THE FORGOTTEN SIDE OF THE HEALTH CARE SECTOR: NON-ACUTE CARE

Almost all attempts to address rising health care costs have focused on the provision of acute medical care in hospital settings-despite the fact that some 43 percent of total heath care costs in the U.S. are attributable to non-acute care (NAC).^[24] Only nursing home care, the single largest component of non-acute care, and home health care, the fastest growing component of NAC, have attracted any sustained interest on the part of policymakers, and because cutbacks on government reimbursements for these services are political dynamite, serious cost containment efforts have been lacking. Additional components of NAC include such diverse sectors as dentistry, over-the-counter drugs and sundries, optometry and other professional services, public health programs, and various administrative costs. Taken together, the average rate of rise for the entire non-acute sector has been about 6 percent in real terms over the last 10 or 15 years, a rate similar to that of the acute sector. It is this combination of rises in both acute and non-acute care that has led to the rise in health care's share of gross domestic product to a level of 14 percent in 1994.

The steep rate of rise in expenditures on non-acute health services may at first seem surprising, since the non-acute sector might be supposed less vulnerable than the hospital-based sector to the inflationary effects of technology. However, many other factors are having inflationary effects on non-acute care, and these factors may be as stubbornly resistant to containment as the advancing state of medical technology is. Ironically, one of the most important factors is an indirect fallout from the dramatic advances in acute care medicine. Because new medical treatments are improving control of many diseases but not providing a complete cure, the growing number of patients who live with chronic diseases is driving a corresponding growth in demand for non-acute care.

Based on research that I conducted along with Daniel Mendelson

and Kellie Mitra of the Lewin Group, a health care consulting firm, there appears to be no near-term prospect for a downturn in the rate of growth in NAC expenditures. To illustrate some of the factors that went into our analysis, the examples of nursing home care, home health care, dental care, and over-the-counter drugs are discussed below.

Nursing Home Care (18 Percent of NAC Spending) Nursing homes are being faced with sicker and sicker patients, as measured by the level of patients' functional impairment, limitations in their activities of daily living, and the number of services that need to be provided for them. This trend will continue in the coming years due to (1) patients being discharged earlier from hospitals, (2) the overall aging of the general population, and (3) the availability and viability of home care for the healthier patients. Also, payment policies of both private and public sector providers will increasingly encourage the use of nursing facilities in place of hospitals for sub-acute care, and the growing popularity of long-term care insurance will make extended nursing home care an option for more and more patients. Given these policies, as well as intense political pressures to sustain government funding under Medicaid, it is hard to envision expenditure increases slowing in the years ahead.

Home Health Care (6 Percent of NAC Spending) Because it is viewed as a cost-effective alternative to expensive acute and long-term nursing home care, spending on home health care has grown faster than spending in any other sector, increasing an average of 16 percent annually between 1980 and 1993. Growth has been particularly high between 1989 and 1993-some 23 percent annually-fueled by a combination of Medicare and private spending. Technological advances have stimulated the demand by allowing home care agencies to deliver high-technology care, such as parenteral/enteral nu-

tritional therapy, respiratory therapy, chemotherapy, intravenous administration, and hemodialysis. The growth in insurance coverage for home care and payment policies that shift care away from hospitals and nursing homes have also fueled spending growth.

Although the recent double-digit increases in home health care expenditures may represent a one-time spurt, the slowing of that growth in the foreseeable future is uncertain. The Health Care Financing Administration has estimated that home health spending will increase by only 7 percent annually between 1996 and 2002, but it is equally likely that the drive to discover cost-effective substitutes for inpatient care will continue to spur increases at a substantially higher rate unless regulations limiting reimbursement for services provided under Medicare and Medicaid are tightened.

Dentistry (10 Percent of NAC Spending) Although water fluoridation and improved dental care have resulted in a sharp drop in the incidence of dental caries, a variety of new dental services are taking up the slack in dentists' practices. Expanding areas of treatment include cosmetic dentistry, tooth implants, and the application of sealants and veneers. As growing numbers of older Americans retain their teeth longer, they will require additional dental care services. A continued expansion of dental insurance coverage will create an increased demand for services, which will translate into higher total costs.

Over-the-Counter Preparations (7 Percent of NAC Spending) More and more drugs are making the move from prescription to nonprescription status, resulting in steadily growing sales. Examples of prescription drugs that have recently become available over-the-counter include ibuprofen, hydrocortisone, cimetidine (Tagamet), and several antifungal agents. The number of drugs available over the counter is expected to grow in response to the increased interest of consumers

in self-medication. Like the substitution of non-acute care for acute care, the switch of a drug from prescription to OTC status may seem like a cost-saver but could actually add to total costs. Sales of a drug rise when patients can buy it without a prescription. The combination of an increased volume of sales and sometimes a higher price for the OTC product than for a generic version bought by prescription can cause total expenditures to rise.

The Outlook Non-acute care is a growth industry, and costs will continue to drive up total health care costs. It will continue to generate almost half of the nation's overall health care bill. Although the range of predicted rise, from 5 to 8 percent, is relatively wide, the basic conclusion seems clear that non-acute health care costs will continue to grow faster than inflation and that non-acute care will be just as resistant to effective cost control as the acute care sector.