1% of People Account for 22% of Total Healthcare Spending

The majority of total healthcare spending is concentrated in a small percentage of the population, according to a new statistical brief from the Agency for Healthcare Research and Quality (AHRQ).

Using data from the agency’s Medical Expenditure Panel Survey Household Component (MEPS-HC), researchers found that just 5 percent of the population accounted for over half (50.1 percent) of total healthcare spending in 2017, which represented nearly 18 percent of the country’s gross domestic product (GDP) that year.

Of these individuals, the top 1 percent of individuals ranked by their healthcare expenditures in 2017 represented about 22 percent of total healthcare spending that year, with an annual mean expenditure of $116,331. This included all sources of healthcare payments, including private insurance payments, Medicare, Medicaid, out-of-pocket spending, and other sources.

The data underscored the fact that just a select group of individuals drive healthcare spending. In fact, the bottom 50 percent of the population represented just 2.9 percent of total healthcare spending in 2017. People in this group spent less than $1,051 during the year, with an average annual expenditure of $305.

People who spent more on healthcare tended to be older and white, and they spent more on inpatient care compared to the bottom half of the population.

AHRQ researchers found that nearly 40 percent of the expenses from the top 5 percent of the population were for inpatient stays. Individuals in the bottom 50 percent of the population spent next to nothing (0.1 percent) on inpatient care. Their expenditures were more likely to go toward ambulatory events (54.3 percent).

AHRQ’s findings may not come as a surprise to many healthcare providers. It is well known that a small group of patients tend to drive healthcare spending. However, new research has raised questions about how providers have typically cared for these high-cost patients.

A study published last month in the New England Journal of Medicine showed that a “hotspotting” program in which providers gave high-cost patients more access to providers and social services resources did not improve hospital readmission rates.

“Our results suggest that there are challenges for superutilizer programs aimed at medically and socially complex populations,” wrote the researchers from MIT. “It is possible that approaches to care management that are designed to connect patients with existing resources are insufficient for these complex cases.”

The operator of the program in the study – Camden Coalition of Healthcare Partners in New Jersey – is not giving up on hotspotting. In response, the organization’s CEO Kathleen Noonan said that the study shows what they already know: care management that focuses solely on healthcare is insufficient.

Research released this month has renewed hope for the Coalition and other providers engaging in similar programs. The American Journal of Managed Care study found that a different program targeting high-cost patients was successful with improving patient outcomes and cutting healthcare costs for the group.

Caring for high-cost patients in a way that reduces their use of expensive and unnecessary services is key to stopping the unsustainable trajectory of national healthcare spending. The latest numbers from CMS actuaries show that national healthcare spending hit $3.6 trillion in 2018 as medical expenditures and prices grew across all major payers.

The number is a cause of concern for policymakers who are actively trying to find policy solutions to bring down healthcare spending. Recent policies have focused on price transparency, alternative payment models, site-neutral payments, and surprise billing.

Policy and regulation have been largely aimed at Medicare and Medicaid programs, which paid most (48.3 percent) of the healthcare expenses for the top 5 percent of the population in 2017, according to the AHRQ’s statistical brief.

However, another datapoint may influence rules that affect privately insured patients. AHRQ researchers found that out-of-pocket payments accounted for over a quarter of the expenditures for the bottom 50 percent of the population, while they comprised just 5.7 percent of total expenses for top 5 percent.

As patient financial responsibility increases, healthcare providers may have to focus their cost-cutting efforts not only on their high-cost patients, but also those who are burdened by out-of-pocket costs.