Spending for physician and clinical services saw faster growth rates in 2023, rising by 7.6% and 7% respectively, according to a new AMA Policy Research Perspective report on health spending trends (PDF) for 2023.
“The faster growth is driven by increased utilization, as evidenced by the fact that—after adjusting for price changes—spending on hospital care, prescription drugs, and physician and clinical services all accelerated compared to the previous year,” said AMA economist Allen Hardiman, PhD, who wrote the report. Comparatively, spending on physician services and clinical services rose just 4.9% and 3.8%, respectively, in 2022.
This acceleration extends to other personal health care spending categories such as hospital care and prescription drugs, noted Hardiman.
Faster spending increases for hospital and physician services also boosted out-of-pocket spending, which rose by 7.2% in 2023, says the new AMA report, which examines trends in national health spending.
High rates of health insurance coverage may be driving out-of-pocket spending, noted Hardiman in an interview.
“With more people insured, they’re able to access health care services, but that also means they incur additional costs like co-pays and deductibles, which contribute to the increase in out-of-pocket spending,” he said. More out-of-pocket spending may also reflect a shift in the distribution of health care costs. People are spending more out-of-pocket and using more services because they have coverage, Hardiman said.
Highest spending rate seen in years
Overall, health care spending grew by 7.5% in 2023, compared with growth rates of 4.6% in 2022, 4.2% in 2021, 10.4% during the first year of the COVID-19 pandemic in 2020, and 4.4% in 2019.
Spending on hospital care rose by 10.4%, a big jump from 2022’s 3.2% growth rate.
“The rapid growth was primarily due to higher utilization of health care goods and services, along with high enrollment in private health insurance and Medicaid,” says the report.
The 7.5% growth in health care spending in 2023 is notable for two reasons, said Hardiman. Apart from the 2020 spike, this is the highest growth rate seen since the 8.5% spending spike in 2003. Secondly, for the first time since the start of the COVID-19 pandemic, the growth in health care spending outpaced economic growth, as measured by the 6.6% rise in gross domestic product.
A historically high 92.5% rate of health insurance coverage, coupled with higher consumption of health care goods and services, drove up spending in 2023.
Personal health care consumption accounted for 84.4% of total health spending in 2023. It grew by 9.4%, nearly doubling 2022’s 4.9% increase and representing the highest growth rate since 1990. Physician services made up 14.8%—or $721.7 billion—of total health spending, which also includes hospital care, prescription drugs, nursing and home health care, clinical services and other personal health care services.
Role of private health insurance
Buoyed by robust growth in direct marketplace enrollment and per-enrollee spending, private health insurance spending growth rose to 11.5% in 2023, the fastest growth rate since 1990. Private health insurance accounted for 30.1% of health spending, followed by Medicare (21.2%), Medicaid (17.9%), and out-of-pocket spending (10.4%).
Medicare spending over the past decade has shifted dramatically from traditional fee for service to Medicare private plans, which rose from 28.4% of all Medicare spending in 2013 to 52.5% in 2023.
Nevertheless, fee-for-service spending grew by 1.7% in 2023 after falling 1.4% in 2022, boosting Medicare’s overall spending growth of 8.1% in 2023.
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How trends may affect physicians
It’s difficult to assess how all these trends may affect physicians’ bottom line, said Hardiman.
Doctors are facing a fifth year of Medicare payment cuts, after Congress allowed a short-term bill that funds the federal government through Sept. 30 to include a 2.8% cut for 2025. After adjusting for the inflation in practice costs, Medicare payment to physician practices has dropped 33% (PDF) since 2001.
As health care utilization continues to rise among Medicare patients, the failure of Medicare physician payment to keep pace with inflation “may lead to increased financial strain on practices as they may struggle to cover the increasing operating costs as a result of increased utilization,” said Hardiman.
The significant shift toward Medicare private plans may also increase the financial burdens facing physician practices, especially those in rural areas with limited health care resources.
The AMA is leading the charge to reform the Medicare payment system, and has urged tying Medicare updates to the Medicare Economic Index (PDF), a measure of practice-cost inflation. Recently, the influential Medicare Payment Advisory Commission (MedPAC) has offered Congress a road map to move in this direction.
Dive deeper to learn how Medicare pay cuts:
