BALTIMORE--Due to a decline in the growth of prescription drug expenditures, national health spending slowed in 2004, according to a report released last week by CMS.

The report, issued annually by CMS' Office of the Actuary, was published in the journal Health Affairs. It shows the nation's health spending in 2004 increased 7.9 percent--the lowest growth rate in four years--to $1.9 trillion, or $6,280 per person. That compares to health spending increases of 8.2 percent in 2003 and 9.1 percent in 2002.

But the country's health spending still grew faster than wages and inflation and has reached its highest share yet of the gross domestic product at 16 percent, compared to 13.8 percent in 1992 and 9.1 percent in 1980. Moreover, health care costs from 1993 to 2004--the most recent year for which actual numbers are available--have doubled.

The report shows slower growth in prescription drug spending has contributed to slower overall spending growth over the past few years. In 2004, prescription drugs accounted for only 11 percent of the growth in national health care expenditures, smaller than its share of the increase in recent years. In addition, the rate of growth in prescription drug spending, at 8.2 percent in 2004, is slower in absolute terms than in previous years.

Prescription drug spending had accounted for 23 percent of the growth in personal health spending between 1997 and 2000, but by 2002-2004 it accounted for only 14 percent.

On the other hand, hospital spending accounted for 28 percent of the growth in personal health spending between 1997 and 2000 and increased to 38 percent by 2002-2004. Spending for physician services accounted for 29 percent of the total growth in personal health spending in 2004, up from an average 25 percent share in the 2000-2002 period.

In 2004, private payers played a greater role in slowing spending than public payers, the report showed. Private spending growth slowed to 7.6 percent in 2004 compared with 8.6 percent in 2003.

Federal, state, and local government spending for health care rose 8.2 percent in 2004. Public spending continues to be dominated by Medicare ($309 billion in 2004), whose growth rebounded in 2004 in part due to the Medicare Modernization Act, which raised payments for physicians, capitated health plans and rural and other providers. Combined with increases in the use of physician and home health services, these factors contributed to more than a 2-percentage point rise in Medicare spending growth to 8.9 percent in 2004.

Medicaid spending reached $291 billion in 2004, comprising 15 percent of national health spending. In contrast to the acceleration in Medicare's spending, Medicaid spending growth decelerated from 8.8 percent in 2003 to 7.9 percent in 2004, reflecting continued cost containment efforts from states that contributed to a marked slowdown in spending growth for prescription drugs.