The pace of growth in medical costs eased significantly in 2003, but still bounded well ahead of economic expansion, making it among the biggest burdens facing corporate America, a report released on Wednesday said.

A steep rise in hospital prices offset by a sharp slowdown in prescription drug spending growth fueled a jump in underlying medical costs of 7.4 percent, well below the 9.6 percent rise recorded in 2002, the study by the non-profit Center for Studying Health System Change found.

The report analyzed health care revenues to hospitals, doctors and for prescription drugs for privately insured individuals, compiled by research group Milliman USA for 2003.

Medical care costs continue to soar at more than double the rate of overall price inflation, with most of the costs borne by big employers and the federal government.

“I hate to hear the word ‘slowdown’ because it makes people think things are better,” said Helen Darling, president of the National Business Group on Health, whose members include Fortune 500 companies like Cisco Systems Inc. and Xerox Corp. that lobby on health cost issues.

“Nothing else in our businesses or the economy grows at this rate.”

Underlying medical cost trends are critical because they drive health insurance premiums, which rose by 13.9 percent in 2003, according to the Kaiser Family Foundation.

The United States spends twice as much on health care per capita compared to other rich countries. Health care spending is expected to comprise 18.4 percent of the gross domestic product over the next decade, up from 14.9 percent in 2002, government data show.

DRUG PRICES RISE MORE SLOWLY, HOSPITALS COSTS SPIKE

Hospital spending, which makes up the lion’s share of health costs, also accounted for 53 percent of the total increase in health spending in 2003.

In recent years, spending on prescription drugs has garnered headlines and the wrath of consumers.

But in 2003, prices for inpatient and outpatient hospital care rose 8 percent, after a 5.2 percent rise in 2002. That’s the biggest one-year increase since the government began tracking those figures, the study by the Washington, D.C.-based center said.

“Hospitals are struggling with a lot of pressures on the cost side that are driving up the prices they need - like wage pressures,” said Caroline Steinberg, a vice president at the American Hospital Association, a trade group that represents big nonprofit and for-profit hospitals.

Consolidation among hospital companies has given them the upper hand in bargaining with health insurers over prices in recent years, a trend found by the study and confirmed by industry experts.

“Hospital behavior in the past couple of years has really been unreasonable,” said Darling of the employers’ group, adding that some hospitals were “refusing to negotiate in some markets.”

Spending on prescription drugs, meanwhile, grew by 9.1 percent in 2003 - a significant slowdown from 13.2 percent in 2002 and the peak of 18.4 percent growth set in 1999.

Increased use of cheaper generic drugs, more cost sharing by patients, and patent expirations have contributed to that trend, the report said.

The study concluded that health costs are rising at a rate that employers will not continue to bear in the long term, co-author Paul Ginsburg said. “Employers don’t see this as sustainable,” he said. “This year’s results are not going to convince (people) that the affordability crisis is over.”