Spe nd in g f or h ea lth ca r e reached

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1 Health Spending Growth Up In 1999; Faster Growth Expected In The Future Americans could once again face more complex health care spending choices. b y S t e ph e n H e f f l e r, K at h a ri n e L e v i t, S h e i l a S m i t h, Cyn t h i a S m i t h, C a t h y C o w a n, H e l e n L az e n b y, an d M a rk F r e e l a n d Spe nd in g f or h ea lth ca r e reached $1.2 trillion in 1999, up 5.6 percent from the prior year (Exhibit 1). 1 This compares with growth of just 4.8 percent in 1998 (Exhibit 2). We expect a more pronounced acceleration in spending growth of 8.3 percent in 2000 and 8.6 percent in 2001 and then moderation to growth of 6.5 percent in The average annual growth rate of 7.2 percent for would be faster than growth in (5.2 percent) but slower than growth in (10.4 percent). Health spending since 1993 averaged annual increases of 0.5 percentage point less than that of gross domestic product (GDP). This resulted in a slight decline in health spending s share of GDP (Exhibit 3). The health spending shares of GDP reported here are lower than those reported previously, mainly because of major upward revisions in GDP. 2 Health spending is projected to account for 15.9 percent of GDP by 2010, the result of more rapid growth in health spending and slightly slower GDP growth. Despite rising as a share of GDP, projected spending is escalating less rapidly than it was before The private share of health spending grew between 1997 and 1999, offsetting public-share declines caused primarily by slower Medicare spending growth (Exhibit 4). Although anticipated to be more gradual over the next ten years than over the previous three years, the shift to private spending is expected to continue in large part because of rapid spending growth on prescription drugs, which are generally not covered by Medicare. When adjusted for general economywide inflation, real health spending grew 4.1 percent in 1999 nearly one percentage point faster than in the period and two percentage points slower than in the period. 3 Between 1999 and 2010 real health spending is projected to grow 4.3 percent per year on average. Price And Utilization Trends During the early 1990s employers countered growing health benefit costs by moving to more restrictive and less costly managed care plans. By 1999, 91 percent of enrollees in employer-sponsored health plans had managed care arrangements, up from 27 percent in 1988 (Exhibit 5). 4 Cost containment strategies embraced by managed care plans, coupled with increasing enrollment, produced a mostly one-time effect that helped to cut spending growth in the 1990s. 5 Combined with efforts to combat fraud and abuse in the Medicare program and the early impacts of the Balanced Budget Act 193 The authors are economists (Heffler, Levit, Smith, Smith, Cowan, and Freeland) and health insurance specialists (Lazenby) in the National Health Statistics Group, Office of the Actuary, Health Care Financing Administration. Levit is director of the group; Heffler and Freeland are deputy directors.

2 EXHIBIT 1 National Health Expenditures (NHE), Aggregate And Per Capita Amounts, And Share Of Gross Domestic Product (GDP), Selected Calendar Years NHE, billions Health services and supplies Personal health care Hospital care Professional services Physician and clinical services Other professional services Dental services Other personal health care Nursing home and home health Home health care b Nursing home care b Retail outlet sales of medical products Prescription drugs Other medical products Program administration and net cost of private health insurance Government public health activities Investment Research c Construction NHE per capita Population $ $ $1, , $1,14 1, , $1, , , $1, , , $ 1, , , $ 2,63 2, , $2,240.2 $3,379.5 $4,011.0 $4,164.0 $4,358.4 $4,681.2 $5,415.3 $8, GDP, billions of dollars $5,108.3 $6,642.3 $8,318.4 $8,790.2 $9,299.2 $9,987.3 $11,124.1 $16,616.3 Real NHE d $695.0 $943.8 $1,073.0 $1,110.2 $1,155.5 $1,224.2 $1,368.2 $1,840.5 Chain-weighted GDP index Personal health care deflator e NHE as percent of GDP 10.9% 13.4% 13.2% 13.0% 13.0% 13.1% 13.9% 15.9% SOURCES: Health Care Financing Administration, Office of the Actuary, National Health Statistics Group; U.S. Department of Commerce, Bureau of Economic Analysis; and U.S. Bureau of the Census. a Projected. b Freestanding facilities only. Additional services of this type are provided in hospital-based facilities and counted as hospital care. c Research and development expenditures of drug companies and other manufacturers and providers of medical equipment and supplies are excluded from research expenditures but are included in the expenditure class in which the product falls. d Deflated using GDP chain-type price index (1996 = 10). e Personal health care (PHC) chain-type index is constructed from the Producer Price Index for hospital care, Nursing Home Input Price Index for nursing home care, and Consumer Price Indices specific to each of the remaining PHC components (BBA) of 1997, this caused slower spending growth, predominantly through a drop in medical-specific price growth (Exhibit 6). Declines in price growth between and account for more than twothirds of the slowdown in spending growth. Between these intervals, growth in nonprice factors (utilization inclusive of quality, technology, and service mix) also slowed. Recent trends in utilization and prices suggest that restraints on care are subsiding. In the late 1990s consumers desire for more choice led to a shift in enrollment from health maintenance organizations (HMO) plans to less-restrictive preferred provider organization (PPO) and point-of-service (POS) plans. This shift was bolstered in part by strong growth in household income, which enabled consumers to afford the larger out-of-pocket payments associated with these plans. The tight labor market also led employers to use less restrictive plans to attract and retain employees. As a result, growth in utilization factors increased slightly in 1999 compared with H E A L T H A F F A I R S ~ V o l u m e 2 0, N u m b e r 2

3 EXHIBIT 2 National Health Expenditures (NHE), Average Annual Growth From Prior Year Shown, Selected Calendar Years NHE Health services and supplies Personal health care Hospital care Professional services Physician and clinical services Other professional services Dental services Other personal health care Nursing home and home health Home health care c Nursing home care c Retail outlet sales of medical products Prescription drugs Other medical products Program administration and net cost of private health insurance Government public health activities Investment Research d Construction NHE per capita Population 11.5% % % % % % % % Gross domestic product (GDP) Real NHE e Chain-weighted GDP index Personal health care deflator f SOURCES: Health Care Financing Administration, Office of the Actuary, National Health Statistics Group; U.S. Department of Commerce, Bureau of Economic Analysis; and U.S. Bureau of the Census. a Average annual growth between b Projected. c Freestanding facilities only. Additional services of this type are provided in hospital-based facilities and counted as hospital care. d Research and development expenditures of drug companies and other manufacturers and providers of medical equipment and supplies are excluded from research expenditures but are included in the expenditure class in which the product falls. e Deflated using GDP chain-type price index (1996 = 10). f Personal health care (PHC) chain-type index is constructed from the Producer Price Index for hospital care, Nursing Home Input Price Index for nursing home care, and Consumer Price Indices specific to each of the remaining PHC components the prior five-year period. From 1999 through 2002 overall spending is projected to accelerate, driven in part by rising provider costs, insurers inability to negotiate increasing price discounts as obtained in the period, and greater income growth. Growth in more restrictive health plans is expected to decline over the next few years as economic growth remains strong and the labor market remains tight. After 2002 we project a move back toward more restrictive health plans as economic growth slows, private health insurance premiums rise, and employers again search for ways to control costs. Between 2002 and 2010 we project medical price growth to stabilize at 4.2 percent per year, slightly above that of the managed care period but well below the rapid increases of the 1980s. Growing Prosperity Affects Payers Economic growth in recent years produced federal budget surpluses, moderate increases in employment, the lowest unemployment rate in almost three decades, and further in-

4 E X HIBIT 3 National Health Expenditures As A Percentage Of Gross Domestic Product, Calendar Years Percent Accelerated growth Managed care and BBA impacts: onetime effects on price and volume levels Moderate growth SOURCE: Health Care Financing Administration, Office of the Actuary, National Health Statistics Group. NOTE: BBA is Balanced Budget Act creases in consumer earnings. This prosperity resulted in a drop in the number of uninsured Americans in 1999 the first such decline since 1987 and an increase in the number of privately insured persons. 6 This latter number is projected to grow, although at a slower rate in the latter part of the projected period than in , when economic growth was most rapid. n Private health insurance. Insurance premiums increased faster in 1999 (6.5 percent) than in the period (5.0 percent annual average growth). Premiums accounted for $401.2 billion of health spending, compared with $355.3 billion for benefits paid (Exhibit 7). Spending for benefits rose by 6.6 percent in 1999, with increases in drug spending accounting for 33 percent of this rise. The net cost of insurance (the difference between premiums and benefits) as a percentage of total premiums (11.4 percent in 1999) remained relatively stable throughout the 1990s. We anticipate continued near-term acceleration in health insurance premiums 9.3 percent in 2000 and 10.5 percent in During these two years premium growth is projected to outpace benefit growth, driving the net cost as a percentage of total premiums up to 12.0 percent in n Medicaid and SCHIP. Between 1994 and 1998 Medicaid coverage declined from 10 percent to 8.4 percent of the nonelderly population, affecting about 1.9 million children and 1.2 million adults. 8 This decline was the result of strong job growth and the implementation of welfare-to-work policies that delinked Medicaid eligibility from eligibility for Temporary Assistance for Needy Families (TANF). 9 Following these changing Medicaid eligibility rules and a spillover effect from outreach efforts under the State Children s Health Insurance Program (SCHIP), total Medicaid spending accelerated in 1998 ( percent) and 1999 (8.9 percent). Medicaid spending is projected to grow less in than in 1999, in large part the result of slower growth in hospital spending as disproportionate-share hospital (DSH) caps are lowered. By 2010 Medicaid spending is projected to account for 16.8 percent of national health spending, up from 15.4 percent in Through SCHIP, a joint federal/state program, spending to provide insurance for children in low-income families also increased. Fifty-three separate SCHIP programs were operational during fiscal year 1999, up from thirty-nine in FY Coverage in these plans nearly doubled between December 1998 and December 1999, when more than two million children were enrolled. 10 Total spending for SCHIP in 1999 amounted to $2.5 billion, with federal funds accounting for almost 70 percent. By 2010 total expenditures for SCHIP are expected to be $14.7 billion. H E A L T H A F F A I R S ~ V o l u m e 2 0, N u m b e r 2

5 EXHIBIT 4 National Health Expenditures (NHE), Amounts And Average Annual Growth, By Source Of Funds, Selected Calendar Years NHE, billions $55 $88 $1,093.9 $1,14 $1,210.7 $1,311.1 $1,541.9 $2,63 Private funds ,458.4 Consumer payments Out-of-pocket payments Private health insurance Other private funds , Public funds ,179.0 Federal Medicare Medicaid c Other federal State and local Medicaid c Other state and local Average annual growth in NHE from prior year shown 11.5% 9.7% 5.4% 4.8% 5.6% 8.3% 8.4% % Private funds Consumer payments Out-of-pocket payments Private health insurance Other private funds Public funds Federal Medicare Medicaid c Other federal State and local Medicaid c Other state and local 15.3 d d d SOURCE: Health Care Financing Administration, Office of the Actuary, National Health Statistics Group. NOTE: Numbers may not add to totals because of rounding. a Average annual growth in b Projected. c Includes State Children s Health Insurance Program (SCHIP) expansion (Title XIX). d Not applicable; Medicare and Medicaid became effective in July Rapidly Rising Drug Spending Spending on prescription drugs rose 1 percent in 1999, to $100 billion. Total expenditures in this category are a small (9.4 percent in 1999) but rapidly growing portion of personal health spending. We expect this share to continue to rise over the next decade, with EXHIBIT 5 Percentage Of Health Plan Enrollments Among Employers With Three Or More Employees, Selected Survey Years Conventional Managed care PPO POS HMO 73% % SOURCE: L. Levitt et al., Employer Health Benefits 1999: Annual Survey (Menlo Park, Calif.: Henry J. Kaiser Family Foundation; and Chicago: Health Research and Educational Trust, 2000), 57. NOTES: PPO is preferred provider organization. POS is point-of-service plan. HMO is health maintenance organization. 27% %

6 EX HIBIT 6 Factors Accounting For Growth In Per Capita Personal Health Care Expenditures, Selected Periods Average annual percent change Utilization a Medical prices b SOURCE: Health Care Financing Administration, Office of the Actuary, National Health Statistics Group. a Includes quality and mix of services. As a residual, this factor also includes any errors in measuring prices or total spending. b Medical inflation is calculated using the personal health care (PHC) chain-type index constructed from the Producer Price Index for hospital care, Nursing Home Input Price Index for nursing home care, and Consumer Price Indices specific to each of the remaining PHC components. 198 drug spending increasing 12.6 percent per year on average, ultimately reaching 16.0 percent of personal health spending in n Spending drivers. Factors that propelled expenditures at double-digit rates since 1995 are likely to continue to drive drug spending over the next decade. Perhaps the most significant was proliferation of health plans with low copayments for coverage of drugs. Consequently, drug spending rose, as prescription sizes increased and as the proportion of people using medications grew. 11 Compounding this, an explosion of direct-toconsumer (DTC) advertising increased the demand for well-publicized drugs. As better therapies were produced, consumers substituted newer, higher-price drugs for less expensive ones. The high rate of growth in new brand-name products increases this substitution effect, and, conversely, the expiration of drug patents and more generic competition reduce it. In this vein, the expiration of several key patents by 2005 is expected to dampen price growth slightly. Since 1995 a steady shift toward health insurance plans with small out-of-pocket requirements for drugs has raised consumer demand. Corresponding growth in private health insurance payments reached 43 percent of prescription drug spending in 1999, compared with 27 percent in Public insurers also increased spending, as growth in Medicaid spending for drugs exceeded program spending growth in most years over the past decade. Increased third-party coverage reduced the out-of-pocket share of spending to 35 percent of all prescription drug purchases in 1999, down from more than half in Recently, third-party payers have attempted to slow growth in drug spending by providing incentives for consumers to use lower-cost drugs. These incentives, in the form of tiered payment schemes, incorporate different cost-sharing formulas for generic and brand-name drugs and for brand-name drugs on and off the formulary. By late 1999 nearly 70 percent of managed care plans carried three-tier prescription plans. 12 n Projections. We expect drug spending to rise by an anticipated 14.6 percent per year between 2000 and 2004 and a continued shift H E A L T H A F F A I R S ~ V o l u m e 2 0, N u m b e r 2

7 EXHIBIT 7 Expenditures For Health Services And Supplies, By Type Of Service And Source Of Funds, Calendar Year 1999 Health services and supplies (billions) Personal health care Hospital care Professional services Physician and clinical services Other professional services Dental services Other personal health care Nursing home and home health Home health care c Nursing home care c Retail outlet sales of medical products Prescription drugs Other medical products Program administration and net cost of private health insurance Government public health activities $1, , $ $ $ $ $ $ $ SOURCE: Health Care Financing Administration, Office of the Actuary, National Health Statistics Group. NOTE: Numbers may not add to totals because of rounding. a Includes other private funds. b Includes Medicaid State Children s Health Insurance Program (SCHIP) expansion (Title XIX). c Freestanding facilities only. Additional services of this type are provided in hospital-based facilities and counted as hospital care to tiered copayment systems to somewhat temper the growth in insurers costs. As a result, we project a slower rate of decline in the share of spending paid out of pocket over the next decade than was the case in The out-of-pocket share is expected to decrease to 32.5 percent in 2002 and 29 percent in This slower pace of change has the effect of slowing drug spending growth slightly in the latter years of the projection. Rising intensity of use per capita has accounted for a large portion of the growth in drug spending. Patients are using drug therapies for longer periods of time. Increased consumption of newer brand-name drugs compared with lower-price generics is also supporting the high rate of spending growth. Approximately two-fifths of 1999 drug costs and a quarter of 1999 prescription use were accounted for by drugs introduced since Estimates of new drugs in the pipeline suggest a continued rapid pace of new drug introductions over the next decade. 14 Our projection assumes a rate of new drug introductions well above the average for the 1980s to early 1990s but below the peak. Consumer demand also responded to increased drug company advertising. While growth in DTC advertising has been swift (40 percent in 1999), it remains a small portion (13

8 200 percent) of total promotional spending. 15 Manufacturers mostly target physicians with free samples (52 percent of promotional spending), detail representatives to hospitals and doctors offices (31 percent), and advertise in medical journals (4 percent). Although we feel that DTC advertising will continue to grow as a share of total promotional spending, we expect that it will have a smaller effect on drug spending growth over than it had during its initial surge in the late 1990s. n Drug prices. Drug prices are directly affected by market competition, and increased patent protection has pushed drug prices higher in recent years. New drugs that were approved between 1980 and 1984 had effective patent lives averaging 8.1 years, with no possibility of extending monopoly rights. For new molecular entities approved in the late 1990s, the base effective patent life has been revised to 9.5 years, and, with extensions, total estimated patent life may reach years. 16 Recently, drug price growth has slowed relative to the 1980s and early 1990s as measured by the Bureau of Labor Statistics (BLS) Consumer Price Index (CPI). This deceleration was caused partly by growth limits that the industry imposed in the mid-1990s in response to political pressure and partly by changes in the BLS methodology to capture the impact of brand-name drugs losing patent protection. 17 Additionally, the CPI does not reflect the initial effects associated with new products. For we expect drug price growth to slow, partially due to the nearly $27 billion of brand-name drugs with annual revenues of $200 million or more likely to lose patent protection during this period. 18 This compares with $15 billion likely to lose patent protection in For the last five years of the projection we anticipate that drug prices will grow at a rate above that of the For we expect drug price growth to slow, partially due to the nearly $27 billion of brandname drugs likely to lose patent protection during this period. period but below the large increases of the 1980s and early 1990s. The BBA Affects Providers n Home health. In the period home health care spending grew at an average annual rate of 18.9 percent. Renewed government efforts to detect fraud and abuse in Medicare began to slow growth in home health spending from 10.1 percent in 1996 to 2.8 percent in Beginning in 1998 the Medicare interim payment system mandated by the BBA had an abrupt impact on total home health spending. This payment system imposed more stringent cost controls on home health agencies until a prospective payment system (PPS) could be established. Freestanding home health agencies saw their Medicare funding drop 34.4 percent between 1997 and The home health industry s aggregate expenditure growth fell 3.0 percent in 1998 and another 1.4 percent in Since 1996 the decline of $ billion in Medicare spending for home health care was partly offset by increased Medicaid spending of $1.1 billion and $4.4 billion in total private funding. Individuals and their families and, to a lesser extent, private health insurance paid a higher share of home health services. Consumers out-of-pocket spending rose faster than overall home health spending beginning in 1996, reaching an all-time high of 27 percent of total home health spending in The implementation of the home health PPS in October 2000 is expected to bring stability to the industry over the projection period. In addition, the Balanced Budget Refinement Act (BBRA), passed in November 1999, postponed scheduled reductions in Medicare home health payments and increased per beneficiary limits beginning in FY As a result, Medicare home health spending is pro- H E A L T H A F F A I R S ~ V o l u m e 2 0, N u m b e r 2

9 jected to grow 12.4 percent per year from 1999 to 2004 and to account for nearly 28 percent of total home health spending by Private spending is expected to grow from 51 percent of home health spending in 1999 to 53 percent in 2010, as strong income growth in recent years makes home health care more accessible and affordable. n Nursing homes. Freestanding nursing homes continue their adjustment to the new Medicare PPS implemented in July Medicare spending growth slowed from 15.4 percent in 1997 to 6.5 percent in 1998, then fell 9.6 percent in As a result, industrywide spending growth decelerated from 6.5 percent in 1997 to 3.5 percent in 1998 and 2.3 percent in The new Medicare PPS, along with the industry s inadequate cost controls and previous rapid business line expansion that boosted capital costs, contributed to weakening operating margins and some chains filing for bankruptcy protection. 19 A slight increase in Medicaid funding in 1999 was not enough to alter this scenario. Consequently, consumers out-of-pocket share of nursing home spending increased in both 1998 and 1999, the first such two-year increase in out-of-pocket spending since The heavy dependence of the nursing home industry on public support prompted requests for increased funding. As a result, the BBRA increased Medicare payments for very sick patients in nursing homes and raised payments across the board for FY 2000 and FY Based on this law, Medicare spending for nursing homes is projected to grow 10.8 percent on average between 2000 and Similar to private home health spending, we anticipate that private nursing home spending will accelerate over the next few years as the lagged effect of income growth provides the ability to purchase more nursing home care, through both out-of-pocket spending and long-term care insurance. Health spending growth will continue at rates faster than the 1990s but slower than the previous three decades. n Hospitals. Hospital spending ($390.9 billion) increased by 3.7 percent in 1999, following growth of 2.6 percent in Hospital spending continued to fall as a share of personal health care spending, accounting for 37 percent in 1999, down from 41 percent in Medicare inpatient and outpatient hospital spending fell in 1998 and The BBA slowed the rate of increase for PPS hospitals and mandated payment adjustments in Medicare outpatient services. After Medicare spending on hospital care peaked at $124 billion in 1997, spending declined by $2.3 billion in 1998 ( 1.8 percent) as mandated cuts were absorbed, then was nearly unchanged ( 0.3 percent) in Almost half of the reduction in Medicare payments to hospitals between 1998 and 1999 can be attributed to BBA provisions affecting hospital-based home health care. In addition to BBA-specific impacts, Medicare inpatient spending fell as the average case-mix (reflecting the recorded average complexity of inpatient services) abruptly declined in 1998 and Although inpatient case-mix intensity normally increases somewhat each year as the treatment of less complex cases shifts to ambulatory settings, case-mix declined by 0.5 percent in each of 1998 and 1999, the first such decreases since the inpatient hospital PPS went into effect in FY These decreases were largely associated with changes in hospitals coding of admissions and appear to be related to the investigation of such practices by the U.S. Department of Justice. Medicare spending for hospital services is projected to return to a faster growth pattern over the next few years, in part because of the BBRA. The BBRA softened the impact of the BBA s changes on the nation s most vulnerable hospitals, adding support for graduate medical education, reducing cuts in Medicare payments to hospitals with a disproportionate share of indigent patients, and altering 201

10 202 some policies to help financially strapped rural hospitals. In addition, a resumption of historical case-mix growth is expected to boost M edicare inpatient hospital spending growth. Hospitals have been downsizing and consolidating over the past decade as declines in the number of community hospital beds accelerated. Community hospitals shed 31,000 beds between 1989 and 1994, and 72,000 beds through This occurred as managed care drove reductions in excess capacity and the move of services to ambulatory settings. Over the next ten years hospital spending is projected to become an even smaller share of personal health care spending, falling to 31 percent by Faced with changing constraints in the public sector and increasing competition from freestanding ambulatory surgical centers, hospitals successfully used their bargaining power in negotiations with insurance companies, boosting payments. 21 Recent producer price data for hospital costs paid by private payers reflect these increases. 22 Total hospital spending by all private sources increased by 4.7 percent in 1999, compared with growth of only 2.9 percent from public payers. The private share of hospital spending thus increased slightly to 41 percent in 1999, up from 39 percent in 1996 and Strong income growth from 1997 to 2001, higher hospital price growth, and the shift to less restrictive managed care plans are expected to boost private hospital spending growth in Over the latter part of the projection period private growth is expected to slow as income growth slows and the shift to more restrictive managed care resumes. Summary And Discussion The unprecedented patterns of slow spending growth and the stable health spending share of GDP characterize the recent historical estimates of national health spending. This sevenyear period has been marked by robust GDP growth, low economywide inflation, and one-time effects caused by the shift to restrictive managed care plans and by recent legislation affecting Medicare spending. Historical estimates for 1999 signal increasing spending growth, a major part of which was driven by spending for prescription drugs. If Congress makes no change to current law, our projections suggest that health spending growth will continue at rates faster than the 1990s but slower than the previous three decades. At the same time, GDP growth is projected to slow from its recent robust pace. The result is a projected return to a rising proportion of economic resources devoted to health care. If this projected trend eventuates, it will again present society with complex choices. Growth in private-sector health insurance premiums is once again approaching double digits. At the same time, a Medicare prescription drug benefit, while not included in these projections, is at the forefront of the political agenda. The nation has clearly expressed its desire for the best possible health care, including rapid development of new medical technologies, but has not yet determined how best to meet its substantial costs. Estimates were prepared by the National Health Account historical estimates and projections teams. The authors are grateful to Richard Foster, Sharman Stephens, and Cathy Curtis for their helpful comments. The opinions expressed here are the authors and do not necessarily represent those of the Health Care Financing Administration. H E A L T H A F F A I R S ~ V o l u m e 2 0, N u m b e r 2

11 NOTES 1. Several major conceptual revisions were incorporated with the data in this paper. Updated definitions and methodology are available at HCFA Data and Statistics, < stats/nhe-oact> (3 January 2001). Projections for Medicare are based on actuarial projections in the 2000 Annual Reports of the Board of Trustees of the Federal Hospital Insurance Trust Fund and the Federal Supplementary Medical Insurance Trust Fund, < Projections for Medicaid were prepared using actuarial assumptions consistent with those used to project Medicare. Demographic and economic assumptions drew from the 2000 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, < TR/index.htm>. 2. E. Seskin and D. Sullivan, Annual Revision of the National Income and Product Accounts, Survey of Current Business (August 2000): Adjusted by GDP chain-type price index. 4. L. Levitt et al., Employer Health Benefits 1999: Annual Survey (Menlo Park, Calif.: Henry J. Kaiser Family Foundation; and Chicago: Health Research and Educational Trust, 2000), M. Chernew et al., Managed Care, Medical Technology, and Health Care Cost Growth: A Review of the Evidence, Medical Care Research and Review (September 1998): ; L. Baker et al., HMO Market Penetration and Costs of Employer-Sponsored Health Plans, Health Affairs (Sep/Oct 2000): ; and J. Zwanziger et al., The Effect of Selective Contracting on Hospital Costs and Revenues, Health Services Research (April 2000): Y. Dreazen, Number of Uninsured Americans Drops as Benefits Jump in Tight Labor Market, Wall Street Journal Online Edition, <interactive. wsj.com/articles/sb htm> (subscriber access only, 29 September 2000). 7. B. Japsen, Health-Care Insurance Bills to Jump, Chicago Tribune, 22 October 2000; and J. Bryant, Health Costs Heading Higher in 2001, Atlanta Business Chronicle, 20 October J. Holahan and J. Kim, Why Does the Number of Uninsured Americans Continue to Grow? Health Affairs (July/Aug 2000): K. Levit et al., Health Spending in 1998: Signals of Change, He alth Aff airs ( Jan/Feb 2000): Department of Health and Human Services, State Children s Health Insurance Program (SCHIP) Status Report, 27 October 1999, < ( 5 December 2000). 11. Testimony of Stanley S. Wallack, executive director, Brandeis University, Schneider Institute for Health Policy Prescription Drug Analysis Group, before the Senate Committee on Health, Education, Labor, and Pensions, Factors Driving Prescription Drug Expenditure Increases (18 July 2000). 12. Scott-Levin, Managed Care Co-Pays: Higher and Higher; More HMOs and Pharmacy Benefit Managers Using Three-Tier Cost-Control Measures, press release, 2 August 2000, <www. scottlevin.com> (3 August 2000). 13. According to a major pharmacy benefit manager, Express Scripts, 1999 D rug T rends Repo rt, < drugtrend_choice.htm> (30 November 2000). 14. C. Mullins et al., The Impact of Pipeline Drugs on Pharmaceutical Spending (Presentation at BlueCross BlueShield/Health Insurance Association of America symposium, Washington, D.C., April 2000), <membership.hiaa.org/pdfs/ drugsymposium.pdf>. 15. IMS Health, IMS Health Reports U.S. Pharmaceutical Promotional Spending Reached Record $13.9 Billion in 1999, press release, 20 April 2000, < dispcontent/1,2779, ,00.html> (20 November 2000). 16. M. Hunt et al., Prescription Drugs and Intellectual Property Protection: Finding the Right Balance between Access and Innovation, Issue Brief (Washington: National Institute for Health Care Management Foundation, August 2000), Bureau of Labor Statistics, Measuring Price Change for Medical Care in the CPI, 7 July 1998, <stats.bls.gov/cpifact4.htm> (12 December 2000). 18. Lehman Brothers Global Equity Research, Large Capitalization Pharmaceuticals: Volume Growth to Propel Industry Despite Washington Concerns, U.S. Drug Industry: Rx Insight (18 January 2000), U.S. General Accounting Office, SkilledNursing Facilities: Medicare Payment Changes Require Provider Adjustments but Maintain Access, Pub. no. GAO/ HEHS (Washington: GAO, 1999), American Hospital Association, Hospital Statistics 2001 (Chicago: AHA, 2001), Merger activity declined slightly in 1999 compared to recent years of growing consolidation. Irving Levin Associates, Hospital Mergers, Acquisitions Drop in 1999, Healthcare Financial Management (1 April 2000): Bureau of Labor Statistics, Producer Price Index for General Medical and Surgical Hospitals, <stats.bls.gov/ppihome.htm> (11 December 2000). 203