While health care costs jumped an average of 10 percent for privately insured Americans in 2001, spending on outpatient hospital care has now surpassed prescription drug spending as the fastest-growing segment of overall health care spending in the United States.

According to a study conducted by the Center for Studying Health System Change (HSC), spending on outpatient hospital care accounts for 37 percent of that overall increase while prescription drug spending accounts for 21 percent. This is the first time since 1995 that prescription drug costs didn't represent the largest portion of the overall 10 percent increase. Additionally, HSC reports that the growth in prescription drug spending has actually slowed for the second year in a row.

Bradley C. Strunk, one of the study's authors, says researchers hypothesize that prescription drug spending has declined due to:

• An increase in health plans' use of three-tier prescription drug co-payment schedules that force consumers to pay more for non-generic medications.

• A lull in the release of blockbuster drugs. Strunk says 2001 saw the lowest number of blockbuster drugs introduced to the market since 1994, a situation that the researchers believe is temporary as new drugs come down the research and development pipeline.

• A number of brand-name prescription drugs are coming off patent, most notably Prozac, an anti-depressant.

Increased hospital demand

Increased demand is fueling the surge in hospital costs, says HSC, due in part to consumers' rejection of gatekeeping HMOs in favor of plans that offer more choice of doctors and hospitals. However, HSC says this initial surge is likely to wane as employers continue to shift more of health care costs to workers, primarily through higher deductibles and higher drug co-payments. See Consumer driven health insurance gains momentum.

"Early evidence indicates that cost trends are slowing in 2002," says HSC. "The easing of cost trends may reflect the effects of increased cost sharing and the likelihood that much of the increased use of [hospital] services is probably a one-time consequence of the retreat from tightly managed care."