) reveals that hospital spending alone increased by $277 billion during this two-year period. This surge means hospital care now represents nearly one-third of total national health expenditures. Over the longer term, from to , hospital spending has accounted for 32% of the overall increase in national health spending.
The recent acceleration in hospital spending isn’t solely driven by price increases. While hospital prices did rise by 3.4% in – the largest year-over-year change since – a significant factor has been a rebound in the volume of services provided. Following potential suppression of care during the COVID-19 public health emergency, demand for both inpatient and outpatient hospital services has increased. However, the increase in spending is also linked to a shift in the types of care delivered, with a notable rise in outpatient visits offsetting a slight decrease in inpatient days.
Looking at the broader picture, physician and clinical services represent the second-largest contributor to national health spending growth, accounting for 22% of the increase between and . Retail prescription drug spending contributed 11% during the same period, growing at a similar rate to hospital spending. Other categories, including government public health activities (which actually decreased by 7%, likely due to the winding down of pandemic-related initiatives), contributed smaller shares.
The growth in hospital spending is particularly noteworthy when considered in relation to overall economic growth. From to , hospital spending increased from 4.7% to 5.6% of GDP, while total health care spending rose from 15.5% to 18.0% of GDP. Projections from CMS suggest that hospital spending will continue to climb, reaching 6.4% of GDP by , with overall national health expenditures reaching 20.3% of GDP.
Analyzing the components of hospital spending growth reveals a complex picture. While inpatient hospital days decreased by 5% between and , outpatient visits increased by a substantial 44%. This shift towards outpatient care, coupled with price increases, has significantly contributed to the overall rise in hospital expenditures. Hospital prices increased by 61% over the same period.
The continued growth in hospital spending has implications for all stakeholders. It contributes to higher costs for public programs like Medicare and Medicaid, places a burden on employers and families, and exacerbates existing concerns about health care affordability. Average annual premiums for employer-sponsored family coverage reached $26,993 in , with workers contributing $6,850 towards their coverage.
While CMS projects that hospitals will account for a slightly smaller share of overall spending growth in the coming decade (32% between and ), the continued upward trend in hospital expenditures remains a critical issue for the U.S. Health care system. Understanding the drivers of this growth – including both price increases and changes in the volume and intensity of services – is essential for developing effective strategies to address rising health care costs and improve affordability.